Guidance for the R&D Tax Credit

There are three levels of authority R&D tax credit providers use for identifying, claiming, and substantiating your R&D tax credits. Internal Revenue Code Federal tax law begins with the Internal Revenue Code (IRC). The IRC refers to Title 26 of the U.S. Code, commonly known as the IRS tax code. While the IRC is organized into multiple sections, Sections 41 and 174 provide the official guidance for identifying, claiming and substantiating the R&D tax credit. U.S. Treasury Regulations The U.S. Treasury Regulations provide the official interpretation of the IRC by the U.S. Department of the Treasury. In fact, the organization of the Treasury Regulations and the IRC are similar. For example, Section 41(b) of the IRC is 1.41-2 in the … Read More

Documentation Requirements for the R&D Tax Credit

In Treasury Decision 9104, the IRS surprisingly decided not to define or require specific documentation to substantiate an R&D tax credit claim. Instead, you’ll often see the IRS refer to § 6001 of the Internal Revenue Code which states that a taxpayer claiming a tax credit shall retain records in a sufficient manner. Needless to say, while documentation is important, guidance regarding documentation is lacking. Tax advisors start by looking at your accounting and financial systems to gather documents such as previous tax returns, payroll records and general ledgers. However, this information alone is not enough to calculate the R&D tax credit. Your tax advisor then begins to delve deeper into your projects while applying the four-part test understand if … Read More