Survey: Few Companies Report Success With R&E Credit

The survey of 175 corporate tax directors also that following IRS review, 30 percent of respondents retain between 50 and 80 percent of their credit, while 15 percent receive less than 50 percent.

The Bush Administration is seeking to make the R&E credit permanent as part of its current budget proposal, and new IRS regulations are expected to be published by June 2003 at the earliest. The credit was created by Congress in the 1980's to help defray the cost of research and level the playing field between U.S. business and foreign competition.

"It's unfortunate, because many organizations could be taking fuller advantage of this credit if not for the challenges they face trying to properly gather, identify and store the required filing documentation," said Jim Eberle, partner in charge of the R&E group in KPMG's Federal Tax practice. "Instead, they are probably leaving money on the table."

An estimated 15,000 taxpayers claimed a total of $7 billion for the R&E credit in 2000, the last year for which statistics are available, according to analysis by the U.S. Congress' Joint Committee on Taxation.

A total of 42 percent of survey respondents cited the labor-intensive task of gathering information to support their claims as their greatest concern, outstripping other responses by nearly two-to-one. And 66 percent of survey respondents said they believed that technology-based solutions could resolve their documentation worries.

"Conventional methods, sometimes referred to as 'high-touch' methods, rely on extensive and time-consuming, one-on-one interviews with select company employees. These interviews are conducted to understand and document research activities," said Eberle. "While effective, many view this approach as intrusive and so it is often limited to a small group of key employees."

Although most survey respondents clearly believe that some type of "high-tech" would benefit their filing process and resolve their documentation dilemma, fully 70 percent said that their companies currently had no Web-based surveys or document-management systems in place to help with the job.

"Many R&E credit opportunities lie outside a normal research environment—for example, on a factory floor -- making them difficult to uncover or document," said KPMG's Eberle. "Technological-based solutions, such as "just-in-time" Web-based surveys and automated data gathering and document management, may be the best route for more organizations to take full advantage of this credit."

Reasonable estimates would project slightly higher credit-claim amounts for 2003 beyond the $7 million estimate for 2000, based on overall research spending. Claims will come from a wide range of industries, most prominently aerospace, automotive, chemical, electrical technology, pharmaceutical, and bio-technology.