The document summarizes an event presented by alliantgroup on R&D tax credits. alliantgroup is a national consulting firm focused on supporting CPA firms with government incentive programs. The event featured several speakers with expertise in R&D tax credits, including Sonny Grover of alliantgroup, Justin DiLauro of alliantgroup, and Dean Zerbe, National Managing Director of alliantgroup. The presentation provided background on R&D tax credits and discussed qualifying expenses, credit calculations, and state opportunities.

1. R & D Tax Credits:
Claim what you deserve
Zweig White
Presented by:
Sonny Grover
Dean Zerbe
Justin DiLauro
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2. alliantgroup, LP
National Consulting Firm
Focused on supporting CPA firms nationwide
• alliantgroup ‐ Houston (national office), New York, Boston, LA, Atlanta,
Orange County, San Francisco, San Diego, Seattle, Chicago, Denver and Miami
• alliantgroup ‐ Has over 170 professionals nationwide
– Former “Big Four Partners” and Managers
– CPAs and Attorneys (Dedicated Tax Controversy Team – 16+ attorneys)
– Engineers, Software Programmers, Chemists, Biologist, etc.
• alliantgroup ‐ Only specializes in government sponsored incentive programs.
• alliantgroup ‐ Only works with CPA firms
– Be your back office
– Introduce specialized tax incentives to your clients
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3. Sonny Grover, CPA
alliantgroup Senior Managing Director
Specializes in the Research & Development Tax Credit
More than 20 years of tax, M&A, structuring, and operational consulting
worldwide
Former Tax Partner, Deloitte & Touche - managed national consulting
team of 30 professionals in 12 cities
Member, AICPA and California Society of CPAs
Masters in Tax, University of Texas
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4. Justin DiLauro, J.D.
alliantgroup Associate Director & Team Director
Assisted numerous companies in obtaining millions of dollars in R&D tax
credits
Member of several Industry Specialization Programs within the firm’s R&D
implementation department
Frequent author and speaker on the R&D Tax Credit for Architecture and
Engineering firms
Well-versed in an array of technical topics and their application to research
and development incentives
Developed a team to serve engineering companies
Licensed to practice law in the State of Texas
Member of the Institute of Industrial Engineers
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5. Dean Zerbe, J.D., LL.M.
National Managing Director, alliantgroup – Washington D.C.
Former Sr. Counsel and Tax Counsel, Senate Finance Committee:
Involved with almost every major piece of tax legislation
alliantgroup’s ultimate tax policy expert
Focused on federal and state tax credits and incentives, and U.S. tax
policy
Media “go-to” source for commentary on tax policy and other issues
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6. Mark Everson Joins alliantgroup
• Served as Commissioner of Internal
Revenue from 2003 until 2007
• Appointed Vice Chairman for
alliantgroup
• Will advise alliantgroup on strategic,
operational, and client service
initiatives
“Many companies do not take advantage of all the tax incentives to
which they are entitled. alliantgroup can help. Based on my
meetings with alliantgroup personnel and a number of the
accounting professionals with whom they work across the country,
it is clear the firm has achieved a great deal since its founding and
is well positioned for further expansion.” – Mark Everson
6
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7. www.zweigwhite.com

8. R&D Tax Credit Extension Part of the Emergency Economic
Stabilization Act of 2008..
Retroactive to January 1, 2008!
The research credit was part of the individual and business tax breaks extended by
the Act.
The R&D Credit had previously expired on December 31, 2007. The new law
enacted three changes to the R&D tax credit:
• It extends and keeps the ‘relaxation of the criteria’ of the R&D tax credit for
two more years, retroactive to January 1, 2008 through December 31, 2009.
• Increases the alternative simplified research credit rate to 14%, for tax years
ending after Dec. 31, 2008
• Provides that no election to elect an alternative incremental research credit
applies for tax years beginning after Dec. 31, 2008.
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9. R&D Background Discussion
• When was it originally put in place?
• What was the intent of congress and eligible QRA’s?
• What code section details the eligible costs / QRE’s?
• What code section details the credit calculation?
– Credit calculated at what %
– Net benefit calculated at what %
• How many dollars were claimed yearly under the old
regulations?
