Should You Outsource Your R&D Tax Credit Study?

Outsource Your R&D Tax Credit Study

Claiming the R&D Tax Credit under IRC §41 can significantly reduce a company’s tax burden, but accurately documenting Qualified Research Expenses (QREs) requires technical, accounting, and compliance expertise.
Many businesses struggle to meet IRS standards, leading them to consider outsourcing their R&D tax credit study to a specialized CPA or consultant.
This article explains when outsourcing makes sense, what to expect from a professional study, and how to ensure full IRS compliance.

Relevant Tax Codes and Forms

• IRC §41(a): Defines the credit for increasing research activities.
• IRC §41(d): Explains the “qualified research” criteria.
• Treas. Reg. §1.41-4: Specifies documentation and substantiation requirements.
• Form 6765: Used to calculate and claim the R&D credit.

Step 1: What Is an R&D Tax Credit Study?

An R&D tax credit study is a formal analysis performed to:

1. Identify qualifying research projects and activities.
2. Classify QREs (wages, supplies, contract research, cloud computing).
3. Calculate credit amounts using the Regular or ASC method.
4. Prepare audit-ready documentation in case of IRS examination.

Deliverables usually include:

• Technical interviews and time allocation studies.
• Project-based cost mapping.
• Supporting schedules for Form 6765.
• A defensible report citing IRC §41(d) tests and Treasury Regulations.

Step 2: When Outsourcing Makes Sense

Outsourcing is beneficial when your business:

• Lacks internal staff experienced in R&D credit analysis.
• Has multiple departments performing research (engineering, IT, design).
• Needs consistent documentation across multiple tax years.
• Operates in multiple states with separate R&D credit filings.
• Is undergoing or anticipating an IRS or state audit.

Example:
A SaaS company conducts software development in three states and outsources its R&D study to ensure proper wage allocation and documentation under IRC §41(b).

Step 3: Benefits of Outsourcing Your R&D Study

1. Accuracy and Compliance:
   Outsourced experts apply IRS-approved methodologies aligned with Treas. Reg. §1.41-4(d).
2. Time Savings:
   Frees up internal teams to focus on engineering and operations.
3. Audit Protection:
   Professional firms provide documentation packages to defend credits during IRS audits.
4. Multi-State Optimization:
   Specialized CPAs understand how to align federal and state R&D filings (e.g., CA FTB 3523, TX Form 05-178).
5. Higher Credits:
   A structured study ensures that all eligible projects and expenses are captured, increasing total QREs.

Step 4: Key Components of a Professional R&D Study

A reliable outsourced R&D study typically includes:

• Technical interviews with project managers.
• Employee time tracking and activity allocation.
• QRE identification per IRC §41(b) categories.
• Calculation schedules for Regular and ASC methods.
• Executive summary report and IRS defense file.

Tip:
Request that your provider aligns all findings with the four-part test:

1. Permitted Purpose
2. Elimination of Uncertainty
3. Process of Experimentation
4. Technological in Nature

Step 5: How to Choose the Right Provider

When outsourcing your R&D study, verify:

• The provider is a licensed CPA or EA experienced in IRC §41 compliance.
• Their methodology includes interviews, not just payroll extraction.
• They provide a signed report for audit defense.
• They use secure data handling for payroll and financials.
• They have multi-year and multi-state experience if applicable.

Avoid firms that promise “guaranteed credits” without documentation — these are red flags for IRS scrutiny.

Step 6: Cost vs. Benefit Analysis

Outsourcing costs vary based on company size, project volume, and documentation complexity.
Typical fee structures:

• Fixed Fee: For smaller businesses or startups.
• Contingent Fee: Based on the percentage of credits identified.
• Hybrid: Fixed base fee plus success bonus.

Example:
A startup paying $5,000 for an outsourced study that identifies $100,000 in QREs (yielding a $10,000+ credit) achieves a clear return on investment.

Conclusion

An Outsourced R&D Study can help businesses secure compliant, defensible, and maximized R&D credits under IRC §41.
Whether you are a startup or a large enterprise, partnering with a qualified CPA ensures your R&D credits are accurate, timely, and fully supported for IRS review.

Call to Action

For professional assistance in conducting an Outsourced R&D Study, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and a cross-border tax expert assisting American and Indian businesses with R&D credit studies and IRS compliance.

Disclaimer

This content is for informational purposes only and does not constitute legal or tax advice. Always consult a licensed CPA before outsourcing or filing an R&D credit claim.

Top 5 FAQs

1. What is an outsourced R&D tax credit study?
   A professional analysis of your company’s research activities and expenses to calculate your R&D credit.
2. Do outsourced studies help during IRS audits?
   Yes, they provide audit-ready reports aligning with IRC §41(d) requirements.
3. How long does an R&D study take?
   Typically 3–8 weeks, depending on documentation and business size.
4. Is outsourcing suitable for startups?
   Yes, especially for pre-revenue or rapidly growing companies with multiple projects.
5. Can outsourcing increase my credit amount?
   Yes, professionals often identify additional qualifying activities you might overlook.

About Our CPA

Anshul Goyal, CPA EA FCA is a Certified Public Accountant in the United States, Enrolled Agent admitted to practice before the IRS, and a cross-border tax expert representing American and Indian businesses in R&D credit studies, audits, and IRS compliance.