The R&D Tax Credit Audit: Planning for Success

3 Minute Read
Posted by Randy Eickhoff on May 29, 2020 10:01:14 AM

During a typical fiscal year, facing and defeating challenges are a common occurrence when running a business. In fact, many entrepreneurs believe that learning how to navigate through adversity proves a critical component to their corporate success. However, most business owners would agree that global pandemics, shelter-in-place orders, and wholly closed economies have made 2020 anything but a "typical" fiscal year.

What You Should Know About the R&D Tax Audit

While most business owners can't imagine being audited after everything 2020 has brought our way, the truth is that the state and federal governments still maintain the right to review and assess any business tax documentation to confirm that the tax return has been properly completed and filed. At Acena Consulting, we know that when evaluating the research and development tax credit, audits by state tax agencies and the IRS can range from basic, minimal reviews to extensive, potentially invasive audits that can stretch out for a year or more. As a leading R&D tax credit accounting firm, it's our duty to help our clients get through the audit process as quickly and efficiently as possible.


How Acena Helps Clients Demonstrate Proper Documentation During an Audit

Most of our clients will never be audited, but we assume they all will. We work hard for business owners and financial professionals, integrating quality and attention to detail into our assessment protocol. As a result, Acena helps our clients generate the documentation needed to not only endure the audit but also sustain the research and development tax credits that have been filed. 

According to the IRS Audit Techniques Guide for Research and Development Tax Credits, one of the first steps in the process is for agents to identify people working on various development projects and the total number of hours spent on these initiatives. For business owners claiming throughout the year, re-creating these records can prove both difficult and hard to justify once the audit has begun. Being proactive versus reactive will significantly increase your odds at a smooth and efficient audit. It helps to show you're prepared to substantiate your claim.

Additionally, every development initiative listed must qualify under IRS regulations as a research initiative project. Confirming project eligibility typically requires an assessment of the project’s more subjective components as well as proper documentation for each project. Again, backdating the paperwork amid an audit can add unnecessary stress and inconvenience for business owners. Worse yet, qualifying projects may slip through the cracks, compromising the integrity of the already filed research and development forms.


Do You Need to Evaluate Every Project Before an Audit?

Taxpayers often ask if they need to assess every project that occurred during the fiscal year. Our answer is that it depends on whether our clients want every qualifying project to withstand an audit. IRS guidelines allow both statistical and judgment sampling to evaluate operations and apply designated results across the entire corporate population. Sampling can save business owners time and resources. However, the process should provide enough coverage of eligible research projects to represent a valid sample that could be extrapolated across the population of all projects being considered.


Contact Acena Consulting Today

Acena Consulting helps clients develop a customized, efficient process that manages all projects, solidifying documentation in the event of an audit. Contact us today to hear more.


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.