The research and development tax credit has existed for decades. It is legislated, it is available, and it is audited more aggressively than most business owners realize. The IRS has designated research credit claims as a Tier I audit issue, noting that claims are often filed using high-level estimates, invalid assumptions, lack of means between qualified research expenses and the business component without contemporaneous documentation to support the claim.
The documentation standard is specific. The IRS requires claimants to identify all business components, identify all research activities performed for each component, and provide total qualified wage, supply, and contract research expenses . A general statement that a practice is innovative does not satisfy that requirement. A percentage estimate of time spent on research does not satisfy it either. What satisfies it is a record, built as the work happens, that connects specific activities to specific costs.
