Your Research and Development tax credit is only as good as the Qualified Research Expenses (QREs) it includes.

When QREs are missed, your credit is understated. That means less cash benefit, less payroll tax offset, and value left on the table year after year.

A lack of innovation does not cause most missed QREs. They result from incomplete analysis driven by traditional providers’ reliance on statistical sampling.

What Counts as Qualified Research Expenses?

QREs are the costs tied directly to qualified research activities. The R&D tax credit exists to reward companies that invest in experimentation, engineering, and technological advancement.

The most common QRE categories include:

• Wages paid to employees who perform, supervise, or directly support qualified research

• Supplies used in experimentation, testing, prototyping, and development

• Contract research performed by third parties on your behalf, subject to ownership and risk rules

• Overhead costs that directly support research activities, including certain utilities, rent, and depreciation

Not all R&D spending qualifies. The underlying activities must meet IRS requirements.

IRS Requirements for Qualified Research

To qualify, research activities must be undertaken to:

• Discover information that is technological in nature

• Eliminate uncertainty related to capability, method, or design

• Improve a product, process, software, technique, or formula

Misunderstanding or oversimplifying these criteria is the fastest way to miss QREs.

Why QREs Are Commonly Missed

The R&D credit rules are complex, subjective, and have evolved significantly over time.

In Suder v. Commissioner (2014), a U.S. Tax Court judge stated that the R&D credit rules are the most complex and challenging to apply in the entire tax code. That complexity still defines the credit today.

Accurately identifying QREs requires deep specialization. It involves analyzing multiple versions of regulations, decades of case law, and extensive IRS guidance. Many firms do not invest at that level.

As a result, credits are often prepared by individuals who lack the tax background required to apply the rules correctly.

Red Flags That Signal Missed QREs

If your R&D provider says things like the following, you may be leaving money on the table:

• "Let's look at SALY." SALY is efficient for billing hours. It is not how you maximize or defend an R&D credit.

• “That’s not a real uncertainty.” There is no rule defining a “real” uncertainty. Uncertainty either exists or it does not.

• “That project had less uncertainty than others.” The rules do not require comparison between projects.

• “Exact time tracking is not required.” The rules require substantiation. Statements like this can jeopardize a credit during an audit.

• “You don’t have business components.” This misunderstanding has resulted in full disallowance of credits.

These are not minor errors. They are fundamental rule failures.

The Cost of Getting It Wrong

Missed QREs mean:

• Smaller credits

• Lower cash benefit

• Reduced payroll tax offsets

• No ability to recover value that was never claimed

The impact compounds every year.

A Smarter Approach to Identifying QREs

Modern AI systems are trained on the whole body of R&D tax law, including statutes, regulations, court cases, and IRS guidance. They apply rules consistently and surface eligible costs that manual processes often miss.

When paired with expert review, AI enables a more complete, defensible, and accurate R&D credit. The result is simple: more qualified costs identified, less risk, and more value captured.