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Case Study: Structural Engineering

Industry: Structural Engineering

Number of Employees: 50+

Commonly Qualifying Tasks:

  • Conceptual development & requirements definition
  • Technical proposal time
  • Value engineering
  • Structural calculations
  • 3D and BIM modeling and simulation
  • Developing alternative engineering solutions
  • Development of detailed design drawings

A structural engineering firm was evaluating their eligibility in claiming the credit for research activities based on the work they did in handling the structural design on buildings that their clients wanted to develop. In addition to this work, the company also provide project management services and was often tapped as a third party reviewer for large-scale municipal design projects.

To determine the level of credit, the company first needed to determine if they could avoid the “funded research” treatment based on the contractual language in their agreements with their clients. Essentially, they must show that they not only had the rights to the development and the technical risk, but also bore the financial risk of failure. Upon reviewing their contracts, they determined that while most of their work was done under fixed fee agreements (which lends itself well to credit qualification), about 20% of their annual revenue was derived from Time and Materials (T&M) contract work. Most of this T&M work revolved around the review of designs created by other firms where the company would serve to identify possible problems, recommend solutions, and perform value engineering services. To be conservative, the company eliminated all costs and time associated with these types of contracts and instead focused on work on the fixed fee side.

The company evaluated the work that they performed and found varying levels of qualifying employees. For example, they determined their core engineering group to be highly qualified. These individuals were experienced engineers who performed a variety of tasks including development of conceptual and detailed designs, executing studies of a wide range of factors in raising large scale structures, performing value engineering, and creating solutions for technical challenges throughout the course of design projects. Then, there were employees who qualified that seemed to perform much less activity such as principals at the company whose roles were more geared toward business development, rather than on technical project management.

In all, the company identified roughly $5 million in qualified research expenses for a 3-year period. Their gross credit was roughly $300,000 for all years calculated.

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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