Many companies use questionnaires as a way to collect information for the R&D Tax Credit study. Typically, these questionnaires have been used for many years with little inquiry as to the accuracy or relevancy of the information provided. Typically issued by the Tax Department, these questionnaires make their way to individuals who may or may not be aware of their intent. They fill in the questionnaires to the best of their ability, and then submit them back to the Tax Department, where the task of deciphering the data begins.
The question that arises is whether or not the questionnaire process is accurate and thorough? Or, is there a simpler way to gather more relevant data?
Historically, many companies have relied on the use of R&D questionnaires in order to quantify individual involvement, as well as qualify the project worked on. This can involve the individual time commitment of hundreds of Engineers or Technicians, and can be calculated to the hundreds of hours spent on this initiative. For example, if a company has 50 Scientists, 25 Process Engineers and 30 Technicians, and each individual spends 4 hours filling in the questionnaires on a quarterly basis, this equals 1,680 hours annually – that’s almost a full-time employee!
At the end of the process, the Tax Department has multiple project specific questionnaires that do not necessarily tie in the Qualified Research Activities (QRAs) to the Qualified Research Expenses (QREs).
There’s got to be a better way.
The BGI team evaluates the Taxpayers’ existing questionnaire process in order to evaluate their efficiency. Often, it is determined that the questionnaires are out-dated, ambiguous, and not filled in to the level desired by the IRS upon examination. There are a number of proven techniques that BGI implements when assessing whether the use of questionnaires are warranted.
Existing questionnaire review
- If the Taxpayer is hesitant to eliminate the existing questionnaire system, the BGI Technical team reviews the questionnaire questions, the historical answers provided, and the value of the information provided.
- This includes ensuring that the questions are easily understandable by all levels of the organization, and that the information provided back can be as accurate as possible.
- By incorporating various key words that follow the guidelines of the R&D Tax Credit program, the credibility of these questionnaires is increased in the event of an IRS examination.
Minimize SME involvement
- There is no need to personally involve all of the technical staff in the R&D Tax Credit study. Supervisors or Department Heads are fully capable of attesting to the breakdown of time spent on each pre-determined business component for their direct reports.
- Identify key Subject Matter Experts (SMEs) from each business component category to provide a showcase example project. This allows for a select handful of people to be educated on the program, and cover a wide range of individual projects contained under a common business component. This SME will ultimately be asked for a time commitment to the project of 30min to 1hour – a huge improvement from the 1,680 hours as calculated above.
Adopting BGI’s Technical Tools
- Questionnaires can be misinterpreted, taken out of context, and be a source of inconsistencies across similar employee job titles or departments.
- The technical personnel filling in the questionnaire may use undesirable terminology in the forms, opening up exposure during an IRS audit.
- It is also impossible to educate each new employee on the qualifying nature of the type of projects or activities. This results in the original message being lost in translation.
- Layered on top of this is the fact that these questionnaires are often time-consuming to fill in, and even more time consuming for the tax department to review and compile.
- BGI’s Technical Tools allow for the business component to be captured and described in a consistent manner. Using terminology within the IRS guidelines of the R&D Tax Credit, the business component framework of qualification is not challenged.
By eliminating the need to report on every single project, the efficiency of the overall R&D Tax Credit Study is significantly increased. This may involve the elimination of questionnaires and the adaptation of BGI’s Technical Tools. The obvious benefit is the time and effort saved so that individuals do not have to interpret and fill in questionnaires on a regular basis. By streamlining the process to have a select number of SMEs allocating employee time to qualified business components, a consistent methodology is used. This also streamlines the orientation and education of the RTC program to a handful of individuals.
BGI’s technical and legal teams can review the existing questionnaires and either make recommendations to update their nature or frequency or recommend eliminating them completely. Developing a more efficient way to report and track projects while eliminating time-consuming questionnaires is often well received by the entire staff. This will ensure enthusiastic support for the process on an annual basis, and the identification of additional projects for qualification.