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Case Study: Chemical Research

Industry: Pheromones and Biochemicals Research & Manufacturing

Number of Employees: 40+

Commonly Qualifying Tasks:

  • Research on specific molecules and formulations
  • Conceptual development and pre-exploration activities
  • Specific compound research
  • Creation of formulation variants
  • Validation and testing of new formulations
  • Formulation modification

A chemical research company researched, identified, isolated and created formulations for use in a wide variety of different products for their clients. Their extracts and compounds were utilized in everything from insect repellents to perfumes. This company was hoping to qualify some of their investment in the development of their specific chemical compounds to generate a research activities credit.

A review of their process yielded a strong fact pattern for qualification of their activities. Product development always began with the research before specific exploration began. This included researching new processes, raw materials, and reagents that were being discovered throughout the market. This informed the development team as to what new products to work on.

Once a specific compound has been identified, the team will begin working on securing samples and exploring the molecular structure of the compound. This leads to a wide variety of research activities including development of processes for production and the identifying of applications for the compound under development. After they have completed a formulation, extensive testing is done which informs the team of any changes they need to make to either the product they were creating or the process through which they were creating it. This testing includes, but is not limited to, visual verification, molecular analysis, shelf life testing, etc.

In some cases, a particular chemical compound they have created may need to be produced in large quantities for a client that the team had never planned for. In these situations, they would need to create a new process that allows them to scale up their production from less than 1 liter quantities to several hundred liters.

In this company’s case, they were able to qualify roughly 40% of their ongoing laboratory supply costs which included the raw materials that they utilized for both development and their limited production needs. In addition, the company was able to capture expenses associated with outside lab testing and development which accounted for over $200,000 year-to-year in qualifying expenses. Based on their activities, employees ranged from non-qualifying to fully invested in research activities amounting to over 80% of their total annual work hours.

The company’s study resulted in a $150,000 credit for a single year split between the federal and California state calculations.

Alex Pak

Alex Pak is a Director at R&D Incentives Group who joined the team in 2015. His primary responsibilities include leading R&D tax credit projects including reviewing R&D activities, conducting interviews and creating documentation for defense of credits under review. His former experience includes five years of project execution and management for two tax consulting firms through which he was involved in the computation and defense of credits for a broad spectrum of companies in a wide variety of industries including engineering, manufacturing, department of defense contractors and software development firms among others.

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