McGuire Sponsel worked with a defense and aerospace manufacturer to perform an R&D Tax Credit study to maximize benefit.

 

McGuire Sponsel worked with a leading packaging manufacturer to do both a current year and retroactive R&D Tax Credit study.

 

The R&D Tax Credit is one of the most subjective areas of the tax code. With the IRS placing more scrutiny on the R&D Credit, it is important to be aware of areas of exposure when building an R&D Credit claim.

A current trend in both federal and state R&D Credit examinations is increased scrutiny of business components under the §1.41-4(c)(3) Adaptation Exclusion. While the adaptation exclusion is not the only consideration to make when evaluating a potential R&D Credit claim, correct interpretation is a key point for building a defendable claim.

McGuire Sponsel conducted a four-year R&D tax credit study for an engineering firm that specializes in municipal wastewater and potable water treatment systems.

On January 3, 2022, the IRS issued temporary guidance to assist taxpayers with complying with the memo. This new information provides clarification on the R&D Credit refund claims process as well as information required to be included. 

The IRS recently released Chief Counsel advice memorandum 20214101F, which provides guidelines for the information that taxpayers will need to submit for a valid Sec. 41 Research Credit refund. This new requirement provides more clarity on how to successfully seek refunds on amended tax returns and helps legitimize retroactive research credit claims, but it is important to understand why this memo was released and what information is required to satisfy it.

In this episode, Dave McGuire sits down with David Seibel to discuss key changes from the recent IRS Guidance on R&D Tax Credit claims an dhow it will impact taxpayers claiming the credit.

The R&D Tax Credit is one of the most subjective areas of tax code. With the IRS placing more scrutiny on the R&D Tax Credit, it is important to be aware of areas of exposure when building a claim. Examining recently decided R&D court cases can help CPAs and their clients discover areas of improvement for R&D Tax Credit claims.

On October 15, 2021, the IRS released Chief Counsel advice memorandum 20214101F, which provides guidelines for the information that taxpayers will need to submit for a Sec. 41 Research Credit refund.

Client Snapshot

Logo
  • Defense/Aerospace Manufacturing

    Missouri

  • Company Profile

    Manufacture Aerospace/Maritime Components

  • Project Type

    Retroactive Study

  • Project Objective

    Tax Credit Realization

Defense/Aerospace Manufacturer

Client Profile
A company in Missouri manufactures aerospace and maritime components for the military. They have also expanded to a chemical processing plant to add further value for their clients. McGuire Sponsel was engaged to perform an R&D Tax Credit study for tax years 2018-2021 to maximize the credit amount for the company.

Process
Our R&D Tax Credit Services team utilized the company’s time tracking system to determine accurate percentages of qualified time, as well as including all applicable personnel. We performed detailed onsite fieldwork where we met with the client in their facility, interviewing various departments to get a better understanding of the company and their research and development process. Our process took about 3 months from start of engagement to sending a final report.

During the process, our team found that the formatting of the company’s time tracking made it difficult to analyze, but we were able to adjust and effectively determine an accurate percentage for qualified individuals.

Study Results
In 2018-2021, federal QREs totaled $7.7M resulting in a total effective credit amount of $498,647.

  • $7,712,935

    2018-2021 Total Federal QREs

  • $498,647

    2018-2021 Total Effective R&D Tax Credit Amount