What is the US R&D Tax Credit?

The Research and Development (R&D) tax credit was created by Congress as part of the Economic Recovery Tax Act of 1981 to encourage American industry to invest in research and development activities. The purpose of the credit was to stimulate R&D activities among businesses through tax incentives.

Benefits to Clients

• Millions of dollars in tax credits, resulting in cash back from the IRS for previous open tax years
• $1 for $1 reduction on current year’s tax liability
• Additional tax savings in future years
• Carry-forward up to twenty (20) years

Who can use it?

• Manufacturing
• Fabrication
• Engineering
• Software Developers
• Chemical
• Tool and Die
• Machine Shops
• Plastics Manufacturers
• Pharmaceutical
• Biotechnology
• Food Sciences/Manufacturers

R&D Tax Credit Engineering Study

Paradigm offers affordable pricing and flexible payment arrangements to their clients. We work in collaboration with the client and CPA firm to understand their needs and their ROI via this program.

Our turnkey package includes:

• Interviews
• Credit Calculations, Detailed Timesheets and Summaries
• Engineering Report
• R&D Audit Defense at no additional cost
• Support level for CPA

Why use Paradigm?

• Our staff includes engineers and IP attorneys with an engineering background as required by the IRS
• We use the Comprehensive Project by Project Approach methodology to conduct our studies as required by the IRS
• We provide free audit defense
• We use a two phase approach to minimize the risk to our clients

Five Questions to ask when choosing a Consulting Firm

In your due diligence in selecting a consulting firm to perform your R&D Study, make sure the firm has the following attributes:

1. Does the firm employ engineers?

Ask for the biographies of the individuals on their production staff and determine if each individual involved with your Study is either an intellectual property attorney with an engineering background, or an engineer.

2. Does the firm use the Comprehensive Project-by-Project Methodology?

Ask if the firm will utilize the comprehensive project-by-project methodology as well as establish a detailed “nexus” of Qualified Research Expenditures to Qualified Research Activities. One of the IRS’s biggest concerns is that some companies’ “engineering” reports are in fact written by individuals with no engineering or scientific background and that “no nexus” is established between a company’s qualifying expenditures and qualifying activities. Their documentation should directly connect the project to the employee and the estimated time spent on that project to each of the years under engagement. It is the most thorough methodology accepted by the IRS today.

3. Does the firm assume most of the risk?

To begin a project, most firms will ask to bill by the hour (sometimes with a cap) or sell on a lump fixed fee. This approach carries too much client side risk because there are too many variables that simply cannot be foreseen at the beginning of the project. Choose a firm that is willing to assume most of that risk and for a nominal fee to answer all of those variables by determining the following:

• What your credits actually are, per year
• What your exact utilization of those credits will be
• What your base % is and whether that affects your utilization

4. Does the firm include Audit Review as part of their fee?

Since the IRS has elevated R&D Studies to a Tier One issue, there is a greater chance for an audit and the onus is on the taxpayer to substantiate their credits. It is imperative that the consulting firm you choose be willing to accept the risk of an audit should it occur and include the audit review as part of their fee. They would do this only if they felt confident enough that their numbers were correct and their Engineering Report could withstand the scrutiny of the IRS Auditors. Otherwise, you have an open ended situation where you will have to pay that firm or legal counsel on an hourly basis.

5. Does the firm have references to call?

Always ask for references and preferably those in your industry.

For more information, use our contact us form or call Karim Solanji at 281-558-7100.