• When were proposed regulations issued?
• What were the changes?
• What was the impact of the changes?
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10. R&D Background
• R&D Credit:
– 1981
• Two major hurdles:
– Discovery Test (patents, inventions)
– Extensive Documentation Requirement
• $5B in credits claimed annually:
– Primarily Fortune 1000 companies
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11. Rule Change ‐ New Regulations
• Effective: December, 2003
– To keep innovation and creativity in the U.S.
• The proposed and final regulations:
1. Eliminated the Discovery Requirement
2. Modified the Documentation Standard
• R&D is no longer only:
– scientists, “white lab coats”, patents, etc.
• Clearly Defined: Congress made it clear through legislative history that
the credit should NOT impose unreasonable record‐keeping requirements.
• Increase in budget to:
– $9B
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12. Applicable Code Sections
Section 41 20 percent credit for increasing
research and experimentation
expenditures
Section 174 Research and experimentation
expenditures
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13. R&D Credits Eligible Costs
• Wages
– Form W‐2, Partnership Earnings subject to SE Tax, Schedule C
– Excludes 401(k) & benefits
• Supplies
– Cost to fabricate prototypes / items consumed in R&D process
• 65% of Contract Research
– Fees paid to outside consultants / engineers / software developer
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14. “Traditional” Versus “Tax”
Traditional Definition Tax Definition
“Discovery Test” “Four Main Requirements”
1. New or Improved Business
Component
2. Technological in Nature
3. Elimination of Uncertainty
4. Process of Experimentation
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15. Business Component Purpose Matrix
The Project’s The Purposes of the R&D Activities Related to the:
Business Component
Function Performance Reliability Quality Durability
Product Yes Yes Yes Yes Yes
Process Yes Yes Yes Yes Yes
Computer Software Yes Yes Yes Yes Yes
Technique Yes Yes Yes Yes Yes
Formula Yes Yes Yes Yes Yes
Invention Yes Yes Yes Yes Yes
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16. Technological in Nature
• Includes ‐ Hard Sciences: Research must rely on principals of
hard sciences
– Physics
– Chemistry
– Biology
– Computer sciences
• Excludes ‐ Soft Sciences: Research can not be in the soft
sciences
– Economics
– Psychology
– Management sciences, etc.
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17. Elimination of Uncertainty
• R&D Activities Must Be Intended to:
– Discover information
– Eliminate uncertainty concerning the companies
capability, process or final design.
• Exists if Taxpayer is Uncertain:
– Can We? – Can company develop the business
component?
– How? – How can company develop the business
component?
– Final Design ? – What will the final business
component look like?
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18. Process of Experimentation
• Development Activities:
– Must evaluate a process and it’s alternative
– Must be designed to achieve a result that was uncertain at the
outset
• May Involve:
– One or more hypothesis
– Testing and analyzing the hypothesis
– Refining or discarding the hypothesis as part of a design process
• Must Engage in Process of evaluating & testing alternatives
through:
– Modeling
– Simulation
– Systematic trial and error
• Failure: The taxpayer does not need to “succeed”
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19. § 41 CREDIT for INCREASING RESEARCH ACTIVITIES
1981 QRA (Sec 41) QRE (Sec 174) R&D Credit (Sec 41)
$5B/Yr NEW to the WORLD
------------- US W‐2s 20 %
‐TO YOU
Contemporaneous US Contractors 6.5%
Documentation
‐RELAXED US Supplies
2001 Proposed Regs
1) New or Improved 2) Based in 3) Uncertainty 4) Experimentation
$8B/Yr Hard Sciences
Business Component
• Product
• Process
• Technique / Design
• Formulation
• Invention
• Software
2004 Final Regs – “Jobs Creation Act"
$10B/Yr
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20. Credit Details
• Refundable vs. Non Refundable
• Gross Credit
• Reduced Credit
• Statute of Limitations
• Implication of Passive Shareholders
• Other Considerations
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21. The Fixed Base Limitation
Fixed base % = Average QREs in Base Period
Average Gross Sales in Base Period
Example:
Fixed Base % = $100,000 = 1%
$10,000,000
Assuming Last 4 years average sales = $50,000,000
Fixed Base Limitation = $50,000,000 x 1%
= $500,000
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22. Basic R&D Calculations
Qualified Research Expenditures
Apply Fixed Base Percentage 50% of QRE Limitation
multiply multiply by 50%
QRE Floor or Fixed Base 50% of QREs
The lesser of 50% or calculated
QRE over Fixed Base
multiply by 20% or 13%
Regular or reduced credit
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23. Example of ASC Calculation
Increasing R&D Spending
Spending 2005 2006 2007 2008
QRE $85M $90M $95M $100M
50% "base"‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐$45M
Creditable amount‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐$55M
Credit (14%)‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐$7.7M
