Resolve the group question before finalizing calculations.
IRC §41(f) and Treas. Reg. §1.41-6 address controlled groups and businesses under common control. Where the rules apply, the research credit is computed on an aggregate basis and allocated among group members under the applicable rules.
A client's organizational chart is a starting point, not a final common-control determination. Ask the tax team to review ownership, attribution, and the relevant periods. Do not infer independence merely from separate EINs, accounting files, or tax preparers.
Call Paribus to discuss which of your client’s businesses need to be included and what records we’ll need from each.
Identify the entities and changes during the year.
Collect legal entity names, tax classifications, ownership information, and year-end dates. Flag acquisitions, dispositions, reorganizations, and changes in ownership. The facts may create questions about group membership or historical calculation inputs that are easy to miss in a single-entity request.
Coordinate with the people responsible for each entity's tax information. One company may hold the project records while another maintains relevant payroll or contracts. A study should explain those relationships instead of treating the location of a spreadsheet as proof of which taxpayer incurred an expense.
Tell the preparation team if records are unavailable for part of the structure. That limitation needs to be addressed before treating an isolated calculation as complete.
What if related companies share development work?
Imagine related companies where one employs technical staff and another contracts with customers. A review limited to the customer-facing company's expenses may miss important payroll and agreement information. Adding both general ledgers together without examining the transactions is not a sufficient solution either.
Identify who performed the work, which entity incurred each cost, and how intercompany charges were recorded. Review the relevant agreements and avoid assuming an internal charge creates an additional eligible expense. The example illustrates a records problem; the actual tax treatment requires analysis of the arrangement.
Also coordinate historical information and method decisions. Group calculation and allocation should be reviewed before amounts are transferred into separate return workpapers.
If several entities share employees, projects, or expenses, we can help your firm organize the records and identify questions about the group calculation.
How do group members report their share?
The current Form 6765 instructions distinguish group computation from reporting by members filing separate returns. Follow the instructions for member-level expense amounts and required group information; do not simply copy combined totals into every member's return.
Agree on who prepares the group calculation, who reviews the allocation, and how each tax preparer receives the final version. If different firms prepare the returns, establish a consistent set of inputs and identify any changes made after the study is delivered.
State credit treatment also needs separate review. A federal grouping conclusion should not be assumed to resolve every state issue. Identify the states and entities included in the engagement.
What records do you need from each company?
- Entity and ownership information confirmed by the tax team.
- Current and relevant historical expense and financial records.
- Project descriptions and employee locations by entity.
- Intercompany agreements and expense reconciliations.
- Prior calculations, elections, and available carryover schedules.
Paribus Advisors supports CPA firms with research activity evaluation, QRE analysis, calculation workpapers, and supporting study packages. Call with your client's entity structure and filing needs to discuss a suitable scope. Preparation does not automatically include tax return filing or examination representation.