Comprehensive Analysis of the Expenditure Verification Report for the Louisiana Research and Development Tax Credit

The Louisiana Expenditure Verification Report is a statutory attestation performed by an independent Certified Public Accountant or tax attorney to validate that research expenses claimed by small businesses accurately reflect qualified activities conducted within the state. It functions as a mandatory pre-certification audit for firms with fewer than fifty employees that do not file for federal research credits, ensuring the integrity of the state’s incentive program before tax benefits are awarded.1

The transition from a purely descriptive application process to a rigorous verification regime reflects the Louisiana Department of Economic Development’s commitment to fiscal responsibility and program accuracy. Under the current legal framework, the Expenditure Verification Report (EVR) serves as the primary mechanism through which the state confirms that public funds—in the form of tax credits—are directed exclusively toward genuine technological innovation. For the taxpayer, the EVR represents both a procedural hurdle and a badge of certification that protects against future audits and recaptures. To understand the meaning and application of the EVR, one must examine its role within the broader context of the Louisiana Research and Development (R&D) Tax Credit, the specific professional standards required of the verifying parties, and the detailed procedural guidance issued by the state revenue and economic development offices.1

Historical and Legislative Context of R.S. 47:6015

The Louisiana Research and Development Tax Credit, codified in Louisiana Revised Statute 47:6015, was enacted to foster a climate of innovation by subsidizing the high costs associated with technical experimentation. The legislature recognized that the state’s economic future depended on diversifying beyond traditional industries such as agriculture and resource extraction.5 By providing a tax credit of up to 30%, the state aimed to lower the barrier to entry for high-tech startups and encourage established firms to relocate or expand their research divisions within Louisiana borders.3

Over time, the program has undergone several iterations to balance economic incentives with fiscal oversight. Originally, the credit was more broadly available and often refundable, but legislative shifts—particularly those occurring in 2015 and 2017—moved the program toward a nonrefundable model with carryforward provisions.8 This shift necessitated a more robust verification process, as the state sought to ensure that nonrefundable credits, which could be carried forward for five to ten years, were based on ironclad documentation.8

Legislative Intent and Economic Development Strategy

The overarching goal of the R&D credit is to stimulate the growth of the private sector by rewarding companies that engage in activities meeting the federal definition of “qualified research” under Section 41 of the Internal Revenue Code (IRC).3 Louisiana’s specific adaptation of this credit is designed to favor small businesses, defined as those with fewer than fifty employees, by offering them the highest credit rate of 30% on the increase in their research expenditures.8 This focus on small business is a strategic choice, as these entities are often the primary drivers of breakthrough innovations in fields like software development, biotechnology, and advanced manufacturing.11

This tiered structure demonstrates the state’s philosophy that smaller firms require more significant incentives to offset the inherent risks of R&D. However, because small firms may not have the sophisticated internal accounting systems of larger corporations, the Expenditure Verification Report was introduced as a mandatory safeguard.2

The Meaning and Mandate of the Expenditure Verification Report

An Expenditure Verification Report is defined as a formal review conducted by a Certified Public Accountant (CPA) or a tax attorney, assigned by the Louisiana Department of Economic Development (LED), to verify the accuracy of the expenditures claimed in a tax credit application.1 The report is not a general financial audit; rather, it is a targeted attestation focused specifically on the “qualified research expenses” (QREs) incurred within Louisiana.2

When the EVR is Legally Required

The requirement for an EVR is triggered by specific criteria related to the size of the applicant and their federal filing status. Under R.S. 47:6015(3)(i)(i) and associated administrative rules, an EVR is mandatory for any applicant that:

1. Employs fewer than fifty employees, including all affiliated companies.2
2. Has not filed for the federal R&D tax credit on IRS Form 6765 for the current tax year.2
3. Is not currently an applicant for the federal Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs.2

The underlying logic is that if a company has filed Form 6765, the federal government has already established a baseline for what constitutes qualified research. If the company is part of the SBIR/STTR programs, they are already subject to rigorous federal grant reporting and technical oversight.2 For companies falling outside these categories, the EVR provides the state with the necessary assurance that the claimed research is legitimate and the expenditures are verifiable.9

The Context of “Verification” versus “Audit”

