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Last Updated: 11/22/2017

R&D Credit Documentation

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Minnesota follows the record keeping procedures required by the Internal Revenue Service (IRS). Rules governing record retention are included in Treasury Regulation Section 1.6001-1. You must maintain detailed records in a usable form to validate your expenditure claims.

Reviewing Documentation

The department follows the IRS determination that interviewing employees to reconstruct the activities believed to qualify – or not qualify – is generally insufficient in determining what employees did and whether such expenses qualify for the research credit.  Without additional evidence, the credit claimed may be adjusted.  

During an audit (review), we may request records generated at the time the research activities were performed. Some examples include, but are not limited to:

Research Activities:

  • List of your research activities – your new or improved business components and location where activity was conducted.
  • Description of the new or improved function, performance, reliability, or quality of each of these business components.
  • Description of the process of experimentation, in chronological order, of all the steps or activities undertaken when developing or improving a product or business component. For example, present a time-line description of the company’s development processes and procedures.
  • Documentation showing the scope of the research activities, including things like the problem to solve, potential solutions, concerns, and project authorization requests.
  • Procedure manual, project checklist, technical abstract, lab schedule, lab report, project status report, summary experiment data results, etc. for products or business components developed or improved, and claimed for the research credit.
  • Issue logs, meeting minutes, chronological timeline, internal memos, emails, patent applications, abstracts, work orders, budgets, capital addition requests, purchase orders, invoices, contractual agreements with customers, grants, etc. related to the research.
  • Workpapers generated while calculating the credit.

Wages:

  • Organizational chart.
  • Names and work titles of the employees whose wages are included in the computation.  Also include:
  • Position description, what each employee did, and the amount of their time and wages included in the credit.
  • Timesheets covering the time.
  • Social Security numbers and W2s.
  • Any other documentation tying them to the R&D credit claim.
  • Breakdown of wages claimed by employee, year and qualified project.

Supplies:

  • List of the supplies claimed showing they are tangible property (link to definition, or provide definition of) used in conducting qualified research and used or consumed by an employee of the company performing qualified activities, the corresponding amount, and invoices.
  • Supplies do not include: land and land improvements, capital equipment, or general and administrative supplies such as travel or telephone expenses.

Contracted Research:

  • Names, addresses, and FEIN’s of any contractors and amount claimed for each contractor.
  • The location where the contractor conducted the claimed activities.
  • Description of the research activities performed.
  • Description of ownership relationships between the company claiming the credit and the contractor.
  • Contractual agreements and invoices.