Section 41 and 174 Research and Development
Ease the Burden of Documentation by Implementing and Standardizing a Front-end Data Collection Process
In our October newsletter, we discussed the potential benefits of using the Simplified Alternative Credit calculation. Whether your organization moves in that direction or remains on the base year calculation method, improving the process of collecting contemporaneous documentation can greatly ease the burden and cost often incurred when looking back in time to collect the necessary R&D related information.
Qualified Research is being conducted in a number of areas within most electric utilities. But how much of this activity is actually being identified, documented and claimed? A front-end data collection process can assist your tax group in maximizing the R&D identified and claimed while minimizing the cost of documenting. Here are a few focus areas in implementing such as process:
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Move the project review process to the beginning of each year.
Identify the likely candidate R&D projects prior to the initiation of the project. Include these analyses in the budget process. Working with the engineering department(s) to understand their long-term project plan and the vendors associated with these projects that will provide R&D related activities.
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Build R&D language into contracts and invoices.
As part of your contract negotiation and procurement activities, work with project management or procurement specialists to build the appropriate R&D language into contracts and require the necessary invoice detail to substantiate R&D costs.
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Track and verify invoices and payments on a monthly basis.
Since most vendors invoice at least monthly, work with project managers and/or to manage invoices either manually or through your accounting systems to flag invoices containing R&D related activities.
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Work with project managers to track project performance monthly.
In addition to gathering technical documents and reports, project managers maintain project meeting logs and status reports that can provide additional detail into the R&D activities being conducted. Even if this information is not available, conducting a brief interview each month can provide an extremely conclusive trail to the R&D activities, expenses and personnel involved in the R&D.
While not every R&D dollar will likely be captured in any process used, a front-end process can assist your tax group in better understanding and more cost effectively documenting the major R&D initiatives ongoing in your organization.
More on BCP
BCP is an engineering services firm with 26 years of engineering experience and know-how. Over the last six years, we have developed a unique approach to R&D and an experienced team of R&D engineers and professionals that work for and with your tax group to provide complete and accurate technical substantiation for your R&D claim.
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