In oil and gas circles, when we hear the word "compliance," thoughts of safety usually come to mind.
Employees in the oil and gas industry face a number of unique dangers while on the job. One wrong step can have serious consequences, which means safety and health issues are extremely important.
Compliance is equally as important to the financial health and safety of a company. Bad behavior usually results in bad consequences. When speaking of a company's taxes, hundreds of thousands - or even millions - of dollars are at stake. Smart, compliant decisions can result in favorable financial positions, while poor or ill-advised actions can lead to audits, fines, lawsuits or even prosecution - all of which are costly and distracting to companies.
ABGi USA's team of tax attorneys work diligently to ensure compliance is met, as guidelines and laws change frequently. The research and development (R&D) tax credit has evolved for 40 years, with the latest change being only a few months old.
An October 2021 memorandum from the IRS Chief Counsel set forth information that taxpayers are required to include for an R&D credit refund claim to be considered valid.
The memo requires taxpayers to:
- Identify all the business components to which the Section 41 research credit claim relates for that year.
- For each business component, identify all research activities performed, individuals who performed each research activity and the information each individual sought to discover.
- Provide the total qualified employee wage expenses, total qualified supply expenses and total qualified contract research expenses for the claim year.
This format will allow the IRS to better determine up front if an R&D credit claim for a refund should be paid immediately or whether further review is needed. The good news for ABGi clients is the firm has utilized this "business component" approach for more than 11 years, so there was little adaptation to ABGi's process to conform to the new rule. Other providers will have to adjust, as many employ other methodologies to compute R&D credits.
"ABGi clients receive a robust report that provides the substantiation as required, and we provide audit defense for all our service lines," said ABGi CEO Craig Riebe. "Our legal staff stands 100-percent behind all claims and will defend our clients at no extra charge. We're proud to say the rate of sustention of our credits is incredibly high."
The R&D tax credit is one of the largest annual tax credits available to U.S. companies. For companies that meet the definitions in the Internal Revenue Code, the credit provides benefits for doing what they perceive as "business as usual." However, Section 41 of the tax code is among the most complex, so using an expert in the area is important.
The challenge of claiming R&D tax credits often is not qualifying itself, but substantiating and documenting activities that qualify. The nexus between qualified expenses and qualified activities must be shown, which means gathering data: gross receipts, payroll records, ledgers, project notes, requirements, specifications and revenue information.
"Because documentation can seem daunting, many companies turn to ABGi for assistance," Riebe said. "We work on R&D claims every day so we know what to look for and how to communicate it to the IRS."
R&D is critical to the economy. At least 75 jurisdictions around the world offer R&D tax credits because the incentive allows companies to limit tax liability, allowing access to more funding for investment such as buying equipment and hiring and developing employees.
For more information, visit www.abgi-usa.com or email greg.miller@abgi-usa.com.