In the professional realm of accounting and law, the term “verification report” encompasses several possible formats, including an agreed-upon procedure (AUP), a tax opinion, or an attestation.1 In the context of Louisiana LED programs, the EVR most commonly takes the form of an AUP. In an AUP engagement, the practitioner performs specific procedures developed by the LED and reports the findings without providing a formal opinion on the overall financial statements.17 This allows the state to focus exclusively on the high-risk areas of R&D claims, such as the qualification of specific employee wages and the nexus of contract research to Louisiana-based activities.3

Professional Standards and the Assignment Mechanism

One of the most distinctive features of the Louisiana EVR is that the taxpayer does not select the professional who will conduct the verification. Instead, the LED directly engages and assigns an independent CPA or tax attorney to the project.1 This mechanism is designed to eliminate any potential conflict of interest and ensure that the verifying professional remains entirely objective in their assessment of the taxpayer’s records.2

Qualifications for Assigned Professionals

The state maintains high barriers to entry for professionals seeking to perform these verifications. These standards are codified in R.S. 36:104.1 and are intended to ensure that only those with deep expertise in tax law and R&D credits handle the evaluations.1

Certified Public Accountants (CPAs)

A CPA assigned by the department must meet several rigorous requirements. They must maintain an active, unrestricted license and a current Louisiana CPA firm permit.1 Furthermore, the firm must actively participate in a Peer Review Program approved by the State Board of Certified Public Accountants of Louisiana.1 Educationally, the CPA must complete eight hours of continuing professional education (CPE) in LED-approved tax credit attestation courses during each reporting cycle.1

Critically, the statute requires that the verification report undergo two levels of review before submission to the LED. This means that a second professional, either within the same firm or through a cooperative endeavor with another firm, must review the findings of the primary practitioner to ensure compliance with all state procedures.1

Tax Attorneys

Tax attorneys face similar professional hurdles. They must be admitted to practice in Louisiana and maintain an office within the state.1 Beyond general licensure, they must possess an LL.M. in Taxation or be Board Certified as a Tax Law Specialist by the Louisiana Board of Legal Specialization.1 Like CPAs, they are required to complete specialized continuing legal education (CLE)—six hours specifically focused on the federal R&D tax credit under Section 41 of the IRC—per reporting cycle.1

The Financial Framework: Fees and Deposits

The cost of the EVR is entirely the responsibility of the taxpayer seeking the credit. The fee is set as the “actual cost” of the report, meaning the taxpayer pays the professional fees incurred by the state to hire the CPA or attorney.1

Fee Caps and Statutory Maximums

To prevent the cost of verification from exceeding the value of the credit for small applicants, the state has established maximum fee caps based on the volume of expenditures being verified.2

These fees are in addition to the standard LED application fee, which is 0.5% of the requested credit, with a minimum of $500 and a maximum of $15,000.10 If the verification process is unusually complex, the costs can reach these maximums; however, if the practitioner completes the work for less than the deposit, the remaining balance is handled according to Department rules.2

Applying the Law: Defining Qualified Research Expenditures (QREs)

The primary task of the assigned professional during an EVR is to determine whether the taxpayer’s claimed costs qualify under Louisiana law. Louisiana generally conforms to the federal definitions found in IRC Section 41, but it imposes a strict geographic nexus: only research conducted within Louisiana qualifies for the credit.3

The Four-Part Test in the EVR Context

The CPA or attorney will apply the “Four-Part Test” to every business component for which a credit is sought. This test is the bedrock of R&D eligibility and requires that the activity meet all four criteria simultaneously.3

1. Section 174 Qualification: The costs must be eligible for deduction as research and experimental expenditures under Section 174 of the IRC. This generally excludes costs incurred after the commencement of commercial production or those related to routine quality control.3
2. Technological in Nature: The research must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. Activities based on social sciences, economics, or humanities are ineligible.14
3. Elimination of Uncertainty: The activity must be undertaken to discover information that would eliminate uncertainty regarding the capability, method, or appropriate design for developing or improving a business component.18
4. Process of Experimentation: Substantially all (at least 80%) of the activities must constitute a process of experimentation. This involves the evaluation of alternatives through modeling, simulation, or systematic trial and error.3

Verified Cost Categories

The EVR professional will scrutinize three main types of expenses: wages, supplies, and contract research.3

Qualified Wages

Wages are typically the largest component of an R&D claim. The EVR process involves verifying that the employees listed were directly engaged in research, or were directly supervising or supporting it.3 The professional will review W-2s and payroll records to ensure the amounts claimed reflect time actually spent on qualified activities within Louisiana.3

