SPOTLIGHTS:

Invest In Your Business With the

R&D Tax Credit

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In the current economic climate, it’s still surprising that more businesses don’t explore all of the tax incentives available to help lighten the financial burden by reducing a company’s tax liability, or in certain cases, offsetting payroll taxes.

ABGi USA provides R&D tax credit assistance for US businesses. ABGi USA has a proven track record of making successful R&D tax credit claims. They know what to claim, how to claim it and, perhaps most importantly of all, the many pitfalls to avoid.

   Background

The R&D tax credit is one of the government’s most generous incentives for rewarding a company’s efforts to innovate.

The principle is very straightforward and is a win–win scenario for both the US economy and eligible companies. If the government can make it easier for companies to invest in innovation, then it is more likely that these companies will undertake innovative projects to benefit their business growth and contribute to the economy’s future success and standing.

The good news is that since its launch, the benefits of the R&D tax credit have increased significantly, so there has never been a better time to make a claim.

   How can your business benefit?

The R&D Tax Credit applies to both profitable companies paying taxes and also companies not paying taxes due to losses. These companies are able to claim for eligible activities. The credit can be received as a reduction in tax liability or, in some cases, as a reduction in payroll taxes. Additionally, unused credits can be carried forward for up to 20 years.

   Does your business qualify?

The R&D tax credit can be confusing which is likely why so many companies fail to recognize their eligibility for tax relief. The R&D tax credit was created to benefit companies striving to achieve technical and scientific advances through projects that expand their knowledge, where uncertainty in the outcome exists, and the methods used to achieve success are not readily deducible.

The simplest way to finding out whether you may be eligible to claim is asking yourself some of the following questions:

    • Have we developed new products, processes, or software?
    • Have we tried to improve our existing products through technical changes?
    • At the start of a project, did we ever think, 'I'm not sure of the best way to do this'?

   How can you make a claim?

They key in achieving the best results is working with a specialized R&D tax credit advisory firm such as ABGi USA, who speaks the language of the IRS and understands your business operations. This collaboration ensures you receive the biggest return for the least possible effort.

   ABGi USA can help

    • ABGI USA employee a large team of scientists, engineers, and lawyers across all sector. Their technical and legal analysts are industry experts, who are equally knowledgeable when it comes to the extensive body of legislation that supports the credit. If you have eligibility no one is better equipped to find it for you.
    • Since its inception in 1985, ABGi USA has realised over $1 billion in benefits for its clients. Currently, we are submitting an average of 1,500 claims per year to the IRS.

For a free R&D tax credit consultation and analysis of the potential returns you might expect, contact the ABGi USA team by phone: (832) 495-4555 or by email: contact-usa@abgi-group.com

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August 2019

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SPOTLIGHTS:

R&D and the Architecture Industry: Building Freedom to Innovate

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Most companies within the architecture industry understand the amount of time and resources that go into creating innovative, customized designs and keeping up with the environmental codes and safety regulations which seem to change every year. What these architecture firms may not know is that this continuous process of developing new and innovative designs makes this industry a strong candidate for claiming the Research and Development (R&D) tax credit. This tax credit, more commonly known as the Research Tax Credit (RTC), was designed as an incentive for U.S. companies to conduct innovative activities, increase research spending, and keep jobs in America.

   Opportunity

With the RTC now being permanent, the timing has never been riper (pun intended) for winemakers to take advantage of these often-substantial credits:

    • The RTC provides a dollar for dollar reduction in a company’s tax liability;
    • In addition to current year tax savings, the credit can generate a refund of taxes previously paid for open tax years (generally the prior three years); and
    • The credit can be used as a carry-back for one year and a carry-forward for 20 years if your company does not have immediate utilization for these credits.

Furthermore, the rules for calculating and claiming the RTC have recently become more taxpayer-friendly. Meaning, if your winery or vineyard has looked into the RTC in the past but was worried about stringent qualification standards or the difficulty of the calculation itself, these recent changes should make you take another look:

    • The Alternative Simplified Credit (ASC) method can now be elected on amended returns instead of only on original-filed returns. Introduced in 2006, the ASC is equal to 14% of total qualified research expenses that exceed 50% of the average qualified research expenses for the three preceding taxable years. This method is less complicated than the “regular credit” calculation created in 1981 and does not rely on antiquated data.
    • The definition of prototypes has been more clearly defined and made easier to qualify. This is often where you will find opportunities for a large portion of qualified research expenses.
    • There are new definitions to clarify the definition to Internal Use Software.

