I’ve been talking a lot about R & D tax credits lately. There are 4 critical things you need to have in order to claim them:
Elimination of uncertainty
Process of experimentation
Technological in nature
And, you need to have great documentation. If someone loses their R & D tax credit, it’s usually because their documentation is not complete or was clearly done way after the fact. That’s why this case is so unusual. The R & D tax credits were denied because it wasn’t really R & D.
In this case, it was a clothing design business. The firm designs, manufactures and sells women’s clothing primarily to retail stores. The company claimed R & D tax credits, they said, because the process of designing garments, checking fit and testing fabric is actual research and experimentation.
IRS stated that the process was nontechnical and had more to do with style. It wasn’t really research.
The Tax Court agreed and said designing clothes were not a qualified purpose and the work was not technological in nature.
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