Research and Development Tax Credit Symposium: Documentation Methodologies

By April 11, 2018R&D Tax Credits
Using Documentation Methodologies to Optimize your Research and Development Tax Credit
A large part of Indago’s job is assessing each client’s unique situation and determining the appropriate methodology to document their development process at the outset of a project. There are a few ways in which the process of identifying the benefits from your R&D Tax Credit can be simplified.

Documentation challenges are the most controversial area of an audit, however this challenge can be combated by developing a unique plan for each client at the outset. First and foremost, Indago will try to establish a methodology for gathering project documentation in tandem with the development process. A way to go about this would be asking about project documentation early and often, in real time interviews when concepts are initially discussed. When gathering these documents we will establish expectations early and be transparent about the use of them. At Indago, it is important to us that we help develop a project approach that makes the most sense to each client and provides the easiest way to determining your Research and Development Tax Credit.

In some instances, when a complete enumeration of projects would be too burdensome for the taxpayer and the available data is too voluminous, statistical sampling can provide a viable solution. Revenue procedure 2011-42 provides authority that allows for the broad use of statistical sampling to establish federal tax positions. Statistical sampling can be utilized in a variety of ways to substantiate an R&D Tax Credit study. The most common ways to utilize this methodology are to statiscally sample projects or employees. This allows company’s to essentially perform a data dump that can be vetted through as an original population. From here, degreed statisticians will work with your tax professionals to create a smaller, more focused project list that will represent all the qualified activities being undertaken by the company. Statistical sampling is an efficient, cost effective way to assess each client’s qualified activities. In some instances, statistical sampling can provide nexus between employees and projects which creates a more defensible position from an audit perspective. There are several different sampling methodolgies, each of which can be assessed depending on the clients specific situation and record keeping system.

Indago has an efficient, stream-lined process and will work closely with your company in order to forsee the best options for assessing each client’s QRA’s. For more information on your company’s Research and Development Tax Credit, visit our website.
Stay tuned for our next post: “Grappling with the Most Difficult Research and Development Tax Credit Issues