Architects and Engineering (A & E) Applications for the R & D Tax Credit

Member news | August 20, 2020

In this #MemberInsights blog, gain legal perspectives from Bruce Kletsky, Managing Director of the FI-Group,  an international leader that specializes in the implementation of research and development (R & D) tax credits/refunds for corporations. Bruce consults with a broad range of corporations to help create a “Best Practice” benefit for the R&D tax credit incentive. 

A & E activities is about solving a technical problem related to customer orders, or changes in product application. A & E firms routinely conduct qualifying research under contract with their clients. Neither the contract, nor payments received for services under the contract, will necessarily disqualify the activity from qualifying for the R & D credit. If there is the existence of some degree of economic risk, and the right to apply the knowledge obtained through these activities, the R & D process is retained.

Architects and Engineering Firms Qualifying R&D Activities

  • Building Information Modeling (BIM)

  • Improving or developing functional alternatives

  • Integrating transportation systems into the functional design of the structure

  • Sustainable design

  • Conceptional design

  • CAD modeling

  • New or improved technologies

  • Space utilization

  • Design testing

  • New materials

  • Environmental design

  • Environmental impact studies

  • Testing and/or failure of concepts

  • Performance and evaluating of reliability, quality, and durability

  • Processes to resolve any uncertainties

  • Searching or creating new applications

  • Improvement, development, modeling of computer or software applications

When most architect or engineering executives think of R&D, they imagine people in white lab coats or computer programmers slaving away into all hours of the night. They do not recognize many of their own firm’s R&D efforts, such as improvements in spec designs, modeling, and infrastructure investments. Managers frequently view these activities simply as normal and ordinary business operations. In doing so these professional firms are missing the opportunity to recoup related expenditures as R&D Tax Credits—a dollar for dollar credit against your tax liability in addition to your normal tax deductions for R&D expenses.  

Significant win from the US Tax Court - Populous Holdings, Inc. (December 2019) was granted a summary judgement that provides a clear, concise roadmap for taxpayers and practitioners to evaluate whether research is funded under contract. Populous Holdings, finding that the company’s architecture work performed under fixed price contracts qualified for federal research tax credits and was not excluded as funded research under IRC Section 41(d)(1)(H). The result is a huge win for companies predominantly engaging with clients on a fixed price basis.

The FI-Group is providing complimentary consultation and qualifying assessments for FACC-NY members, and their clients. Contact Bruce today to get started!