In addition to the federal RTC, over 35 states have an R&D incentive program. These state credits typically follow federal regulations but have different tax rates and utilization methods. As such, taxpayers can benefit from both federal and state R&D credits to minimize their tax liability and be paid to innovate while growing their local economy.

   Qualifications

There is a common misconception that R&D only occurs in laboratories of high-tech research facilities, but the definition of R&D activity is quite broad and includes multiple industries and types of activities. The RTC utilizes a four-part test to determine what constitutes a qualified research activity (QRA):

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THE FIRST PART OF THE TEST IS THAT THE ACTIVITY MUST RELATE TO A NEW OR IMPROVED PRODUCT OR PROCESS RELATING TO FUNCTION, PERFORMANCE, RELIABILITY, OR QUALITY.

Almost everything an architecture firm creates is customized and highly innovative. From designing single family homes to developing full-scale commercial buildings, architecture firms are constantly finding new ways to create unique and functional yet energy-efficient designs. Activities related to the design and development of new or improved designs are referred to as business components.

THE SECOND PART OF THE TEST REQUIRES THE ELIMINATION OF A TECHNICAL UNCERTAINTY

This means the activities must be intended to discover information to eliminate uncertainty concerning the capability, methodology, or appropriateness of design for developing or improving a product. Architecture firms are presented with many uncertainties throughout the entire design and development process. These uncertainties typically revolve around the final design or the ideal methodology of development. For example, almost every structure or space created requires a new design and must satisfy specific functionalities and capabilities. Even if you have an initial conceptual idea for the design, certain spatial constraints or design requirements may lead to design changes or improvements in the final product. Additionally, LEED and other environmental requirements are constantly evolving. This may lead to uncertainty regarding the capability and methodology of efficiently integrating energy efficient equipment and materials into the design while also satisfying customer requirements.

THE THIRD PART OF THE TEST REQUIRE A PROCESS OF EXPERIMENTATION

This means that the architecture firm must engage in a technical process that analyzes one or
more alternatives to achieve a result. Don’t let this test scare you off by envisioning lab coats and beakers! Although those types of activities certainly constitute a process of experimentation, this test includes anything from developing multiple design iterations to computer modeling and conducting simulations. The key here is the evaluation of alternatives:

  Did you analyse multiple designs?

  Did you utilise computer simulations to determine weaknesses in a design and then improve upon that?

  Did you evaluate different types of materials and/or equipment models in order to satisfy both environmental parameters and customer requirements?

  Did unanticipated site changes or customer specifications require you to generate new conceptual or schematic designs?

Architecture firms typically have a defined and formal process of experimentation – including a conceptual or schematic design phase, a design development phase, and a construction document phase. During the early conceptual or schematic design phase, you may undertake an iterative design process in which you create and evaluate multiple design options in the form of sketches, drawings, and diagrams. During the design development phase, you may evaluate alternative drawings utilizing computer modeling or conduct testing to determine the optimal material to be used. During the construction documents phase, you may continue to evaluate and improve the drawings and designs based off the site’s unique requirements and features. All of these activities include a process of experimentation.

If you can answer “yes” to any of these questions, then your winery is most likely undergoing a process of experimentation! As you go through your development process, you will certainly evaluate various ways of finding a technical solution.

FINALLY, THE FOURTH PART OF THE TEST REQUIRES THAT THE ACTIVITY PERFORMED MUST BE TECHNOLOGICAL IN NATURE, FUNDAMENTALLY RELY ON PRINCIPLES OF CHEMISTRY, PHYSICAL OR BIOLOGICAL SCIENCE, ENGINEERING, ETC.

This is an easy one. Architecture firms are continuously utilizing the principles of hard sciences such as architectural engineering, structural and civil engineering, and materials sciences in order to design and develop new or improved structures. For example, did you evaluate multiple materials to determine which could satisfy functionality and performance requirements? Did you conduct seismic testing and modeling to ensure the building would be structurally sound given certain environmental conditions? Maybe you evaluated multiple designs to determine the optimal dimensions and measurements of each room given certain spatial constraints. The examples of qualified scientific principles for this fourth test are endless.

