R&D Tax Credit
About
What Is the R&D Tax Credit?
The Section 41 Research and Development (R&D) Income Tax Credit is a powerful incentive designed to reward U.S. companies that hire U.S. employees and/or U.S. subcontractors, while investing in innovation and problem-solving. Originally introduced in 1981 under the Economic Recovery Tax Act (ERTA), the credit was created to incentivize U.S. companies to reverse the trend of offshoring manufacturing and wage spending by performing domestic research and development. For decades, it remained a temporary provision renewed numerous times until it was made permanent in 2015 by the PATH Act, which also expanded access to small and startup businesses.
Today, the R&D Tax Credit offers a dollar-for-dollar reduction in federal tax liability, and in many cases, state tax liability as well. While not all states offer an R&D credit, many do, and our team helps clients navigate both federal and state-level opportunities.
The U.S. Treasury reported distributing over $10 billion in R&D Income Tax Credits in 2024, with an estimated $4 billion in credits going unclaimed.
Whether you’re a business owner, CPA, or financial advisor, Prime Tax Group can support you or your clients in identifying, calculating, and claiming this often-overlooked benefit. With retroactive claims available for up to three prior tax years (four in select states), companies can unlock meaningful cash recoveries and reinvest in future innovation. Timing is critical, as unclaimed credits do expire.
Benefits
Significant Value, Unlocked.
Claiming the R&D tax credit opens the door to immediate cash flow and long-term strategic advantages. This isn’t just about tax savings, it’s about reinvesting in what moves your business forward.
Reinvest Where It Matters
Use your tax savings to fund R&D, hire talent, expand operations, or accelerate new product development, on your terms.
Enhance Company Valuation
R&D Credits augment cash flow, and are an asset on the balance sheet. Companies with well-documented R&D Credit history demonstrate operational efficiency and tax sophistication making them more attractive when seeking credit, pursuing acquisitions, raising funds, or preparing for an IPO.
Real Tax Savings
Substitute the credit for a necessary current tax payment. Reduce your federal, and in many cases, state—income tax liability with a credit. The financial impact is immediate and tangible.
Stronger Financial Profile
R&D Credits can strengthen your balance sheet and enhance how your business is viewed by lenders, investors, and potential acquirers.
Look Back Cash In
Eligible companies can amend returns for up to three prior tax years (four in some states), unlocking substantial tax refunds from already-incurred R&D costs.
Fuel for Startups
Qualified startups can apply the credit against employer payroll taxes up to $500,000 per year, delivering vital cash flow even in pre-revenue stages.
You Might Be Doing Qualified R&D Without Knowing It!
Most businesses overlook qualifying R&D activities. Let us help uncover what you may be missing.
Four-Part test
Are Your Activities Eligible?
To determine whether your activities meet the IRS’s standards for the R&D Tax Credit, your activities must pass what’s known as the Four-Part Test. This is the core compliance framework used to evaluate eligibility, and it’s the most challenging and critical part of any R&D tax credit filing.
The test is designed to ensure that claimed activities truly involve technical development and the mitigation of uncertainty, not routine operations, cosmetic changes, or simple adaptations. Because this area is often misunderstood, a seasoned team is essential to properly interpret, document, and align your activities to meet IRS expectations. Getting it wrong can reduce or jeopardize your credit. Getting it right can unlock substantial, defensible value.
Permitted Purpose
The goal of the activities must be to create or improve a product, process, technique, software, or formula.
Elimination of Uncertainty
The work must aim to resolve technical uncertainty. The "answer" cannot be known at the initiation of the qualified research activities.
Technological in Nature
The work must rely on hard sciences (e.g., engineering, physics, biology, chemistry, math, computer science). Soft science protocols are disqualified.
Process of Experimentation
You must evaluate one or more alternatives through modeling, simulation, testing, or trial and error to reach your conclusion.
Documentation & Legal Qualification
Contracts, Records & Risk: Do You Truly Qualify?
There are two core pillars to qualifying for the R&D Income Tax Credit: substantiating your activities through the IRS’s Four-Part Test (which, in practice, operates more like a seven-part analysis), and ensuring your contracts and records legally support your claim. Many companies focus only on the technical side, and overlook the legal foundation that can make or break eligibility.
Even if your team performs valid R&D, you may still be disqualified if your contracts assign ownership of the R&D results elsewhere, or if you don’t bear the economic risk. That’s why Prime Tax Group conducts a dual-layer review: analyzing technical qualifications and validating legal structures through our in-house attorney.
Customer Contracts & Economic Risk
Do your customer or subcontractor contracts disqualify your company? To qualify, you must retain ownership of the work product and bear the economic risk of development. Our in-house attorney conducts a thorough review of these agreements to determine whether your contractual structure supports or undermines your eligibility.
Company Records & Employment Agreements
Your claim must be backed by employment agreements, subcontractor arrangements, and internal records that prove certain individuals were supervising, conducting, or supporting qualified R&D activities. The IRS and Tax Court have invalidated claims lacking this contractual and contemporaneous record support.
A company can spend thousands or millions on R&D activities and still miss qualifying for R&D Income Tax Credits!
