Industries & Tax Saving Opportunities
Every year a significant portion of U.S. companies fail to claim a multitude of government tax benefit incentives. The failure by taxpayers to claim these cash saving opportunities available at both the federal and state level limits businesses from further expanding their operations, hire additional employees, or increase shareholder returns. Often, these tax incentive omissions by taxpayers results from cursory cost-benefit analysis recommendations by their generalist tax return preparers or in-house tax team. Other companies are vaguely aware more popular tax incentives (e.g. R&D tax credits), but fail to take full advantage due to misconceptions about the types of qualifying activities, expenses, or documentation protocols to substantiate their claim. At AndreTaxCo we understand this issue and will ensure you avoid this common mistake.
A majority of tax accountants and return preparers are primarily concerned with completing your original tax return as quickly and accurately as possible. During a tax preparer's busy season, they may prepare hundreds (or thousands by larger CPA firms) of businesses, shareholders, and individual tax returns for a flat fee or hourly rate.
Because Circular 230 prohibits tax practitioners who are subject to its rules from charging contingent fees for services related to preparing, filing, or presenting tax returns or refund claims (Cir. 230, §10.27) unless limited exceptions apply (i.e. under examination with the IRS), most tax preparers have limited self-interest to ensure all applicable tax credit and incentive claims are made for every single original return they prepare for the current tax period. This is especially evident if they lack the experience and/or specialized skills to calculate, substantiate, and accurately report any claimed benefits on all impacted areas of the applicable tax return(s), which may lead to lower profit margins or labor overruns on the tax preparer's side.
Many tax professionals will recommend claiming certain "low-hanging fruit" tax incentives they are closely familiar. Some tax professionals may even help with high-level estimate credit calculations and claims (i.e. quarterly estimate tax provisions). However, these estimates generally either omit qualified amounts to maximize the tax benefit, or omit required documentation to substantiate the tax benefit as required by applicable tax law.
Far too often, other more nuance (or temporary effective) tax incentives in terms of complex calculations, significant case law precedence, or difficult documentation requirements, many tax preparers may caution against claiming to avoid potential audits or accuracy related penalties and interest in addition to the original amount of taxes owed by their clients (e.g. IRC §§ 6662, 6663) or even potentially against their own individual tax practice (e.g. IRC §§ 6694, 6695).
For example, pursuant to IRC § 6662 establishes an accuracy related penalty against the taxpayer ranging from 20% to 40% (if there was negligence and a gross valuation pursuant to IRC § 6662(h)) of the total understatement of tax related to the accuracy of returns.
Moreover, a civil fraud penalty may also be assessed against the taxpayer pursuant to IRC § 6663. IRC § 6663(a) provides that when any part of an understatement of tax can be attributed to fraud, then a penalty equaling 75% of the underpayment of tax can be imposed. And subject to the exception, § 6663(b) holds that when any portion of a tax underpayment can be attributed to fraud, then the entire underpayment is attributed to fraud. Essentially, taxpayers who are found liable for the civil fraud penalty will owe back taxes on the original underpayment, interest on the unpaid taxes, and the civil fraud penalty. Thus certain actions that can justify the imposition of a civil fraud penalty can significantly increase an individual’s tax liability.
Tax return preparers are also subject to penalties under IRC § 6694 for understatements due to unreasonable positions and due to willful, reckless, or intentional conduct and IRC § 6695 for failing to perform certain duties or for engaging in prohibited conduct (e.g., failing to provide a copy of a return to the taxpayer or negotiating a tax refund check).
Most business owners, tax professionals, and stakeholders generally make decisions based on innate cost-benefit analysis. And clearly based on the items above, the risk typically outweighs the reward for most tax return preparers concerning many tax incentive claims for their clients. Nevertheless, the fact remains there is a wide range of activities and expenses incurred by most businesses that will generally qualify regarding federal and/or state tax incentives. And for open tax years not barred by statute (e.g. IRC § 6511), there may be opportunities to amend prior year returns to potentially claim cash refunds for omitted tax incentive claims. And dependent on the facts and circumstances, these tax credits generally push the reward much higher for businesses and shareholders, in comparison to most tax return professionals.
AndreTaxCo’s focuses on the qualification and quantification of numerous tax benefits for companies in a variety of specific industries, allowing us to develop the kind of specialized expertise that helps us serve our clients best.
Summary Tax Credits & Incentives by General Industry Groups:
Lastly, if your company operates in any of the more specified industries list (see below) and incurred activities and/or expenses substantially within the U.S. to development enhance, or improve a product or process, there may be a strong chance that you may be eligible to claim R&D tax credit benefits.