Written by: Onosetale Aigbe
A Research & Development Tax Credit Consultant, from now on referred to as a R&D Tax Consultant, is a peculiar and niche part of the consultant industry focused on identifying, qualifying, quantifying and delivering tailored technical and tax solutions to U.S. based companies and business owners participating in research and development for the U.S., specifically in STEM (Science, Technology, Engineering, Manufacturing) industries. For simplicity, R&D Tax Credits are rewards for companies engaging in the development of new or improved products, processes, software, formulas, inventions or techniques to the company, the U.S. and even the world. R&D Tax Credits reward companies for investing in U.S. employees, U.S. contractors, suppliers and materials used on U.S. soil and U.S. cloud hosting expenses, hence allowing R&D Tax Credit Consultants to discover R&D activities within these companies according to Section 41 of the Internal Revenue Code.
Using the term discoverer to describe R&D Tax Credit Consultants is only a portion of the influential and critical duties an R&D Tax Credit Consultant undergoes to identify tax-deductible expenses linked to R&D endeavors. I identify R&D Tax Credits for U.S. businesses in the STEM (Science, Technology, Engineering, Manufacturing) industry engaged in innovation and research. I am well positioned in the field as I have both a master’s and bachelor’s degree in Mechanical Engineering, and I have also performed research and development during my master’s program. These qualifications are niche in the industry of R&D Tax Credit consulting, as I am well situated in this field both from an experience and an educational standpoint. This advanced and unique combination of education, skills and knowledge that I possess makes me well positioned to advance my endeavor in Research and Development (R&D) Technical Tax Consultancy specializing in delivering tailored technical and tax solutions to the STEM (Science, Technology, Engineering, Manufacturing) industries by designing, guiding, and executing comprehensive R&D activities reviews, identifying tax-deductible expenses linked to R&D endeavors, and ensuring full compliance with R&D Tax Credit regulations, consequently bringing tax benefit to companies, promoting technical experimentation and advancing innovative R&D activities across the United States. My clientele list explicitly includes Mechanical, Electrical, Plumbing (‘MEP’) and Fire Protection engineering firms, Civil engineering firms, architectural firms, automotive manufacturers, plastic tubing manufacturers, chemical production firms, and machinery system integrator firms in the United States. In my technical experience as an R&D consultant, I have successfully identified well over $6,000,000 in R&D tax benefits for the U.S. STEM industries that were implemented from years 2019 through 2023. I have approximately a 96% success rate with over 200 R&D Tax Credit studies executed.
Given my technical background, I am particularly well-equipped to comprehend and analyze scientific and technical processes, as well as the knowledge base within the STEM field. With my advanced knowledge base, I easily identify technical design uncertainties and industry language compared to another consultant without my background. For instance, when relating to engineering and manufacturing firms, it is important to understand the technical uncertainties that might be present in regards to developing a power distribution plan for a multi-use building, or sustainable and economic designs for a plumbing system with sloped elevations, or even the appropriate equipment to utilize in designing wastewater management system for a neighborhood. My knowledge base is leveraged and key in relating with clients in identifying these technical uncertainties and understanding the process of experimentation undertaken to resolve design challenges. Furthermore, it is always advisable to have contemporaneous documentation to substantiate the R&D claims for the associated qualified expenses. With my technical background in engineering, I am well-equipped to identify and request the requisite documentation essential for the effective substantiation of research expenditures.
I am also proficient in working with various forms of technical documentation, including time tracking data, job costing details, WIP reports, project plans, design process reports, calculation and analysis reports, as well as computer-aided drawings and schematics commonly utilized in the STEM industry during the design and development phases. This familiarity with industry-specific record-keeping practices and reports, positions me advantageously compared to my peers, as I am able to efficiently collaborate with clients to identify and request the most appropriate documents to support their specific R&D activities and enhance industry performance.
In a similar light, my expertise in the industry, educational background, and track record of success in R&D allows me aid clients into providing and dissecting thorough engineering and technical methodology STEM companies utilize in determining alternative design options, running modelling simulations using 3D computer-aided design software, testing and prototyping on projects. I can effectively pinpoint R&D activities based on the guidance from Section 41 and Section 174 of the Treasury Regulations. My unique position – having a mechanical engineering background and conducting R&D myself, also comes into play to timely identify companies who are not engaged in a technical process of experimentation and do not qualify for the credit, as they lack a technical process to resolve challenges during development.
