1. Confirm the taxpayer, period, and version.
Check that the study identifies the legal entity, tax year, and jurisdictions covered. Compare that scope with the return under preparation. A report for a related company or a different period cannot simply be reused because the business operates under the same brand.
Ask about ownership changes, acquisitions, dispositions, short years, and other entities under common control. These facts can affect the calculation and historical information required. Confirm whether the schedules are final or awaiting client responses, and preserve the version actually reviewed.
2. Check the evidence for qualifying activities.
Look for identifiable business components and a description of the technical uncertainty at the outset. The account should explain the alternatives evaluated, how the team evaluated them, and what the records establish. Statements such as “the company innovates” or “engineers improved efficiency” do not explain the research process.
Check whether the narrative distinguishes technical development from ordinary quality checks, commercial planning, routine maintenance, and production after development. A project can contain both qualifying and nonqualifying activities. Keep supporting records for both successful and unsuccessful trials.
Compare descriptions with the underlying project records and with the people who know the work. Resolve inconsistencies rather than letting a broad interview summary override a dated record.
3. Check expense totals and allocations.
Trace wage amounts to the payroll period and employee records. Ask what supports each allocation to qualified services. Qualified services are defined in IRC §41(b)(2)(B). Job titles, department names, or a uniform percentage across staff are not substitutes for evidence about the work performed.
For supplies, inspect what was used, for which activity, and how the amount was identified. For contract research, review the contractual terms, payment arrangement, rights, location, and applicable inclusion rules. A general ledger account labeled R&D does not by itself establish qualified research expenses.
- Can each total be traced back to a source?
- Are exclusions and adjustments explained?
- Are shared costs allocated on a supportable basis?
- Are the same costs counted more than once?
- Are federal and state expense differences visible?
4. Check the method and calculation inputs.
Identify the method used and the supporting historical data. The ASC looks to prior-year qualified research expenses; the regular method uses different base-period and gross-receipts information. A current-year payroll file alone is not enough to compare the methods meaningfully.
Check arithmetic, the treatment of missing historical information, group adjustments, and the distinction between calculated credit and usable credit. Discuss elections and the deduction interaction with the return preparer. Our ASC versus regular method guide illustrates why a larger headline percentage need not produce the larger result.
5. Resolve outstanding questions before filing.
Create an issue list with a responsible person and a resolution for each material question. Distinguish a missing document from an unsupported conclusion. If evidence remains insufficient, consider whether the affected activity or expense should be removed or the scope revised rather than filled in with an assumption.
Check that the Form 6765 preparation agrees with the supporting schedules and applicable reporting requirements. Preserve the source file with the report. A study is easier to use later when the reviewer can retrieve the records behind a statement without repeating the investigation.
Need help preparing an R&D study package for a client? Call Paribus Advisors to discuss the preparation work and the questions your team needs answered. Tell us if your client also needs a separate review or examination assistance so those needs can be addressed in the scope discussion.