Effective credit rate‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐7.7%
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24. Example of ASC Calculation
Declining R&D
Spending 2005 2006 2007 2008
QRE $115M $110M $105M $100M
50% "base"‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐$55M
Creditable amount‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐$45M
Credit (14%)‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐$6.3M
Effective credit rate‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐6.3%
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25. Applicable Code Sections
Section 41 20 percent credit for increasing research
and experimentation expenditures
Section 56 Adjustments in computing alternative
minimum taxable income
Section 174 Research and experimentation
expenditures
Section 469(h) Passive activity losses and credits
limited/Material Participation defined
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26. State R&D Opportunities
• Currently 38 states have an added credit/incentive
for qualified research and development activities
• The State Credit can be in addition to the Federally
offered Credit
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27. What Makes this Credit so Powerful?
1. New Regulations Finalized December 2003 – JOBS CREATION ACT
• Easier for a broader array of companies to qualify their activities as R&D
• They provide greater flexibility in satisfying certain record keeping
requirements
2. Apply new regulations for all open tax years – (i.e. 2005, and 2006) =
Significant Cash Refunds Plus Interest
• Need to file 2005 / 2006 amended returns before statute of limitation
expires
3. Middle‐Market Companies typically conduct more R&D as a percentage of
revenue (i.e., CEO on down…. Marketing / Production / Administration /
Purchasing / Information Technology, Quality Assurance / Engineering / Other)
4. Conservative / Government Sponsored Incentive
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28. Architecture & Engineering
• Areas related to design of buildings and
infrastructure
• Disciplines Include:
– Architecture
– Structural and MEP Engineering
– Civil Engineering
– Environmental Engineering
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29. Architecture Activities
Tend to Qualify Tend to Not Qualify
• Building design related to: • Purely aesthetic design
– Energy efficiency • Non‐design related:
– Structure
– Feasibility studies
– Site orientation
– Project budgeting
– Functional features
– Construction admin
• Market sectors:
– Project management
– Commercial office buildings
– Hospitals • Market Sectors:
– Educational facilities – Interior design
– Airports – Retail stores
– Stadiums
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30. Structural and MEP Engineering
Tend to Qualify Tend to Not Qualify
• Building superstructure • Forensic engineering
design • Construction management
• Foundation design • Permitting
• HVAC system design • Feasibility studies
• Electrical systems • Peer review
• Piping systems
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31. Civil Engineering
Tend to Qualify Tend to Not Qualify
• Bridges • Surveying
• Waste water systems • Soil and materials testing
• Foundations and earthwork • Traffic engineering
• Retaining structures and • Subsurface evaluations
walls • Landscape architecture
• Roadway design
• Airport infrastructure
• Site development
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32. Environmental Engineering
Tend to Qualify Tend to Not Qualify
• Brownfields redevelopment • Site assessments and
• Remediation design investigation
• Solid waste system design • Permitting
• Drainage system design • Regulatory compliance
• Flare station design
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33. Case Study #1 – Office Building
• Commercial Office Building
• 20 stories
• 400,000 square foot
• LEED Certified
• Many “players” involved:
– Architecture Firm
– Engineering Firms
– MEP Contractors
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34. Case Study #1 – Office Building
• Architecture
– Building Envelope
– Site Orientation
• Civil Engineering
– Foundations
– Retaining Walls
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35. Case Study #1 – Office Building
• Structural Engineering
– Steel Column Design
– Connection Detailing
• MEP Engineering
– HVAC System Design
– Duct and Piping Design
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36. Case Study #1 – Office Building
• Examples of Qualifying Research Activities:
• Design Evaluations
• Solar orientation and site planning
• Energy modeling and studies
• Structural load calculations and modeling
• Heating/cooling load calculations and modeling
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37. Case Study #2 – A&E Firm
Background :
Industry: Architecture & Engineering
Product : Building Design Specifications
Entity Type: C‐Corp
Year business started: 1981
4 year Ave Gross Receipts: $27,800,000
Total Labor: $11,900,000
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38. Case Study #2 – A&E Firm
Examples of Qualified Projects:
• Commercial Building Project: To design and develop a new energy efficient
building by optimizing natural lighting elements versus heat gain.