   Credits

So now that we have identified your qualified research activities, how does that translate into tax credits? These activities generate qualified research expenditures (QREs) that fall into one of three buckets: wages, supply costs, and contractor costs.

WAGES – this consists of qualified wage expenses, identified through direct wages of technical employees or primary research personnel (along with support or supervisory personnel) who affect the research. For architecture firms, this can include architects, progect managers, drafters, and even interns assisting with design work.

SUPPLY COSTS – this consists of items used or consumed in the research and experimentation process. This can include materials utilized in the creation of a prototype component or costs associated with equipment that has been modified specifically for a new product or process. Due to the nature of their work, architecture firms do not typically have qualified supply costs.

CONTRACTOR COSTS – these are comprised of payments made to a third party to perform qualified research along with fees paid to consultants or outside testing firms. Examples for the
architecture industry include any costs associated with utilizing third party structural engineers.

   ABGi USA can help

    • As you can see, there are numerous opportunities for architecture firms to take advantage of a benefit that has been around since the early 1980s
    • Our ABGI technical teams are skilled at identifying existing and new potential areas of Qualified Research Expenses (QREs) while simplifying the process by employing a methodology that includes building the nexus between RTC activities and costs to eligible projects while minimizing invasiveness to the client. Since its inception in 1985, ABGi USA has realised over $1 billion in benefits for its clients. Currently, we are submitting an average of 1,500 claims per year to the IRS.

For a free R&D tax credit consultation and analysis of the potential returns you might expect, contact the ABGi USA team by phone: (832) 495-4555 or by email: contact-usa@abgi-group.com

Author Information:
Emily Schwarze is an RTC Associate at ABGI USA. Emily has helped companies identify R&D opportunities in a variety of industries, including manufacturing and A&E. Emily has a degree in Chemical and Biological Engineering from the University of Alabama. When not helping companies reduce their tax liability, she enjoys travelling, playing tennis, and cheering on The Crimson Tide.

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August 2019

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SPOTLIGHTS:

R&D and the Beer Brewing Industry: Time to Refill Your Pint!

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The beer market is a multi-billion dollar industry in the U.S. that is only expected to grow more in the coming years. The industry continuously demands high quality beers, new recipes, and improved ingredients. The processes involved in malting, mashing, fermenting, bottling, and aging the beer make this industry a strong candidate for claiming the Research and Development (R&D) tax credit. This tax credit, more commonly known as the Research Tax Credit (RTC), was designed as an incentive for U.S. companies to conduct innovative activities, increase research spending, and keep jobs in America.

   Opportunity

Most beer brewers do not realize that tax benefits exist to reward the innovative methods and processesthat go into brewing and crafting new beers. The time and resources invested to ensure your beer remains both competitive and in high demand without compromising on the beer’s quality are very technical and complex. These processes include developing new beer recipes, experimenting with unique ingredients, evaluating various brewing techniques such as roast time and hops varieties, and improving the quality of already existing beer recipes.

With the RTC now being permanent, the timing has never been better for brewmasters to tap this keg and pour some of these often-substantial credits for themselves:

    • The RTC provides a dollar for dollar reduction in a company’s tax liability;
    • In addition to current year tax savings, the credit can generate a refund of taxes previously paid for open tax years (generally the prior three years); and
    • The credit can be used as a carry-back for one year and a carry-forward for 20 years if your company does not have immediate utilization for these credits.
    • For small businesses grossing less than $5 million in receipts, the credit can be refunded up to the lower of $250,000 or what the company has paid in social security payroll taxes.
    • There is bipartisan legislation in the works that would expand the small business eligibility to cap to $10 million and raise the refund cap to the lower of $500,000 or all payroll taxes paid.

Additionally, the rules for calculating and claiming the RTC have recently become more taxpayer-friendly. Meaning, if your winery or vineyard has looked into the RTC in the past but was worried about stringent qualification standards or the difficulty of the calculation itself, these recent changes should make you take another look:

    • The Alternative Simplified Credit (ASC) method can now be elected on amended returns instead of only on original-filed returns. Introduced in 2006, the ASC is equal to 14% of total qualified research expenses that exceed 50% of the average qualified research expenses for the three preceding taxable years. This method is less complicated than the “regular credit” calculation created in 1981 and does not rely on antiquated data.
    • The definition of prototypes has been more clearly defined and made easier to qualify. This is often where you will find opportunities for a large portion of qualified research expenses.

