The client is a web-based software game developer for many Fortune 1000 consumer products companies. The company is headquartered in New York with programmers operating in several other countries with annual sales volume is in excess of $10 million. Although they have over 120 software developers, only a portion of them are based in the U.S. They develop their own new and enhanced proprietary software games to enhance users’ web-based experiences.
Although the client had historically deducted some development costs, they had not claimed any R&D tax credits. RnD Consulting was asked by management to assist them in identifying a potential source of additional cash flow by evaluating its R&D tax credit position. Through a detailed analysis of U.S.-based design, programming, user interface and validation activities, we successfully identified a significant number of activities and costs qualified for the R&D credit.
The client claimed their R&D credits and cash flow was enhanced by $1,000,000. Provided the R&D activities, costs and revenue continue at its present trend, the client should expect approximately $240,000 in annual federal tax savings in addition to annual state tax savings from state R&D credits.
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Game Software Developer
The RnD Consulting Approach:
The RnD Consulting, Inc. research and development consultants, specializing in the application of federal and state research and development tax credit laws, identified qualifying activities and costs. RnD engineering and tax consultants assisted the client in developing a credit methodology by providing the following services:
Gathered information reviewed from tax returns and financials. Interviewed client personnel. Participated in site visits. Identified areas where expenses potentially qualified for research and development tax credits. Prepared detailed R&D activity questionnaires.
Identified qualifying R&D expenditures and fixed base percentage. Projected expected R&D benefit for each year of the study.
Identified and documented R&D issues and activities, process of experimentation and nexus between activities, costs, project files and personnel. Documented qualifying activity narrative and contemporaneous documentation. Applied recent case law to maximize potential benefit. Delivered file to client to support historical R&D credit methodology as well as template for future use.