Transportation Case Study
Earhart Engineering, a renowned company in transportation methods, systems, and equipment, proposed an R&D plan for the ‘Self-e,’ an electric, self-operating vehicle/aircraft. Their goal was a legal, machine-operated vehicle/aircraft with a 500-mile battery range. To qualify for the Research and Experimentation Tax Credit, their “qualified research” had to meet Congress’s Four-Part Test. Earhart Engineering declared several activities as eligible R&D work, including designing and developing prototypes to achieve technical objectives, conducting trials and analyzing data for reproducible results and hypothesis testing, engaging in background research to identify knowledge gaps and feasibility, and continuously analyzing customer feedback to improve the prototype design. Qualified research involves developing new or improved business components, which are products, processes, techniques, inventions, formulas, or computer software intended for sale, lease, license, or use in the taxpayer’s business. The Four-Part Test requires a permitted purpose (creating new or improved functionality, performance, reliability, or quality), elimination of uncertainty (discovering information to address uncertainty in development, method, or design), a process of experimentation (a systematic process to evaluate alternatives when results or design are uncertain), and a technological nature (reliance on hard science principles). Earhart Engineering maintained thorough documentation, including literature reviews, background research, meeting notes, project records, conceptual sketches, design drawings, and visual media, ensuring compliance readiness for potential IRS audits. Click here to learn more.