In addition to the federal RTC, over 35 states have an R&D incentive program. These state credits typically follow federal regulations but have different tax rates and utilization methods. As such, taxpayers can benefit from both federal and state R&D credits to minimize their tax liability and be paid to innovate while growing their local economy.

   Qualifications

There is a common misconception that R&D only occurs in laboratories of high-tech research facilities, but the definition of R&D activity is quite broad and includes multiple industries and types of activities. The RTC utilizes a four-part test to determine what constitutes a qualified research activity (QRA):

smaller graphic

THE FIRST PART OF THE TEST IS THAT THE ACTIVITY MUST RELATE TO A NEW OR IMPROVED PRODUCT OR PROCESS RELATING TO FUNCTION, PERFORMANCE, RELIABILITY, OR QUALITY.

This is anything ranging from the development of a new beer recipe to implementing an improved manufacturing process that minimizes scrap product within the brewery. With every new emerging brewery, brewmasters are under intense pressure to continuously improve the quality of the beers they produce, requiring heavy investment in product development and testing. Activities related to making new beers, improving upon existing beers, or launching process improvements are referred to as business components.

THE SECOND PART OF THE TEST REQUIRES THE ELIMINATION OF A TECHNICAL UNCERTAINTY

This means the activities seek to discover information to eliminate uncertainty concerning the capability, methodology, or appropriateness of design for developing or improving a formula, product, or process. As a brewmaster, there are many challenges presented throughout the entire beermaking process. For example, unexpected chemical changes during the brewing process or microbial contamination may put you back at square one, requiring the testing process to start completely over. Or perhaps there is uncertainty whether the brewery is capable of making the beer because it is not equipped with the proper storage or measuring equipment to successfully control the precise variables in making certain types of beer. As an expert in the industry, you may have an initial conceptual idea for how to make a new beer, but certain constraints or inefficiencies are discovered during development which lead to changes and improvements to the final product. Lastly, food and beverage regulations place additional challenges to ensure compliance and/or improve shelf-life.

THE THIRD PART OF THE TEST REQUIRE A PROCESS OF EXPERIMENTATION

This means that the brewmaster must engage in a scientific process that analyzes one or more alternatives toachieve a result. Don’t let this test scare you off by envisioning lab coats and beakers! Although those types of activities certainly constitute a process of experimentation, this test includes anything from conducting yeast trials, testing scale-up methodologies, experimenting with new ingredients, evaluating various filtration techniques to prevent beer contamination, and testing different fermentation methods. The key here is the evaluation of alternatives:

  Did you develop prototype batches?

  Did you experiment with new ingredients to create a specific flavor profile?

  Did you attempt more than one mixing technique?

If you can answer “yes” to any of these questions, then your winery is most likely undergoing a process of experimentation! As you go through your development process, you will certainly evaluate various ways of finding a technical solution.

FINALLY, THE FOURTH PART OF THE TEST REQUIRES THAT THE ACTIVITY PERFORMED MUST BE TECHNOLOGICAL IN NATURE, FUNDAMENTALLY RELY ON PRINCIPLES OF CHEMISTRY, PHYSICAL OR BIOLOGICAL SCIENCE, ENGINEERING, ETC.

This is an easy one. This is an easy one. Brewmasters are continuously using the principles of chemistry, food science, industrial engineering, and mechanical engineering to make and test new beers. For example, did you conduct an analysis of the beer’s chemical composition in a lab? Did you analyze the scale up requirements to take a recipe from small batch to large batch production? Maybe you evaluated your formulation to ensure there would be no microbial contamination. Any of these actions demonstrate your reliance on hard science principles.

   Credits

So now that we have identified your qualified research activities, how does that translate into tax credits? These activities generate qualified research expenditures (QREs) that fall into one of three buckets: wages, supply costs, and contractor costs.

WAGES – this consists of qualified wage expenses, identified through direct wages of technical employees or primary research personnel (along with support or supervisory personnel) who affect the research. For breweries, this can include Senior and Assistant brewmasters, chemists, and any personnel providing direct support to those employees (such as brewers and lab technicians.

