At Tax Credits Group, we partner with dozens of CPA firms throughout the Midwest. Some of the firms we work with handle the Research & Development tax credit in house but choose to bring in our team of experts as needed. Others firms we work with choose to outsource this service completely.
The question is why? Why do CPAs–professionals capable of doing highly complex mathematical calculations and estimates–choose to pass this work off to someone else? Is the R&D tax credit really that complex that CPAs can’t figure it out for themselves?
Of course this is not the case. In fact, we see most CPAs outsourcing this work because partnering with an R&D specialty firm helps them to strengthen their competitive positioning. In short, it helps them do more, not less.
Let’s take a look at 5 of the most common reasons why CPAs are choosing to outsource this work:
1. To Provide Expert Resources Without Added Cost – The IRC Sec. 41 research credit really is quite complex. In fact, it’s often thought of as one of the most complex areas of the tax code, mostly because the rules and requirements needed to claim it can be ambiguous and prone to changing. Because it is such a highly specialized area, some CPAs have little to no experience with the credit at all. And more often than not, small to mid-size firms do not have the internal resources to hire an expert to focus on this area. By working with an outsourced R&D provider, a firm can offer services like the “Big-4” without having to take on the additional staffing cost.
2. To Attract New Business Opportunities – Today’s busy CPAs are faced with vast pressures to maintain and grow their business and having an additional service line to offer to your prospects never hurts. Mentioning the opportunity to lower tax savings via the R&D credit to a new prospect could very well be a huge point of differentiation during the decision-making stage. In fact, on more than one occasion I’ve had a client tell me that they weren’t even aware that the R&D credit existed until they switched CPA firms.
3. To Allocate Limited Internal Resources to Other Needs – It is not uncommon for an R&D Tax credit study to take hundreds of hours to complete. This is especially true for large, complex studies that may include multiple entities, locations or acquisitions or dispositions. So, while some firms do have the capability and expertise to handle the credit in house, they often lack the necessary bandwidth needed to fully examine these opportunities given the multitude of other pressing priorities. By partnering with an outside specialty provider, you can offer your clients R&D tax credit studies while still allocating your limited internal staffing resources (and your billable hours) to more pressing priorities.
4. To Ensure Proper Client Support Under Audit – For many CPA firms we partner with, calculating the actual R&D credit is not the actual challenge. The real concern is in making determinations regarding qualifying versus non-qualifying activities and the associated costs. For some CPAs, fear of being called on to substantiate their claims under federal or state audit make handling the incentive in-house a risk that is simply not worth shouldering. By working with a third-party provider who includes audit defense in their work, you are able to offer your clients the benefits of the R&D credit without taking on the audit risk. This can be worth a lot to a busy CPA in piece of mind alone.
5. To Stay Current on New Regulations and Avoid Missing New Opportunities – For a modern CPA, balancing existing workload while trying to stay up to date on the latest rules and regulations relating to the R&D tax credit is beyond challenging. Working with a specialty firm who focuses on just one area of the tax code gives you an inside track on the latest developments and helps you rest assured that your clients are not missing out on new opportunities or information due to ever-changing rules and regulations.
So there you have it. 5 reasons why partnering with an R&D specialty firm can help to strengthen a firm’s competitive positioning.