What Is a Tax Credit Survey & Why Is It Important?
Learn how a comprehensive assessment of business operations helps identify and validate opportunities for significant tax savings.
Tax credits reduce a company’s tax liability. Businesses use a tax credit survey to capitalize on these financial opportunities. This approach identifies, documents, and substantiates eligibility for tax benefits. A survey is a strategic step to maximize tax savings and ensure compliance.
Understanding a Tax Credit Survey
A tax credit survey reviews company operations, projects, and financial expenditures. Its purpose is to identify activities aligning with federal tax credit criteria. This uncovers potential tax savings.
The objective is to maximize eligible tax reductions and adhere to tax laws. This helps mitigate non-compliance risks during audits. Such surveys commonly apply to incentives for research and development (R&D), energy efficiency investments, job creation initiatives like the Work Opportunity Tax Credit (WOTC), and historic preservation projects.
The survey requires a deep dive into financial, operational, and project data. This establishes a clear link between activities and credit requirements. The process builds an evidentiary foundation for claimed credits.
Key Information Collected
Information and documentation substantiate claims. Financial records include payroll data for qualifying activities, general ledgers, and project expense reports. Purchase orders and invoices verify credit-eligible expenditures.
Project documentation provides evidence, especially for R&D credits. This includes:
- Research plans
- Design specifications
- Meeting minutes
- Project timelines
- Experimental results
- Intellectual property filings
Other credit types may involve detailed plans for energy-efficient upgrades or historical renovation blueprints.
Personnel information details employee roles, responsibilities, and time allocation for qualifying projects. Resumes and organizational charts establish expertise and involvement of key individuals. Contracts and agreements (vendor, client, licensing) clarify scope of work and costs, especially for outsourced or collaborative projects. Operational data (production logs, energy consumption records, facility schematics) provides evidence for credits tied to manufacturing, environmental improvements, or property-based incentives. Each piece of information provides verifiable proof that activities and expenses meet tax law requirements.
Steps in Conducting a Survey
A tax credit survey follows a multi-phase process for accuracy and compliance. The initial phase, scoping, involves the provider understanding client operations and identifying potential tax credit areas. This defines objectives and scope.
After scoping, data collection and interviews occur. This gathers information from various sources, including interviews with key personnel (engineers, project managers, financial staff) to understand their contributions to qualifying activities. Financial systems are reviewed, and relevant project documentation is extracted. Site visits may observe operations and gain insights.
The collected data undergoes analysis and qualification. This involves applying tax law criteria to the information. For instance, for R&D credits, this means ensuring activities meet the four-part test for qualified research. The analysis quantifies eligible expenses and activities, determining the credit amount.
Finally, documentation and reporting are prepared. This includes reports, workpapers, and supporting documentation for tax filings and potential audits. The process concludes with review and finalization; information is vetted by the survey team and presented to the client for approval before submission.
Role of Survey Providers
Tax credit surveys are often undertaken by internal finance departments or specialized tax consulting firms. External providers bring a focused skill set that can be invaluable to businesses.
External providers offer several advantages, primarily specialized knowledge of complex tax laws. This expertise identifies eligible activities and maximizes credit claims, often uncovering opportunities internal teams might miss. They also possess extensive experience navigating qualification criteria for various credits.
External firms employ efficient methodologies for data collection and documentation, streamlining the survey process. They also support potential audits by the IRS or state tax agencies, defending claimed credits with documentation and expert insights. When selecting a provider, businesses consider industry-specific experience, a track record of successful credit claims, and their proposed methodology.