Often times, there are misconceptions as to what a Qualified Research Activity (QRA) is defined as, and more importantly, who is performing these activities. In most cases, it is easy to identify R&D personnel through the organizational chart and company descriptions, as they are typically in a Product Development Group or a laboratory setting. However, the scope of what a qualified research activity is extends beyond these groups into the manufacturing or operations facility.
Qualified shop-floor research activities often are overlooked during the course of calculating the R&D Tax Credit. In almost all cases, this is due to the misinterpretation of what a qualified research activity is defined as. This can be remedied by engaging operational staff in an open discussion, and by using terminology and examples that are easily relatable.
Operational staff can be directly engaged or can directly support the QRA on a number of different levels. The key is to describe and explain what qualifies as a QRA in a manner that will achieve maximum recognition with non-R&D people. This can be easily done in an orientation session by industry-experienced technical specialists.
In these scenarios, it is important to achieve three things:
- Engage high level Manufacturing Managers or Operational Supervisors in the orientation session;
- Minimize their time commitment in the exercise; and
- Minimize/Eliminate the need for document creation (use their existing documents as support and nexus)
This ensures maximum co-operation and promotes ownership of this portion of the qualified work.
Orientation Session to Describe the “4 Part Test”
During the course of a 30 min session, the concept of the 4 part test can be easily conveyed to operational personnel. BGI staff is highly skilled in using industry-specific examples and terminology to elicit a positive response and an almost immediate reinforcement of the activities.
- New or Improved Business Component
- Described as having an objective to improve either the quality, yield, performance or functionality of not only a new product, but also the process.
- Improved process can be defined as any technical improvement that is being made to an existing process. For instance, improving yield or throughput, improving control or process monitoring of the line(s), or improving changeover time by testing changes in sequential operations or components.
- The new or improved business component does not have to revolutionize the industry – it can be evolutionary in nature.
- Elimination of Technical Uncertainty
- Technical Uncertainty is described at the outset of a project with respect to Capability, Methodology or Appropriateness of Design.
- BGI technical experts break this down to three clearly-defined categories:
- Capability Uncertainty
Are you capable of achieving the outcome given the constraints presented? For example, can the new product be manufactured on the existing equipment?
- Methodology Uncertainty
How can you achieve the outcome? For example, what changes in the process parameters will be required to run the product on the existing equipment?
- Design Appropriateness
What should the final design of the equipment be to achieve your outcome? For example, what automated loading system and end-of-arm tooling design will allow for the product to be loaded onto the equipment in a repeatable manner?
- Process of Experimentation
- Dispelling the “Lab Coat Myth” is key when relaying the message to your operations staff. Experimentation occurs at the shop-floor level every day. The product development trials, process control trials and trials involving new designs of valves or other mechanical systems qualify.
- There is always a record of changes to the process and the results of those changes. This can be in the form of process parameter control charting (SPC charts), production meetings, product run schedules, work orders, or tool-box talks.
- Technical in Nature
- In most cases, qualified activities where operational staff is involved rely on the principles of industrial, mechanical, electrical or chemical engineering.
Explaining the difference between directly engaged and directly supporting qualified activities
- Most operational staff will tell you that they are simply running the lines, regardless of the type of product (trial material / non-sellable vs. prime product). Whereas this is completely accurate, it is important to understand why they are running the lines: Is it to produce regular product with normal parameters? Or are the lines being run to evaluate a change in the product or process?
- Directly engaged time includes scenarios where the operational team is coming up with the idea, testing it and implementing it. For example:
- Technical lean projects (i.e. ways to improve the processing of incoming raw materials)
- New robust design of mechanical parts (i.e. re-designed ball valves, automated load cells to control weights of incoming raw materials)
- Development of new methodologies (i.e. complex cooling channels within a mould on a pallet, with quick change connectors at the base to allow for improved changeover procedures)
- Under the direction or supervision of a technically trained staff, eligible support tasks include;
- The operation of a machine for an experiment (operations)
- Feeding raw material into a machine (operations)
- PLC programming (maintenance)
- Data collection (process technicians, team leaders)
- Testing of product (quality lab personnel)
- Using standard techniques to support a qualified research activity (quality)
PLANT FACILITY TOUR
- A tour allows for the BGI Technical staff to inquire about equipment, lines and tools that may qualify. This allows our team to ask educated and pointed questions to the operational staff in order to elicit the desired responses.
- Often times, areas are overlooked and not considered as R&D – the tour allows for the opportunity to talk about the potential work being done that can qualify.
By using techniques to engage with the operations staff, BGI has successfully captured a significant amount of qualified direct or support time on the RTC claim. Depending on the type of industry, this can range from 5% to 15% of operational wages.
The operational team also establishes a better understanding of eligible activities, and therefore, can identify and capture project documentation more efficiently in the future.
BGI Inc. is highly skilled at communicating the message of qualified activities to operational staff. BGI technical staffs have a background in industry, and are able to provide valid examples of qualified projects to a wide range of industries. By understanding the type of work done by operations, we are able to ask the pointed questions that can pull the desired information out of your staff.
We have worked with hundreds of Taxpayers to identify additional qualified expenses tied directly to the supporting and qualified activities conducted by the operational staff.