Qualified Supplies

Supplies include any tangible property—other than land or depreciable property—that is used in the conduct of qualified research. This often includes materials used to build prototypes.3 The practitioner will verify invoices and receipts to ensure these materials were indeed consumed or used for research purposes.3

Contract Research

For research performed by third parties, only 65% of the cost is generally eligible. The EVR professional must confirm that a written agreement existed prior to the research being performed and that the research was actually conducted in Louisiana.3 Furthermore, the taxpayer must bear the financial risk of the research, meaning they must pay the contractor even if the research is unsuccessful.3

Local Revenue Office Guidance and Procedural Steps

The Louisiana Department of Revenue (LDR) and the Louisiana Economic Development (LED) office provide specific guidance on how the certification and claiming process works. The relationship between these two offices is crucial: LED certifies the credit, while LDR allows the credit to be applied against tax liability.3

The LED Certification Process

The taxpayer must initiate the process by submitting an online application through the LED website.3 This application must be filed within one year after December 31 of the year in which the expenditures were incurred.3 If a company operates on a fiscal year ending June 30, 2024, and incurs R&D costs during that period, they must apply for the credit no later than December 31, 2025.10

The application requires detailed documentation, including:

• A narrative description of the research activities and how they meet the Four-Part Test.3
• An organizational chart showing employees involved in R&D and their specific roles.3
• Detailed breakdowns of costs by category (wages, supplies, contracts) and by business component.3

The LDR Claiming Process (Form R-620)

Once LED has certified the credits, the taxpayer receives a certification letter. Only after this certification is obtained can the credits be claimed on a Louisiana tax return.3 The specific form used to claim the credit is Louisiana Form R-620, “Research and Development Tax Credit Claim Form”.11

For corporations, this form is typically attached to the CIFT-620 (Corporation Income and Franchise Tax Return).12 If the certification is not received by the tax return’s due date, the taxpayer should file the return without the credit and then file an amended return once the certification is issued.16

Audit and Recapture Provisions

Taxpayers must be aware that R&D tax credits are subject to audit and recapture for a period of three years following the claim.14 The EVR provides a layer of protection, as the state’s own assigned professional has already vetted the expenditures, but it does not completely immunize the taxpayer from a detailed examination if the Department of Revenue discovers inconsistencies at a later date.3

Statistical Insights into the R&D Credit Program

The efficacy of the Louisiana R&D tax credit is measured through annual Return on Investment (ROI) reports. These statistics offer a window into which industries are successfully navigating the verification process and the overall fiscal impact on the state budget.23

Economic ROI vs. Fiscal ROI

Louisiana differentiates between “Economic ROI”—the growth in the state’s GDP—and “Fiscal ROI”—the direct tax revenue recovered by the state.

In 2023, the total incentives issued nearly doubled, but the Economic ROI turned negative. This decrease was attributed to a significant shift in the sectors receiving credits. Specifically, the Chemical Manufacturing sector’s share of credits increased from 9.87% in 2022 to 33.29% in 2023, while credits for Railroad Construction and Petroleum products dropped significantly.24 This volatility underscores the importance of the EVR in ensuring that as larger portions of state revenue are allocated to these credits, the underlying expenditures remain valid and tied to the state’s economic goals.

Sectoral Distribution of Credits

The “Professional, Scientific, and Technical Services” sector (NAICS 54) remains a dominant player in the program. In 2022, this sector accounted for 33% of the issued credits, although this was a significant drop from 85% in 2021.23 This sector often triggers the EVR requirement because many of its participants are smaller boutique engineering or software firms with fewer than fifty employees.11

Industry-Specific Guidance: The Patent Requirement

A critical piece of guidance for businesses in specific industries involves the “patent requirement.” Under R.S. 47:6015(B)(6), businesses primarily engaged in custom manufacturing, custom fabricating, or professional services are ineligible for the R&D credit unless they have a pending or issued United States patent directly related to the expenditures.5

Custom Manufacturing and Fabricating

This rule is designed to distinguish between routine contract work and true innovation. If a manufacturer is simply building a part to a client’s specifications, they are not performing R&D even if the part is technically complex. To qualify, they must be solving a technical problem that results in patentable technology.3

Professional Services

Architects, engineers, and software consultants often fall into this category. LED guidance clarifies that only expenditures directly related to the business component for which a patent is sought are eligible.25 This significantly narrows the scope of the credit for these firms and is a primary focus of the CPA or attorney during the EVR process.15

Detailed Example: The Verification of “Crescent City Software”

To illustrate how the EVR applies in practice, we consider a hypothetical software startup, Crescent City Software (CCS), which employs 15 people in New Orleans.