• Flooring System Project: To design and develop a unique glass flooring system over
a man made stream bed to meet specific load bearing, slip resistant, and
condensation proof requirements.
• Ventilation System Project: To design and develop an new under floor air
displacement ventilation system to improve energy efficiency and airborne
contaminant removal performance.
• Piping System Project: To design and develop an improved dual pipe system to
utilize a public reclaimed water system for building sewage conveyance.
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39. Case Study #2 – A&E Firm
Qualified Research Expenses: Salary of
$2,060,000 for a total of $2,060,000
Base year %: 2.53%
Base amount: $ 703,340 (Average GR X 2.53%)
50% limitation: $ 1,030,000
Credit Calculation:
Qualified Expenses $2,060,000
Less Base Amount (1,030,000)
Total 1,030,000
Credit (20% of 1,030,000) $ 206,000
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40. Taxes Present
• Jobs Bill – outlook for action
• Hiring Credit
• AND Extenders ‐‐ payfor black liquid
Including R/D
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41. The R&D Tax Credit
For clients who design, develop or
improve a product, process, technique,
formula, invention, or software.
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42. The R&D Tax Credit
X Marks the Spot!
R&D Activities Related to:
Function Performance Reliable Quality Durability
Product
X
Process
Computer Software
Technique
Formula
Invention
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43. www.zweigwhite.com NEXT

44. The R&D Tax Credit
X Marks the Spot!
R&D Activities Related to:
Function Performance Reliable Quality Durability
Product
X
Process
X
Computer Software
Technique
Formula
Invention
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45. The R&D Tax Credit
X Marks the Spot!
R&D Activities Related to:
Function Performance Reliable Quality Durability
Product
X
Process
X
Computer Software
Technique
Formula
Invention
X
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46. “Their educated and knowledgeable staff plays a huge role in the
success of our Study's, which is why we continue to use your
services… It was apparent to me that alliantgroup approaches their
business very seriously and with a deep commitment to serving
their clients through their due diligence in addressing the rigorous
documentation that is necessary to perform a Study that is so
complex in nature… It would be my pleasure to recommend you to
anyone who would benefit from your professional services”
~ Charles Pruitt, CFO of LPA, Inc.
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47. “alliantgroup clearly has the expertise to deal with the issues around the R&D
tax credit, and were instrumental in our ability to calculate the credit for
our last tax year. We would not have attempted to tackle this complex an
issue with out the advice of a well qualified expert in the area, which
definitely applies to alliantgroup. I would highly recommend alliantgroup,
as they provided personnel with the knowledge experience to conduct our
R&D study effectively, efficiently, and with minimal intrusion into our
business.
~Judy Peterson, CFO of Callison
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48. “The experience we had with alliantgroup has taken our company to another
level of tax planning, opening tax savings avenues previously untapped by
Baskervill… I would definitely recommend their professional services to
other firms that could benefit from the reinvestment of tax refunds they
are entiled to as the result of their R&D activities.”
~Margaret Hood, CFO/Treasurer of Baskervill
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49. “I strongly recomment alliantgroup on their outstanding service for the R&D
Tax Credit Study. The resultant study is detailed, accurate and
compelling… I would recommend alliantgroup to other companies who
have a commitment to quality and only work with those who share that
same high standard.”
~ Lawrence DeRose, Vice President of DeRose Design Consultants
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50. Questions & Answers
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51. ZWEIGWHITE
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Anytime:
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