How it works
Precision. Process. Payout.
We start by learning about your operations and identifying potentially eligible R&D activities through documentation review and brief, focused interviews with key managers leading your technical efforts. We work around your team’s schedules to minimize disruption and ensure accuracy from the start.
We coordinate with your accountant, CFO, or controller to gather the payroll, supply, and contractor data needed to calculate your Qualified Research Expenditures (QREs). Our software evaluates all allowable calculating methods to ensure you receive the highest defensible benefit.
Through additional documentation and in-depth review, we apply the IRS’s Four-Part Test to each activity. This ensures every claimed expense meets federal (and state, where applicable) R&D standards.
We compile the necessary documentation to support your R&D credit claim, as required and periodically updated by the IRS, and guide you through the filing process. Each claim undergoes multiple internal reviews, including a final review by our tax attorney to ensure accuracy and defensibility. Should any questions arise, we’re available to support your position.
We help clients implement internal improvements that make year-over-year tracking easier and claims more robust. Through our evergreen plans, we partner with you on an annual basis to proactively identify qualifying activities and maximize your benefit over time.
Questions don’t stop after filing and neither do we. Whether it’s a quick clarification, or a request from your CPA, our team remains available year-round to support your credit claims, provide documentation, and respond to inquiries as they arise.
R&D FAQs at Your Fingertips.
Chances are, if you’re asking it, we’ve answered it in our R&D FAQs. View the attachment for more R&D related insights.
Why PTG For R&D?
A Better Standard.
When it comes to claiming R&D tax credits, precision, compliance, and trust matter. We don’t cut corners, chase inflated credits or “guesstimate.” We build defensible, audit-ready claims backed by experience, ethics, and client-first service. From early-stage qualification reviews to post-filing audit representation, we bring full-cycle expertise that removes the guesswork and maximizes your defensible benefit.
Pre-Qualification Review at No Cost
Fortunately, a business’s activities either qualify or do not qualify, a fact we can typically determine through three primary assessments conducted by our tax attorney. We invest the time and effort upfront to evaluate the potential for qualification before engagement, saving both the prospective client and our firm time and money.
There are no fees for the Pre-Qualification Review.
Full Inquiry, Examination, or Audit Representation Included
Every claim for a federal or state R&D Income Tax Credit is reviewed by the relevant tax authority upon submission. If any required documents or supplemental information are missing, the initial reviewer will pause processing and request the necessary data from the taxpayer. Once the initial examination has “checked all the boxes,” the claim is advanced for further review.
Additionally, before any credits are awarded or refunds issued, a secondary review is conducted. This review may request additional supporting documentation or clarification of the calculation assumptions and methodology.
On occasion, either by random selection or by intent, a taxpayer may be selected for a full examination of the claim data. In some cases, this process may expand into a formal audit, which can involve testimony from the taxpayer and our tax attorney.
Prime Tax Group LLC provides at no additional cost, representation of the taxpayer (as well as pass-through owners of the taxpayer) in all of the above-referenced activities at the state or federal level for the applicable “open year” review period. In the case of R&D Income Tax Credits, this period can extend up to seven years. We represent our clients through to the issuance of a letter of determination.
Billed Only on Net Credits (Not Gross)
PTG delivers to its clients a Form 6765 report that defines the gross income tax credits that may be legitimately claimed by the client on their amended or timely filed returns.
PTG’s terms of engagement require payment for services based on the net credits identified and delivered to the client, with fees capped accordingly. In contrast, many of our competitors, whether in services rendered or audit defense billing charge fees based on gross credits identified.
Our approach saves the client approximately 21% on fees for services.
There are no fees for the Pre-Qualification Review.
Fees Due Only Upon QRE Delivery. Fees Paid Upon Utilization
Once PTG has delivered the credits and supplemental reports necessary to substantiate the claim, our services are considered fully rendered. At that point, the client may file their amended or timely filed returns, either seeking a refund or using the credit to offset a current tax liability.
PTG’s fee payment policy allows clients to delay payment for services for a period of time, enabling them to receive refunds or apply the credits toward existing tax obligations before remitting payment.
Claim What You’ve Earned
Don’t wait to claim the credits your innovation deserves. Unfortunately, credits do expire if not claimed. You can amend prior-year returns to recover missed opportunities so the sooner you act, the sooner the benefits are delivered.
Contact form
Discover What PTG Can Do for You!
Fill out the form to learn how Prime Tax Group can support your business with high-impact solutions. One of our specialists will reach out to discuss how we can help.
Newsletter
Subscribe to the PTG Insider Newsletter!
Gain access to high-level business strategies, redacted case studies, legal and tax court updates, and IP/licensing trends curated by the experts at Prime Tax Group. The PTG Insider Newsletter is built for executives, CPAs, and legal professionals who want to stay ahead of the curve without the noise.
Prime Tax Group, LLC
Quick Links
Contact Info
- +1 (512) 853-9888
- info@primetaxgroup.com
Corporate Office:
3960 Howard Hughes Parkway, Suite 500 Las Vegas, NV 89169
Austin Office:
2101 S I-35, Suite 105 Austin, TX 78741