Step 1: Triggering the EVR

CCS spent $400,000 on developing a new AI-driven logistics platform in 2024. Because CCS has fewer than 50 employees and chose not to file for the federal R&D credit due to the complexity of federal amortization rules, it must submit an EVR with its LED application.2

Step 2: Application and Deposit

CCS files its application with LED on March 1, 2025.

• Application Fee: $400,000 QRE x 30% credit rate = $120,000 credit requested. Fee = $120,000 x 0.005 = $600.10
• EVR Deposit: Because total expenditures are under $1 million, CCS submits a deposit of $7,500.2

Step 3: The Verification Engagement

LED assigns an independent CPA from Baton Rouge to conduct the verification. The CPA requests:

• W-2 records for the five software engineers claimed.3
• A “Project Narrative” explaining how the AI platform overcame technical uncertainties not present in existing software.3
• Invoices for the cloud computing server time (qualified as “supplies” if used for testing).3

Step 4: The 2nd Level Review

The CPA completes the verification and identifies that $50,000 of the claimed wages were for a sales manager, which is ineligible. The qualified QREs are adjusted to $350,000. Before sending the report to LED, a senior partner in the CPA firm reviews the work to ensure it follows the LED’s Agreed-Upon Procedures.1

Step 5: Final Credit Certification

LED approves the adjusted application.

• Current Year LA QREs: $350,000.
• Base Amount: (CCS is a new company, so the 3-year average is $0). Base = $0.8
• Credit: 30% of ($350,000 – $0) = $105,000.
  CCS receives its certification letter and attaches Form R-620 to its Louisiana income tax return to reduce its liability by $105,000.11

Recent Legislative Changes: Act 11 and the 2025 Cap

The landscape for the Louisiana R&D credit is shifting. Act 11 of the 2024 Third Extraordinary Session introduced significant changes that will affect how businesses view the EVR and the timing of their applications.26

The $12 Million Aggregate Cap

Starting July 1, 2025, the total amount of R&D credits the state can issue each fiscal year will be capped at $12 million.8 Credits will be awarded on a first-come, first-served basis. This creates a “race” for certification. Since an application is not considered “complete” until the EVR is received and approved, any delay in the verification process could result in a company missing out on the current year’s cap.10

Program Sunset

The current authorization for the R&D credit is set to sunset. While historical legislation extended the program from 2021 to 2025, recent sessions have established a new deadline of December 31, 2029, for incurring expenditures.10 Businesses must plan their R&D cycles to ensure all activities are completed and certified before this date.

Compliance and Audit Preparedness

The Expenditure Verification Report is the taxpayer’s best defense against a state audit, but it requires meticulous record-keeping. LED guidance suggests that at least 10% of all applications are selected for a “detailed examination” annually.3

Documentation Checklist for EVR Success

A business should maintain a repository of the following items to satisfy the verifying professional and state auditors 3:

Common Pitfalls in the Verification Process

One of the most frequent reasons for credit disallowance during an EVR is the failure to distinguish between “direct support” and “general overhead.” A lab technician’s salary is typically eligible, while the HR manager who hired them is not.3 Another common error is claiming costs for research conducted outside of Louisiana. If a Louisiana company hires a consultant in Texas to perform software coding, those costs are 100% ineligible, as the research must occur within state lines.3

Conclusion: Strategic Implications for Louisiana Innovators

The Expenditure Verification Report is a sophisticated instrument of tax policy that balances the state’s desire to innovate with the necessity of fiscal precision. For the small business owner, it is a mandatory gateway to a 30% reduction in research-related costs. For the state, it is the primary filter that separates routine business operations from genuine technological breakthroughs.

As Louisiana moves toward a $12 million annual cap and a flatter income tax structure in 2025, the strategic importance of the EVR will only increase. Businesses that invest in robust documentation and understand the specific procedural requirements of the LED and LDR will be best positioned to capture these credits. By viewing the EVR not as a hurdle, but as a rigorous certification of their innovation, Louisiana companies can leverage this tax credit to drive growth, hire technical talent, and contribute to the state’s evolving high-tech economy. The guidance provided by local state revenue offices remains the ultimate roadmap for navigating this complex but rewarding legal landscape.

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