Many people ask me when I bring up research credits, why their CPA isnt currently doing it for them if, according to me, they would qualify for such a fantastic credit.
There are many reasons that your typical tax filing CPA wouldnt work on the R&D Credit for you. One of the biggest is that they could potentially lose their license (explained below). Below is a list of some of the reasons your tax CPA is not even offering this type of service:
1. It takes a extraordinary amount of time
Your CPA is already spending a lot of time preparing your tax returns, to add an additional 40+ hours to determine if you have even the slightest chance to achieve the Research Tax incentive is not something that they would do. The only time I have seen a CPA firm offer both Tax Prep and Research incentives, is when it is a top 4 firm, that has seperate departments. This of course shows in the hefty price tag.
2. Its a pain in the ***
The R&D Credit is a very difficulty credit, with literally hundreds of lines of tax code to support it. It is highly specialized, and only certain tax firms that have done the work to learn the ins and outs of the credit can offer the service.
3. Your CPA can potentially lose his license
This is the big one. The Research credit is not an easy credit to perform, it takes hours upon hours of substantiation, your typical tax accountant will have to charge for these services. No one in their right mind will pay an hourly charge for something like this, because if they did there would be a potential situation for a huge bill and nearly zero credits used (in the case that the CPA could not find enough credits to offset the fees). There is enough uncertainty that the credit might not heed results to cause this.
So CPA firms typically charge a contingency, if they can find enough credits to use, they will charge you a percentage of what you use. It makes sense to use this business model, you pay for what you use, and it doesn’t come out of your pocket until money goes into it. I have yet to meet a CPA that charges hourly for tax incentive work.
In this case of charging a contingency, if your tax accountant is preparing your returns as well, they face a very large liability of losing their license if they make any mistake on your return. It is very easy for a CPA to deflate an expense in order to inflate the amount of the tax credit used. This in turn will inflate their contingency collected.
This is illegal under the AICPA. An accountant preparing taxes is not allowed to collect a contingency for it. Period.
Simple enough right? Well maybe not, but there is the long explanation of why your Tax CPA will not, and has not done your R&D credit project. This is why many CPAs work with other firms to provide these services.
I work with 10 other firms and provide their clients with this service. It benefits everyone.