R&D Credit: Expanded Statistical Sampling for Small Businesses and Safe Harbor for LB&I Taxpayers

Determining QRA and QREs, Increasing R&D Expenditures, Documentation and Nexus, Calculations Under ASC Topic 730

Note: CLE credit is not offered on this program

A live 110-minute CPE webinar with interactive Q&A


Thursday, December 10, 2020

1:00pm-2:50pm EST, 10:00am-11:50am PST

Early Registration Discount Deadline, Friday, November 13, 2020

or call 1-800-926-7926

This webinar will guide tax professionals and advisers on claiming the IRC Section 41 Research and Development (R&D) Income Tax Credit for small businesses and large business and international taxpayers. The panel will discuss statistical sampling for multiple tax years for small companies, the safe harbor for large taxpayers for calculating certain qualifying research expenditures (QREs) provided under the recent LB&I directive, and techniques to assist in documenting and claiming R&D credits.

Description

The R&D tax credit provided under IRC Section 41 may apply to any taxpayer that incurs expenses for performing qualified research activities (QRA). Adjusted guidelines recently issued by the IRS for small businesses and the safe harbor under recent Large Business and International Division (LB&I) directives make the process of calculating and obtaining the R&D credit easier for taxpayers subject to these rules.

Statistical sampling only requires a portion of a company's records for review and documentation to support qualifying expenses. Documentation required by the IRS for an R&D study must meet the requirements of a four-part test for an expense to qualify for the credit along with establishing a sufficient nexus with QRA. This process has proven challenging and costly for small businesses and startups who typically forego the credit based on the costs associated with efforts to support qualifying expenses.

The IRS allows multiple tax years under one statistical sample study, which reduces the required sample size and costs associated with documenting the credit. Tax advisers to small businesses and startups must consider methods in determining QREs and adhere to specific requirements to take advantage of this approach to statistical sampling.

For larger companies, the LB&I released a directive that provides a safe-harbor method for calculating QREs allowing taxpayers to use R&D costs reported on financial statements under FASB Accounting Standards Codification (ASC) Topic 730, Research and Development. The method enables taxpayers to start with the R&D costs and make adjustments leading to QREs for claiming R&D credit under Section 41. Understanding the requirements of this method is essential to reducing costs and supporting the filing of credit claims for large taxpayers.

Listen as our experienced panel provides a thorough review of methods in determining QREs for multiple years for small and large businesses and best practices in calculating, claiming, and substantiating a Section 41 R&D credit.

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Outline

  1. Overview of Section 41 R&D credit
  2. Four-part test to determine QRAs
  3. Sampling and allocation methods for QREs available to small and mid-size businesses
  4. The LB&I directive providing safe harbor for calculating QREs for large taxpayers
  5. Documentation and substantiation of claiming Section 41 R&D credit

Benefits

The panel will review these and other key topics:

  • The four-part test to determining whether an activity can be considered a QRA for purposes of claiming a Section 41 R&D credit, as well as documentation and substantiation requirements and best practices
  • Sampling and allocation methods for QREs available to small and mid-size businesses
  • Safe harbor provided to large companies under recent LB&I directives to examiners and ASC Topic 730, including qualification and calculating QREs
  • The 2020 payroll tax deferral Executive Order and its impact on the payroll R&D tax credit for Qualified Small Businesses

Faculty

Bryson, Les
Les Bryson

Managing Director
Probity Tax Recovery

After graduating from Rice University with a B.S. in Chemistry and spending a few years in the laboratory,...  |  Read More

Garcia, Angelique
Angelique Garcia

Manager
Warner Robinson

Ms. Garcia focuses her practice on managing and implementing R&D Tax Credit studies. Previously, at a consulting...  |  Read More

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