Maximize R&D Tax Credits: Essential Documentation Checklist

8 Minute Read
Posted by Randy Eickhoff on May 13, 2015 1:00:00 PM

The Research and Development (R&D) Tax Credit offers invaluable incentives to business owners across a wide range of industry verticals. Unfortunately, each year many companies miss out on qualifying R&D tax benefits for a multitude of reasons. One of the biggest factors prohibiting companies in every vertical from claiming earned credits is a lack of understanding regarding what needs to be documented and submitted to prove program eligibility.

Acena Consulting: Innovation Tax Credit Experts

At Acena Consulting, our team of experienced tax credit advisors is dedicated to helping organizations like yours find, complete, and collect the right documentation to claim and benefit from the R&D Tax Credit.

We make it our mission not only to ensure our clients receive every R&D deduction possible for maximum cash flow potential, but also to follow proper documentation protocol to protect your business assets. Our detailed research tax credit checklist can give you a better understanding of submission requirements for seamless deduction eligibility with every filing.

Our R&D Tax Credit Documentation Requirements Checklist includes the following six categories:

  1. Documents To Be Submitted

  2. Research Credit Computation

  3. The Qualified Research Expenditures (QREs)

  4. Qualified Research Activities

  5. The Consistency Requirement

  6. Audit Documentation

Checklist Item #1: Documents To Be Submitted

The R&D documentation scope includes the framework of items that secures your business's R&D tax credit eligibility:

Form 6765

This form must be completed properly in accordance with the instructions and attached to the tax return.

Research Credit Claims

This documentation outlines a tax overpayment for the tax year being generated (part or whole) by the R&D credit that was not taken into account with the original return. If this has happened, a claim may be filed on an amended return with Form 1120X or 1139, depending on the situation. Taxpayers must submit the actual calculation of the R&D credit on Form 6765, providing the detail and total for the credit.

Effective January 2022, taxpayers filing a refund claim that includes an R&D tax credit must provide specific additional information. Please see our blog titled: IRS Extends the Transition Deadline for R&D Tax Credit Claims for more information.

Computation Work Papers

While the work papers need not be submitted, these include the research credit computation work papers for the years the claim is being filed. This should include the reconciled amounts from Form 6765 as well as provide current year Qualified Research Expenses (QREs), including the wage reports, supplies, and research expenses. Lastly, if the company has other entities that meet the definition of a Controlled Group (i.e., under common control within section 41(f)(1)(B)), they must perform additional calculations and include information from all entities (regardless of whether the other entities have qualified R&D activities), add additional disclosures that are attached to Form 6765, and supply all members with detailed information and receipts.

Checklist Item #2: Research Credit Computation

Conducting a review of any mechanical computation in the R&D tax credit plays a vital role in the examination process. To satisfy audit protocol, all required documentation should be available to determine that the taxpayer has properly calculated the credit for the year being submitted. If estimates were used in the computation review, it's critical to have documentation available that outlines how the estimates were formed.

Checklist Item #3: The Qualified Research Expenditures (QREs)

QREs are the sum of your in-house and contract research expenses and include:


Wages and salaries generally make up the biggest single R&D deduction. It's important to note that you must utilize U.S. labor in your development to qualify for the credit. As a business owner, you may claim wages included in Box 1 of an employee's W2 multiplied by the percentage of time spent on qualified R&D activities during the tax year. Additionally, qualified wages paid to direct supervisors that provide technical insight to employees conducting qualified R&D efforts may also qualify for the research and development deduction. Lastly, employees supporting those conducting qualified R&D activities may also be included in the wages calculation.


Payments made for any necessary supplies and materials used during the qualified research activities are eligible for the innovation tax credit. Examples include materials used for testing or proto-typing, developed jigs, dies and molds, and small tools.

Contract Research Expenses

Business owners may also claim payments to an outside party (again, based in the United States) for conducting qualified research activities. Specific facts and circumstances that apply should be discussed with your R&D credit expert related to contractor payment terms and rights to the developed research.

Checklist Item #4: Qualified Research Activities

Taxpayers must use a four-part test to document how and why the qualified research activities qualify for the credit. The four-part R&D tax claim test includes:

Business Component Test

Are the research activities being conducted to develop or improve on a business component?

A business component is defined as a product, process, software, technique, formula, or invention.

Discovering Technological Information Test

Do the research activities eliminate technical uncertainties discovered at the beginning or during the research process?

What is Technical Uncertainty? 

It is uncertainty related to the taxpayer's capability, method, or appropriate design.

Process of Experimentation Test

Can you document the development process and evaluation of one or more alternatives (this is a requirement) in order to alleviate the technical uncertainties identified at the beginning of the development effort?

This is a key question to ask when developing a process of experimentation that meets the requirements of IRS Code Section 174. The answer should be yes, and documents regarding the development process and evaluation of alternatives should be maintained to support your R&D tax credit claims.

Use of Scientific Principles

Is the Process of Experimentation based on the principles of the hard sciences?

Hard sciences are defined for the R&D tax credit as scientific principles in the physical, biological, engineering, or computer sciences.

Taxpayers must be able to provide completed documentation of all activities performed that meet the requirements of all four above test to receive eligibility credit.

Note: For internal use software, taxpayers must also meet the High Threshold of Innovation Test.

Checklist Item #5: The Consistency Requirement

The Consistency Requirement mandates that, for purposes of calculating the fixed-base percentage, the QREs of the credit year, as well as the QREs of the base years, be developed on a consistent basis. The Consistency Requirement attempts to achieve uniformity by ensuring qualified research expenses in the past are developed in the same way as the current year. This taxpayer obligation also helps substantiate a rise in the qualified research expenses as a percentage of gross receipts, relative to the base period. Base year expenses must be documented and can be an area of concern if the taxpayer chooses to use the regular credit method (as opposed to the alternative simplified method.)

Checklist Item #6: Audit Documentation

The IRS requires taxpayers to retain records in a usable format to detail and identify how the expenditures being claimed provide credit eligibility. 

Documentation to keep available for possible Internal Document Requests (IDR) include:

  • Fixed base percentage calculations including the base amount
  • Organizational charts
  • Chart of Accounts for the general ledger
  • Dispositions or Acquisitions of businesses or lines of business within a company that occurred from 1984 to the tax year being audited
  • The accounting process or methods used by a department or project
  • Any R&D documentation activities conducted as well as a description of why they are eligible activities
  • The wages paid, employee or contractor names, percentages of time allocated to qualified R&D activities, departments involved in the R&D activities, and the names, job titles and job descriptions of all research participants
  • Lists and outlines of all supplies used on qualified projects including which project they were used on, categories they fall into, and how they paid
  • Copies of all contracts with outside vendors or service providers as well as the amounts paid, the location of research conducted, and the categories of work performed

Acena Consulting: Comprehensive R&D Tax Credit Documentation For Corporate Peace Of Mind

At Acena Consulting, we know that keeping up with the continuously changing landscape of required research and development documentation is a full-time job. Our experienced tax credit professionals partner with small to mid-sized businesses in every operational vertical to navigate through the seemingly endless piles of paperwork and leverage every tax credit benefit available to them. Contact us today to learn more about how we can create a customized documentation process that helps your business substantiate and sustain its R&D tax credit claim.

For more information on R&D tax credit documentation, view Breaking Down the Basics of R&D Tax Credit Documentation. For more information on R&D tax credits, check out our Cheat Sheet. Or, calculate your estimated R&D tax credits with our R&D Calculator.

Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.