According to our project partner, CTI, some specific examples of qualifying research activities that architecture and engineering firms have conducted in the course of business include, but are not limited to, the following:
- Experimentation with natural ventilation
- Energy analysis of exterior wall systems and building envelope
- Occupant thermal comfort conditions
- Exterior environmental effects
- Design criteria for spatial configuration
- Analysis of transient heat transfer for exterior building envelope
- Energy analysis of multiple skin wall
- Renewable energy systems performance analysis optimization
- Performance/cost analysis of PV system
- Solar energy design and daylighting analysis for temp regulation
- Heat transfer and dew point analysis of exterior wall
- Analysis for heat transfer coefficient various materials of walls
- Performance and cost analysis of photovoltaic system
- Life cycle cost analysis of building integrated photovoltaics
- Solar hot water system design and testing
There are also activities that do not qualify for the credit, and it’s important to know some of these examples up front before considering an R&D study:
- General capital expenditures
- Training
- Selling existing products
- Travel expenses and administrative expenses
- Routine data collection; routine quality control
- Marketing or market research
- Activity related to management function
- Reverse engineering
- Funded research (Grants and Contracts)
- Research outside of U.S.
Excluded Activities 41(d) (4)(c)
- Research after commercial production
- Adaptation of an existing business component
- Duplication of an existing business component
- Efficiency surveys
- Research in social sciences
As you can see, the Qualifying Research Expenses (QREs) must be related to new or untried experimentation in design. The research itself must not be funded, but done in the course of normal business activities. The firm assumes all rights and risks for the research.
The final test is defense and representation of an R&D tax credit claim with the IRS. Substantial claims are likely to receive an IRS query or audit. Strong data review, accurate calculation and documentation guidance by an experienced R&D study expert are critical steps to support your firm’s ability to claim this valuable federal credit.
Talk to the tax team at Cornwell Jackson about your potential R&D qualifying activities. We can review your data to discover qualifying research expenses and help you decide if an R&D study would be financially valuable for your firm.
Download the Whitepaper: Take Another Look at R&D Credit Qualification
Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience in both managing Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas. Contact him at gary.jackson@cornwelljackson.com.