Additionally, with a higher education, I belong to professional engineering associations and subscriptions with my university’s engineering research center and I am able to stay updated on the latest technologies and research which gives me an edge in identifying new products, processes and techniques to watch out for and highlight during interviews with the engineering, manufacturing and software team members in my client’s companies. The engineering and manufacturing industry have compliance and industry-specific regulations on safety, material, environmental impacts that are complex. My background again serves as an advantage amongst non-technical consultants to understand and reference these regulations when having technical interviews on projects and activities that meet the four-part tests as a qualifier for the U.S. federal R&D Credit.
It is important to know that these U.S. federal R&D Tax credits are of urgent and national importance to the U.S. R&D efforts and national economy. R&D Tax Credits fosters innovation which is an economic benefit for the United States. According to The State of U.S. Science and Engineering 2024, the United States is a top performer of R&D, with $801 billion in gross domestic expenditures of R&D in 2021 [3]. The global competitiveness of the United States in STI is driven not only by the country’s development of a workforce equipped to perform technologically advanced activities, but also its investment in R&D [3]. The article further examines how the business sector is the largest funder of R&D in the top R&D-performing countries, which the U.S. is ranked third place in R&D intensities in 2021 [3]. Specifically, the STEM field is where innovation is high in the U.S. economy. The STEM workforce supports about 69% of the U.S. Gross Domestic Product [2]. Support for science and engineering—from robust federal funding to private-sector investments—created a U.S. economy spurred by innovation. In turn, that innovation led to a rapid proliferation of jobs across the nation’s workforce. The U.S. federal government and national scientific organizations have highlighted the urgent and critical need for an increased focus on the development of the nation’s skilled-technical workforce, citing projected talent and workers shortages and training needs for the jobs of the future [4].
Public, private and nonprofit institutions recognize the impact that STEM careers will have on the future success of the U.S. economy, underscoring the need for increased educational pathways for local governments and industries to promote STEM workforce development [4]. Continued robust U.S. federal support for research and science and engineering policies is urgently needed to power the economies of local and regional communities across the United States and the nation as a whole [4]. The R&D Tax Credits represent a key component of the ‘federal support’ that the U.S. government is investing to strengthen and sustain the national economy.
Companies in the U.S. are in need of employing more high-skilled workers due to the need for more U.S. skilled labor. When it comes to driving the U.S. economy, fostering innovation, and securing global leadership, one of the greatest assets is a robust, diverse STEM workforce. Yet, with demand rapidly rising for skilled STEM professionals, the U.S. risks not being able to fully meet this critical need [5]. In the analysis of STEM and the American in 2020, it was determined that the vast majority of American economic activity is attributable to STEM. The American STEM workforce is not only composed of Silicon Valley coders and Ph.D. scientists, but also includes STEM professionals working in occupations that do not require a bachelor’s degree. These licensed practical nurses, electricians, advanced manufacturing specialists, laboratory technicians, military communications systems managers and more make up the backbone of the STEM workforce [4].
The R&D tax credit encourages private investment as more people see the need to invest in innovation especially in high-tech industries, pharmaceuticals and clean energy. Additionally, private government contractors developing management software for U.S. Army and intelligence agencies also take advantage of R&D tax credits. Government contractors engaged in advancing defense technologies including aerospace, cybersecurity also claim the R&D tax credits. From the savings of the R&D Tax Credits, private government defense and management contractors continue to invest in modern research and development to ensure the U.S. has revolutionary and quality technologies for the national safety of the country. The U.S. manufacturing sector also benefits and will continue to benefit from the R&D Tax Credit. R&D Tax Credits support the advancement of the manufacturing industry, as it is an incentive for these companies to continue the development and advancement of manufacturing processes and technologies within the country. The domino effect is that as R&D tax Credits foster the creation of more manufacturing plants, then there is a creation of more U.S. jobs to run more manufacturing plants as well as reduce offshore production and importation of foreign goods that can help with the potential increase in tariffs under the new presidential administration.
