With Congress debating tax extenders, including the R&D tax credit, it's a good time to check your understanding of the credit and how you could use it more effectively. More at http://gt-us.co/1uDxLn6

1. 1. If I’m doing research, I can get a credit — You
need to not only be doing qualified research, but
also have the documentation that supports the
credit. There isn’t a bright-line documentation
test, so each taxpayer must analyze his or her
documents to determine which ones support the
credit. You’ll need documentation that:
• Shows that you meet the four-part test
• Shows that you don’t fall into one of
the exceptions
• Connects your costs to your activities
A good example is the issue of technical
uncertainty. It’s not enough to know that your
scientists or engineers had an uncertainty. You’ll
need to have documents as evidence that the
uncertainty existed.
5 misconceptions about
the R&D tax credit
2. I can compute a state credit from my
federal credit with a few changes — Some
taxpayers approach their state R&D credit as
an afterthought. They use essentially the same
calculation in their state credit as in their federal
credit with just a few modifications. Be aware of
some important differences between state and
federal credits, and how they might affect your
state application:
• Some state credits have unique rules and
deviate from the federal rules.
• Some state credits are permanent, but the
federal credit is temporary.
• Some state credits are larger than the federal
credit, depending on your business’s fact
pattern. Some taxpayers in California, for
example, could qualify for a state credit that
exceeds the federal credit.
It can be worthwhile to conduct or arrange for a
review of the R&D credit in the states where your
business operates.
With Congress debating the future of the federal R&D tax credit, it’s a good
time to check your understanding of the credit and how you could use it
more effectively. Here are five common misconceptions about the credit.
Mark Andrus, Regional Partner, Strategic Federal Tax Services

2. 2
5 misconceptions about the RD tax credit
3. Interviewing my subject matter professionals
is the best source of information — Tax
professionals may think they need to simply
interview their engineers or scientists for a
description of the project, the uncertainty and the
amount of time spent. The accounting department
then takes the percentage of time spent and
multiplies it by the salaries of those involved.
While employees are a good source of information,
the interview process can be time-consuming and
interrupt important RD activities. An analysis
of available documentation can be an effective
way to obtain information needed to compute
and substantiate the RD credit. Combining both
document analysis and interviews has proved to
be an efficient method to gather information and
reduce an organization’s cost of compliance.
4. My company isn’t in technology, so it won’t
qualify — Approximately 80% of RD credits
go to companies in the manufacturing industry,
according to electronic regulatory filing data
gathered by XBRL US Inc. Some other industries
that might qualify for the credit are agriculture
and livestock, and food and beverage. Companies
in these industries don’t always develop base
technology, but technology is embedded in what
they do. Making incremental improvements to
products or manufacturing processes is often
eligible for the credit.
5. Managing documentation is more trouble than
it’s worth — Managing the process of gathering
and analyzing the documents may seem almost
impossible. For many taxpayers, the challenge
is how to substantiate RD credit issues using
documents produced in the normal course of
business. They don’t want to create RD-credit-
specific documentation — and they don’t need to.
Grant Thornton LLP’s RD Tax Credit team
uses electronic tools and processes to help clients
gather, analyze and index support documentation
located throughout their companies while
reducing any security risks. In one case, our team
created secure protocols for a client and extracted
more than 1 million documents that were analyzed
to support the RD credit. In another case, our
team worked within a client’s network, analyzing
more than 1.5 million documents in a few days’
time without removing any documents from
the network.

3. Documents can make or lose a case
Documentation — or the lack thereof — affected
decisions in two recent court cases:
1. Union Carbide Corporation and Subsidiaries v.
Commissioner of Internal Revenue — To support
qualified research activities, the taxpayer presented
the employees’ testimony and documentation
that corroborated the employees’ testimony. The
court sided with the taxpayer and accepted the
employees’ testimony because it was corroborated
by documentary evidence.
Contact
Mark Andrus
Partner, National Practice Leader
RD Tax Credit Services
Grant Thornton LLP
T 503.276.5910
E mark.andrus@us.gt.com
2. Basim Shami and Rania Ardah, et al. v.
Commissioner of Internal Revenue — The
taxpayer presented employees’ firsthand testimony
to support the employees’ own qualified research
activities. Because the taxpayer didn’t present
supporting documentation, however, the court
didn’t side with the taxpayer.
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RD tax credit legislation
Read how congressional activity could extend or make
the federal RD tax credit permanent.