Source HOV Tax works with Fortune 1000, middle market and smaller companies across a variety of industries to evaluate their ability to claim federal and state R&D tax credits and to appropriately maximize use of the credit. We take a different approach from many service providers by first educating our clients on the R&D tax credit rules and how to identify activities that will qualify and those that won’t.
Collaborating with clients ensures they are better prepared in subsequent years, making the process more efficient and often increasing the tax benefit as a result. Our client relationships are long-term, evidenced by the fact that more than two-thirds of our annual R&D studies are for existing clients.
Our R&D technical team members are dedicated R&D practitioners. Our leadership team has more than 17 years’ average R&D experience, and our most junior members have no less than four years. Most have prior Big Four or industry experience, bringing a wealth of tax credit and industry knowledge to the table. When evaluating an R&D credit opportunity, we conduct an initial assessment that typically requires only an hour of a client’s time but is a critical step in evaluating the credit. Before ever signing an engagement letter, we first:
Discuss usability of the credit. If a company generates credits but cannot use the credits to reduce tax liability, it is often not in the best interest of the company to incur the expense of an R&D study. We typically work directly with a company’s CPA firm or their CFO to understand usability up front so the company can make an informed decision whether to proceed with an engagement.
Conduct a feasibility assessment. After usability is evaluated, we meet with the client, either by phone or on site, to carefully assess activities and costs across the company to determine which meet the qualifying criteria. Once activities and costs are clarified, an estimate of the tax credit benefit is provided. It is important to note that the feasibility assessment is performed by our most senior R&D technical team members in collaboration with business development directors.
Evaluate documentation. We review a company’s specific documentation as it relates to qualifying costs and activities to ensure it is substantial enough to support the R&D credit in the event of an audit.
Present the scope of work. Based on the number of employees, locations, supply costs, documentation and number of years the credit will be claimed, we present the scope of work, a fixed fee, and a conservative, high-level estimate of benefit.
Once engaged, we assign a dedicated R&D project manager to the engagement immediately. On site, the project manager interviews all applicable individuals—from owners to shop floor managers—to verify activities, supply costs and documentation identified during the feasibility assessment. On average, we complete a study and present the final deliverable in 6-10 weeks.
We recommend conducting a credit study every year, not simply rolling over the credit calculation from the previous year—there are too many dynamics at play to take a “same-as-last-year” approach. Changes in the audit environment, changes in documentation requested by the IRS and changes in a company’s activities can produce different results from year to year.
Some companies will eventually be selected for audit as a normal part of IRS diligence. SourceHOV Tax provides full audit support in the event one of our studies is audited. Our sustention rate in these cases is typically 85-100 percent.