SUPPLY COSTS – supplies consist of items consumed in the research and experimentation process. This would include the materials (batch costs) used throughout the trial-and-error process when testing new formulations and ingredients.

CONTRACTOR COSTS – these are comprised of payments made to a third party to perform qualified research along with fees paid to consultants or outside testing firms. An example in the beer industry would be any costs associated with utilizing a third party to provide certain tests on a new product or equipment as required by a regulatory body.

   ABGi USA can help

    • As you can see, there are numerous opportunities for breweries to take advantage of a benefit that has been around since the early 1980s
    • Our ABGI technical teams are skilled at identifying existing and new potential areas of Qualified Research Expenses (QREs) while simplifying the process by employing a methodology that includes building the nexus between RTC activities and costs to eligible projects while minimizing invasiveness to the client. Since its inception in 1985, ABGi USA has realised over $1 billion in benefits for its clients. Currently, we are submitting an average of 1,500 claims per year to the IRS.

For a free R&D tax credit consultation and analysis of the potential returns you might expect, contact the ABGi USA team by phone: (832) 495-4555 or by email: contact-usa@abgi-group.com

Author Information:
Matthew Rumsey is an RTC Associate at ABGI USA. Matt has helped companies identify R&D opportunities in multiple industries, including architecture firms and technology companies. Matt is currently pursuing his CPA license, and with more than 2 years of public accounting experience, Matt has the proficiency required to analyze and apply the R&D credit within its technical, legislative, and regulatory framework.

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SPOTLIGHTS:

5 Common Myths About the

R&D Tax Credit

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Despite an overall increase in R&D tax credit claims by US businesses, many companies are still not reaping the full benefits of the RTC.

By far, the main reason for companies having some resistance to understanding how the R&D tax credit can benefit their business, is the idea that they are probably not eligible.

SO, IT’S TIME TO VENTURE FORWARD AND DISPEL SOME OF THOSE R&D TAX CREDIT MYTHS!

   1. You're not eligible for R&D tax credits unless you wear a white coat and work in a laboratory.

MYTH! Companies from multiple sectors can be eligible for R&D tax credits - from biotechnology (where they may wear lab coats) to manufacturing, software, food and agriculture, engineering, renewable energy and more. If you are working in a hard science and face technical uncertainty in how to do achieve a specific objective, you could very well be doing R&D.

   2. You can only claim for successful projects.

MYTH! You can claim R&D tax credits for any eligible R&D project whether there was a successful outcome or not. In fact, failure can be a good sign of eligibility - what can be more uncertain than a seemingly impossible project?

   3. You can only claim for your current financial year.

MYTH! You can make a retroactive claim for any open tax years if the statute of limitations has not passed. This means companies new to the tax credit can still go back and claim for older projects rather than missing out.

   4. Claiming R&D tax credits is hard.

MYTH! Ok, sort of a myth. It can be a complicated process that requires knowledge of your business operations (easy for you!) but also an in-depth knowledge of the R&D tax credit legislation and case law, US Treasury Regulations, and the ever-changing tax code (not so easy!). But you can cut out the difficult part by enlisting the help of an R&D tax credit expert who can take on the hard work and complications for you.

   5. All R&D tax credit experts are the same

MYTH! Ok, sort of a myth. It can be a complicated process that requires knowledge of your business operations (easy for you!) but also an in-depth knowledge of the R&D tax credit legislation and case law, US Treasury Regulations, and the ever-changing tax code (not so easy!). But you can cut out the difficult part by enlisting the help of an R&D tax credit expert who can take on the hard work and complications for you.

Speak to ABGi USA

    • ABGi USA is a leading R&D tax credit specialist, guiding companies through the complexities of submitting claims to CPAs, the Big 4, and the IRS
    • ABGI USA's team of legal and technical experts is equipped with legislative and technical background as well as years of industry experience. This combined expertise has resulted in an extremely high success rate in securing R&D tax credit for their clients. Since its inception over 30 years ago, ABGi USA has realised $1 billion in benefits for their clients.

For a free R&D tax credit consultation and analysis of the potential returns you might expect, contact the ABGi USA team by phone: (832) 495-4555 or by email: contact-usa@abgi-group.com

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August 2019

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Have a question? We’re happy to help!