Life Science, Chemistry, and Food Science

Many, if not most, companies in the Life Science, Chemistry, and Food Science industries qualify for the R&D Tax Credit. Unfortunately, the vast majority of those companies are unaware that their qualifying daily activities could be generating additional tax savings for them. Below are some examples of activities that qualify for the credit, as well as how we analyze the activities of companies in this industry to help steer our calculations.

Four-Part Test

In determining whether an activity qualifies as Research and Development for tax credit purposes, the IRS has put together a list of criteria that must be met, which is commonly referred to as the “four-part test.” The four-part test is as follows:

  • Permitted Purpose – the activity is intended to result in a new or improved product or process (must be improving the functionality, performance, reliability, or quality)

  • Technological in Nature – the activity must rely on the principles of physical or biological science, engineering, or computer science

  • Technical Uncertainty – at the beginning of the activity, the taxpayer must be uncertain as to capability, method, or design

  • Process of Experimentation – the taxpayer must evaluate one or more alternatives to eliminate technical uncertainty (e.g., modeling, simulation, or systematic trial and error)

Anyone who is actively doing, supervising, or supporting an activity that meets all four parts will have qualifying R&D time that goes into calculating the R&D tax credit.

Qualifying Activities

Many different activities qualify as Research and Development for tax credit purposes in A&E and Contracting businesses. Companies that design, develop, or experiment with new or improved delivery systems and blending technology for medicines and compounds, reformulated or repurposed methods of administering existing drugs, or packaging for products qualify for the R&D Tax Credit. Any time your company a) develops or engages in new scientific theories and research methodologies or b) designs and experiments with new chemical compounds or medical devices, R&D is occurring. Designing and implementing robotic processes or other automation or utilizing new-to-the-business raw materials to design and develop new or improved products or processes also supports the R&D process. There are many other qualifying activities, including (but not limited to):

  • Researching new product technology

  • Generating new product prototypes

  • Researching new product technology

  • Improving product shelf-life

  • Designing and conducting experiments or trials

Time spent directly performing, supporting, or supervising these activities would also qualify as R&D time. Adams Consulting works with your company to identify the qualifying activities of your business and document these efforts through an R&D Tax Credit Study.

Qualifying Titles

While job titles are not necessarily indicative of an employee’s job duties, there are specific titles the IRS specifically considers in relation to qualifying activities. In that sense, some examples of life science, chemistry, and food science titles associated with R&D activities include (but are not limited to):

  • Analytical Scientist/Chemist

  • Control System Lead

  • Drug Product Engineer

  • GMP Analyst

  • Lab Technician/Manager

  • Mechanical Engineer

  • Process Engineer

  • Process Integration Engineer

  • QA or QC Specialist/Manager

  • Research Associate/Scientist

  • Validation Engineer

Non-qualifying Activities and Titles

The activities that do not typically qualify for the R&D tax credit include:

  • Research related to style, taste, cosmetic, or seasonal design factors

  • Research in the social sciences, art, or humanities

  • Research conducted outside the United States

  • Research that is wholly funded by grant or contract

  • Adaptation or duplication of existing business components to meet a particular customer’s requirements

  • Surveys (e.g., efficiency surveys, management surveys, market research, routine data collection, and routine quality control)

The job titles that are not typically associated with R&D qualifying activities include:

  • HR

  • Purchasing

  • Marketing

  • Other soft-science related areas

Adams Consulting works with your company to identify which employees and activities are qualifying for the R&D Credit. We then thoroughly document those activities and the functions of those individuals involved as part of the R&D study.