Tip #40 – Evaluate your provider

Evaluate your R&D credit provider, they may not be the expert you expect them to be.

Your R&D credit is a big deal.

It may be the most beneficial, most time consuming, most contentious, and most audited item on your tax return. Shouldn’t you have the best team possible working on it?

Not all R&D credit experts are equal. Don’t be fooled by the many non-tax folks marketing themselves and posing as tax experts.

SPRX R&D Credit Tip – Evaluate your R&D credit provider, they may not be the expert you expect them to be.

Trust but verify

Trust but verify, a phrase made popular by Ronald Regan, is an English translation of a Russian proverb – “Doveryai, no proveryai”. It literally means a responsible person always verifies before doing business with another.

With social media today, why would you not take a moment to evaluate your R&D credit provider. You can quickly check professional backgrounds on LinkedIn. Link up with your R&D credit provider and quickly check the following:

  • Who is doing the work?
  • Do they know accounting?
  • Are they a CPA or a tax attorney?
  • What is their R&D credit experience?
  • Will they be there tomorrow?

Evaluate your R&D credit provider and verify they have the experience you expect.

Who is doing the work?

Tax consultants like to use bait and switch marketing. An experienced partner comes out to meet with you and explain their expertise. Then as soon as you sign the contract a separate implementation team comes out to run the project. You never benefit from the expertise you thought you were hiring.

The other day a tax director shared a story I’ve heard several times. She had worked with an R&D partner and manager for a few years. She was happy with the results they delivered. As the next year R&D study began, she noticed there was a new staff person assigned to her project. She didn’t think much of it because after all she had the same partner and manager team. As the project started things started to fall apart. She soon discovered that it had been the staff person who was doing all the great work. The partner and manager were hiding behind the excellent performance of the staff.

Check staff backgrounds. They are the ones who will be making your tax decisions.

Do they know accounting?

Firms have hired people with all types of backgrounds and marketed them as R&D credit experts. There are people with degrees in mathematics, history, comparative literature, art history, sociology, health studies, and psychology holding themselves out as tax experts and performing R&D studies.

These persons may know a few tax rules and spreadsheet functions, but they are missing the professional and analytical skills expected from accountants. You should expect your tax consultant to have been trained in professional skepticism and to not simply accept information at face value but to verify the information through documentation. You should expect them to know how to vouch, trace, organize, think critically, and interpret regulations.

Basic accounting skills are fundamental to a successful tax analysis.

Are they a CPA or tax attorney?

Many senior professionals working as R&D credit experts are not CPAs or tax attorneys. You may correctly ask, “how can that be?”

Accounting firms have had to change partnership admission requirements to accommodate R&D credit professionals who drive revenue but who cannot pass the CPA or bar exam.

Who’s making your tax decisions? Are you comfortable taking tax advice from a business analyst, material control specialist, editor, or civil engineer?

What is their R&D credit experience?

The R&D credit is a provision in the tax code. There is a complex regulatory and judicial history behind the R&D credit. Understanding this history is essential to maximizing and defending your R&D credit.  

Yet many of today’s R&D credit “experts” are ignorant of this history. They have not had experience reading, studying, and applying the various regulations and court cases. Lack of experience can lead to terrible outcomes.

Imagine you are in a meeting with an IRS agent. The agent offers an outlandish interpretation of a tax regulation. You look to your CPA for a response. The CPA is shell shocked, confused, and unable to respond. At best the CPA replies with, “I will need to check that and get back with you”. Too late. The damage has been done. Your entire R&D credit may have just vanished because of the inexperience of your CPA.

Experience matters. Be sure your team has it.

Will they be here tomorrow?

It may take a few years before the IRS comes knocking. Will your R&D credit provider be there when the time comes?

You can look on LinkedIn and quickly see if a person has a history of changing jobs every couple of years. There are reasons why people move frequently and most of them are not positive. Find an expert with a history of stability.

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