The Problem:
When Alice* became Tax Director at a manufacturing corporation, she recognized right away that their R&D credit filing process needed to be modernized. The company had relied for years on a questionnaire-style approach to gather information in order to determine which of their projects qualified for the credit based on the IRS’s 4-Part Test. “It was really more of a Q&A and trial balance-related data that I didn’t feel would really be enough for audit,” she explained. “I wanted something more robust and audit-ready, with plenty of documentation on projects, how they qualified, and why they qualified.”
She worked at companies before where every project was mapped out on paper and the documentation was stored in boxes. As the work moved fully online, she has watched the R&D credit process become less exact and more based on the memory of engineers and their managers. “They’re just lackluster with the documentation subject to opinions,” she says. “And if the people who are filling out the questionnaires are no longer with the company, that puts you in a difficult position during an audit.”
In the years prior, a CPA firm would come in, do interviews with engineers and managers, and then create a calculation for the return. “But ultimately we didn’t get all of the detailed documentation I felt was needed to support the credit,” she says. “I just didn’t feel comfortable going into an audit with the documentation we received.”
So, Alice knew she needed to find an approach for her employer that would create a substantiated R&D credit with plenty of documentation. That’s when she came across Neo.Tax.
The Neo.Tax Solution:
Soon after Alice began the process of onboarding with Neo.Tax, she noticed a massive difference: Neo.Tax’s AI-powered solution was tapping into the programs the engineers were actually using on a daily basis.
The trial balance data, the GL data, and the wage data had all been part of her earlier filings. But suddenly, by integrating with the project management data and using machine learning to analyze, evaluate, and generate a detailed study, Neo.Tax created a detailed view of the R&D work landscape in a way that questionnaires never could.
“One of our year’s summary documentations was over 200 pages of written information,” she says of the Neo.Tax filing. “We have detailed writeups on each project. We have detailed writeups on what the departments and each person worked on. I’m much more comfortable with that.”
More than that, Alice saw how being able to access and leverage things like engineers’ notes made during the work on a project created a view of their R&D process that a Q&A never could.
In early years, the manufacturing corporation would rely on VP-level interviews to try to get a global view of the R&D work. For the top-10 or so projects, they were able to get a specific narrative via questionnaires and interviews with managers, but Neo.Tax’s AI was able to get an even more detailed view of many more R&D activities throughout a tax year.
The benefits of that were twofold. First, Alice could substantially cut down on the VP-level interviews this tax season, saving valuable time for the high-level executives. Second, Neo.Tax’s system gave her team a window into the work that was impossible to see via 20-minute interviews with managers.
“That doesn’t just help us internally in tax,” Alice says. “That also helps the whole business organization understand: ‘hey, here’s what we’re spending money on, and here’s how it’s qualifying.’ If you look at the two biggest components—the project and the wages—you can see a correlation to where the benefit resides.”
For Alice, it’s exciting to know that not only has Neo.Tax created a credit that can give her confidence during an audit; it can also be a strategic financial advantage for the entire executive team.
There will always be engineers annoyed with the R&D credit process, Alice explains, because they don’t see it as a part of their core function at the company. But she’s seen the way that Neo.Tax can integrate into their daily work flow, creating value while minimizing disruption.
“Now, they can remove the mental block of ‘this is going to cause me untold extra hours’ and become productive in helping the company obtain these credits,” she says. “They’re realizing that that thought process was really a part of the past. As time goes on, I think we will have fewer and fewer surveys that we need to do.”
Will there be zero? “I was like, ‘No, we’re going to have surveys,” Alice says. “But do we need 350 surveys? I think we can get 350 down to 30.”
“It was just a pleasant experience working with you,” she continues. “Which is something you don’t often hear about the R&D credit process. But we enjoyed it.”
*Name has been changed.
“We have detailed writeups on each project. We have detailed writeups on what the departments and each person worked on. I’m much more comfortable with that.”