When we examine the use of clean energy and the trend of sustainability in the U.S., there has been an upward trend in recent years. In 2023, there was an energy deployment in the United States, including the escalating installation rate of solar, and energy storage, growing electric vehicles and the number of planned domestic manufacturing facilities [1]. The article further explains that one of the causes of the major obstacles to clean energy development is that some companies have struggled financially and clean energy stocks are down [1]. In 2023 the clean energy sector met great supply chain challenges in getting the technology. U.S. manufacturers of solar panels, batteries and parts for electric cars that claim the R&D credit benefit continue to reserve cash flow or obtain refunds from the government to reinvest back in the company impacting their sector [1]. The R&D credits can aid the manufacturing sector, to maintain ‘capital’ to hire more U.S. employees for manpower to avoid delays. With additional savings from the R&D credit, manufacturing plants in the U.S. can expand their services and implement additional technology. Implementing additional technology will require purchasing the equipment or machinery needed, hiring local engineers, technicians, programmers to set up the production plant to help the back log in clean energy stock. It is a continuous cycle of reinvestment in the U.S. economy as R&D tax credits allow the STEM field to re-inject capital into their businesses to hire new workers or train their existing workforce, purchase new equipment and machinery to continue in R&D endeavors to advance their field and inherently the U.S. Economy.
The broad and substantially impactful contributions of R&D Tax Credits to the U.S. economy, particularly within the STEM sector, includes:
Increase Cash Flow: For STEM startup companies that have low capital or are in a loss position, eligible companies can receive a refund. The refund can help improve the cash flow which is important for startups and small businesses with limited capital. It can help the U.S. economy as it encourages more people within the STEM field to take the initiative to open a business that can add to the innovation but also hire U.S. workers to work, boosting the economy by creating more jobs in the U.S.
Reinvest in Innovation in the U.S.: Companies who claimed the R&D credit use the savings from the credit to re-invest in future research and development projects, essentially continuing innovation especially in the technology, science, manufacturing and pharma fields. These STEM companies might have need for new R&D talent, new equipment or facilities to expand their scope in research. It is also very important to note that the wages, contractor costs, supply and materials must be from the U.S. and used within the U.S. to be taken towards the credit. The R&D tax credit encourages an endless cycle to enhance the STEM field in the U.S. as people doing innovative work in the U.S. are hiring more resources in the U.S. thereby boosting the U.S. economy.
Attraction and Retention of Talent: Company savings from the R&D credits can be used to hire additional researchers, scientists, engineers and developers to continue to expand new products, technologies, processes and software in the U.S.
Improve Cost Effectiveness: The cost of engaging in R&D activities can be quite expensive especially in industries like manufacturing, software and technology that require large scale development efforts involving new technology/ equipment, prototype, trial runs etc. The R&D credit can offset some of the costs given these companies an opportunity to pursue research that might otherwise be economically unfeasible.
Showcase Innovation for Investors: R&D credits provide an incentive for investors to take risks and invest in U.S. business rather than in businesses outside the U.S. Providing these manufacturing, technology, engineering companies more funding for innovation.
Other substantially impactful factors like supporting long term growth by encouraging people to take risks in new markets within the STEM field and even strengthening market leadership positions nationally and internationally in sectors that need continuous innovations like manufacturing, software and technology/bio technology are sectors in the U.S. STEM field that the R&D Tax Credit positively impacts.
References
[1] Bird, L., & Womble, J. (2024a, February 7). State of the US Clean Energy Transition: Recent Progress, and what comes next. World Resources Institute. https://www.wri.org/insights/clean-energy-progress-united-states
[2] Cogent InfoTech. (2024, January 30). Diversity in STEM: How does it impact the US economy?. Cogent. https://www.cogentinfo.com/resources/diversity-in-stem-how-does-it-impact-the-us-economy#:~:text=As%20more%20aspects%20of%20our,of%20diversity%20in%20STEM%20Education?
[3] Deitz, S., & Freyman, C. (2024, March). Science & Engineering Indicators- The State of U.S. Science and Engineering 2024, Discovery: U.S. and Global R&D. NSF. https://ncses.nsf.gov/pubs/nsb20243/discovery-u-s-and-global-r-d
[4] STEM and The American Workforce. (2020). https://www.cossa.org/wp-content/uploads/2020/02/AAAS-STEM-Workforce-Report_1-24-2020.pdf
[5] The U.S. needs more STEM workers ASAP. A National Science and Technology Strategy can help. Science & Technology Action Committee. (2024, August 19). https://sciencetechaction.org/news-item/the-us-needs-more-stem-workers-asap-a-national-science-and-technology-strategy-can-help/#:~:text=The%20STEM%20workforce%20today%20includes,at%20current%20degree%20completion%20rates.
