Manufacturing and machine tool clients often qualify for Research and Development (R&D) Tax Credits through internal optimization or new product development for customers. Contract manufacturers and machine tool companies are approached by other companies and asked to produce a component, part, or product. A contractor manufacturer generally provides feedback to their customer regarding the design. This feedback is provided to optimize the part designed and simplify the manufacturing process, known as design for manufacture. McGuire Sponsel works with a large volume of “tool and dye” shops that are great candidates to claim the R&D Tax Credit.
Development can also occur internally when a company identifies the need to develop a new process for an existing product. There are many things to consider when conceptualizing a product such as determining cycle time, discovering the optimal sequence of operations, and meeting internal and external tolerances and specifications. Our team has experienced more internal development as technology is integrated into production lines. Time is spent in configuring the machines and fine-tuning the process to create an efficient production cycle. McGuire Sponsel’s professionals spend time learning the daily operations of the client to build a sustainable, yet maximized benefit.
In addition, manufacturers that export product to a foreign country (including Mexico and Canada) are candidates for IC-DISC. Our team assists in setting up and maintaining the IC-DISC while maximizing the benefit by performing a detailed annual transaction-by-transaction analysis.
Success Story: Automotive Parts
A Tier I automotive part manufacturer engaged McGuire Sponsel to conduct a four-year R&D Credit study. After on-site fieldwork and extensive analysis of financial data and project documentation, McGuire Sponsel was able to calculate federal tax credits totaling more than $570k for the four-year period in addition to $78k in state credits. One of these tax years was audited by the IRS which ultimately resulted in no change to the credits claimed.
Success Story: Battery Testing Equipment
A company that specializes in designing and manufacturing battery testing equipment engaged McGuire Sponsel to conduct a study for an originally filed return. In addition, McGuire Sponsel was engaged to examine the R&D claims that were made over the previous three years for this company to determine if there were additional expenses and credits that could be obtained. McGuire Sponsel conducted on-site interviews with key technical personnel to determine which projects and expenses could be classified as R&D under Code Section 41. Through the interviews and the review of contemporaneous documentation and records, McGuire Sponsel was able to classify over $6.5M wage, supply, and contract research costs as qualified over the four-year period, generating credits over $637k. When compared with the amounts claimed on the previous three returns, McGuire Sponsel was able to classify an additional $3.1M in QREs and $314k in credits.