R&D Tax Credit Insights from Former IRS Executives – Videos

by Jack Jolly, Director and Mark Bodenstab, Director | KBKG, 6/14/2022

Jack Jolly is a Director of R&D Credit at KBKG. He worked 20 years for the IRS managing a team of IRS engineers who spent most of their time auditing R&D tax credit claims. Jack has an insider’s view on what they are looking for in Research Credit Studies.

Mark Bodenstab is a Director of R&D Credit at KBKG. He worked 14 years for the IRS managing a team of IRS engineers who spent most of their time auditing R&D credit claims. Mark has an insider’s view on what they are looking for in Research Credit Studies.


Benefits of Having Former IRS Professionals on Our Team

With a combined 34+ years of experience working for the IRS, Jack and Mark bring their technical expertise to KBKG. Their insights and experience further enhance the quality of the studies performed by KBKG. They know from personal experience the variety of quality the IRS sees with these studies. Together, Mark and Jack are an integral part of KBKG’s Audit Support.


Audit Defense Practice

Working with a qualified firm with a team of experienced specialists can abate many issues that could arise during an audit. With decades of research credit audit experience, we fully understand IRS audit techniques and procedures. Our firm can guide you through the audit process in the least amount of time while sustaining the maximum credit possible.


R&D Tax Credit Insights from Former IRS Exec: What is the Four-Part Test?

You’ve got to meet four parts. First, being you have to meet the Section 174 test. The second is you must be discovering something technological in nature. The third, it’s really got to be associated with a business component. And the fourth, you must use a process process of experimentation and that’s critical, and you’ll probably see that that’s where the examination team is going to focus their efforts. They want to understand how you went through the experimentation process in developing your new business component or process you.


R&D Tax Credit Insights from Former IRS Exec: Types of Sampling Methodologies

One of the things that you run into on research credit studies is you have a large population of projects or activities and or people conducted those — it’s just too many to get good data on all of them. So, you have samplings that you use and project that sampling result to the rest of the population. Then there are two primary methods: a statistical sample or a judgment sample. The important thing on a statistical sample is that you follow the IRS Rev Proc on a statistical sampling because it will be looked at by a computer audit specialist to make sure it did comply. A judgment sample — if you can get the IRS to agree on the judgment sample and the population sample that you want to project to the entire population, then that takes one thing off the table that you don’t have to worry about during audit, and it makes the data easier to manage .


R&D Tax Credit Insights from Former IRS Exec: How Can People Work with the IRS More Effectively?

It’s really important to have a good relationship with the exam team. And it’s really not hard to do — I mean, we’re all humans in this endeavor — but principally, the exam team is going to be looking for good documentation and they’re going to be asking for documents because it’s their job — the examiner’s job, to verify that the numbers on the tax return actually are supported by facts. And, so the more that you can help they explain what’s actually going on at the taxpayer’s location and so that the examiner understands it’s going to go a long way to seeking approval or you’re getting an approval of your entire credit.


R&D Tax Credit Insights from Former IRS Exec: A Good Research Study Can Make Life Easier

One of the things that you’ll find when you have a good research credit study and the way it’ll make your life easier in an audit is that any problems are explained. A problem occurs regularly is the research credit requires that you tie together the expenditures the activities and the business components. People don’t keep their records that way so what you wind up having to do is estimate how much qualified research actually took place, and a lot of times the support’s not there. You’re conducting interviews and the more support and more thoroughly you can support those estimates for the activities that took place and the related expenditures and have that nexus that the IRS is looking for, the more likely the credit’s going to be accepted and you won’t have any problems during the audit.


R&D Tax Credit Insights from Former IRS Execs: Types of Sampling Methodologies

There are principally two sampling methodologies. The first is a statistical sample and it’s important to follow the procedures and the process that’s set up in the rev proc and you can check that on the website. Statistical samples can be used by either side and they are infallible. Generally, the other one is the judgmental sample, and again both sides of the examination. Either side can use the judgmental sample but it’s really important to have both sides agree to what sample population is going to be used in a judgmental sample. If you don’t get approval or agreement from the other party, there’s a good chance you’re setting yourself up for problems and you probably end up going to appeals.

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