Take advantage of often-overlooked qualifying R&D supervisory and support activities

R&D tax credit eligibility for employees is much broader than many companies realize, and qualifying supervisory and support activities are often overlooked because of uncertainty around which salary expenses are eligible for this incentive.

Companies that are involved in developing new or improved products, processes, techniques, formulas, and inventions are often eligible for the R&D tax credit, saving them money that can be reinvested to help develop and grow their business rather than paid to the IRS or state governments.

For these companies, the R&D credit can apply not only to salaries paid to employees for direct development activities but often to supervisory and support services as well. This is why it’s important for companies to look beyond the obvious when determining which employees might be eligible for the credit to those involved in the direct supervision or support of R&D activities.

Eligible research expenses

Direct supervision

Many companies recognize only core engineering employees as engaging in qualified activities, but there’s often a wide variety of direct supervisory roles that are also eligible for the tax credit.

In the past, technical leaders, managers, or supervisors that provided first-line — not executive — direction were eligible to qualify for the credit. However, due to Suder v. Commissioner — a case decided on by the U.S. Tax Court in October 2014 — there have been new opportunities to identify qualified supervisory and research activities performed by executives.

The definition of direct supervision isn’t always straightforward. The engineers who perform qualified research, for example, are sometimes given technical direction by their direct supervisors. In such instances, both the direct research and its direct supervision qualify for the tax credit.

Executives, vice presidents, and high-level researchers

In Suder v. Commissioner, the U.S. Tax Court rejected the IRS' historically categorical exclusion of executives from receiving the R&D tax credit because it found that high-level executives with technical degrees often perform or directly supervise research. This means their time should be considered qualified research, which effectively broadens the scope of eligible supervisory activities.

The hierarchy of technical departments is often very flat, which means vice presidents of technical departments can be heavily involved in actual research and the direct supervision of research. Some examples of qualified research activities include: