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Be leery engaging accountants on contingency for tax deductions
September 23, 2021
Be leery engaging accountants on contingency for tax deductions
          One of the alarm associations that I am on the board of received a request from a firm that “assists” companies in obtaining tax credits for a percentage fee.  They wanted a list of our members.  I vetoed that, not because taking the credits is a bad thing, but because many of these firms have led their customers to take overly aggressive positions and apply for credits that they weren’t entitled to.  It has become so prevalent that the IRS has added the R&D Credit to their annual “Dirty Dozen” list.  What is interesting about this addition is not that the credit is a scam, but that some of the firms promoting the credit are scamming the IRS.  As a result, innocent companies become audit candidates simply because they use these firms.  Take a look at this article in the online addition of Security Sales & Integration and you’ll see what I am talking about.
          Without getting too much into the details, I am pasting an explanation of the IRS “four item test” to give you a general idea of what the credit is about.
          My point in the article is that one of the firms (I won’t name them because they have lots of lawyers) got a bunch of dentists to apply for it claiming that their hygienists had come up with an innovative way to clean teeth.  The IRS put two and two together and went after all of the dentists, then after a lot of the firm’s clients.
          My point is that, even if a company qualifies for it, they are best off using their regular tax pros rather than engaging a questionable firm that does the work on commission.
          A four-part test can help you determine if your company’s activities qualify for the R&D credit.
#1: Permitted Purposes
To qualify for the R&D credit, the activity must relate to a new or improved business component’s function, performance, reliability, quality, or composition. You don’t necessarily have to discover an innovation or advancement that’s new to your industry, only what may be innovative or new to you and your company’s processes or products.
#2: Technological in Nature
The activity performed must fundamentally rely on principles of physical sciences, biological sciences, computer science, or engineering. For example, if you’re in food production, simply adding more salt to your product won’t necessarily qualify—but a method based in hard sciences to enhance your product’s flavor might, as would similar methods designed to keep food fresher longer.
#3: Elimination of Uncertainty
The activity must be intended to discover information to eliminate uncertainty concerning the capability or method for developing or improving a product or process, or the appropriateness of the product design
          Bottom line, don’t let anyone do tax work for you for a percentage of a credit or refund.  Reputable firms will charge reasonable hourly rates to prepare tax returns without regard to the tax amount.  For example, we charge around $1,000 to complete an Employee Retention Credit Form that results in a $20,000 to $80,000 credit.  Some of the “percentage” firms charge as much as 10% for the same work.
    Mitch Reitman
    Reitman Consulting Group
    Fort Worth, TX
          Valuable advice.  Old adages come to mind:
  *  if it’s too good to be true, it’s not  unknown
  *  there’s a sucker born every minute  P.T. Barnum
          There are plenty of reliable professionals offering their services to the alarm industry. You can find them on The Alarm Exchange.   Stick with them.  When it comes to accounting and taxes you won’t go wrong with Mitch.

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