This study provides an exhaustive analysis of the United States federal and Wisconsin state Research and Development (R&D) tax credit frameworks, evaluating statutory requirements, recent case law, and legislative updates. Through five distinct industry case studies, it examines how Janesville, Wisconsin, transitioned into a modern epicenter for advanced technology and how local enterprises optimize their R&D tax positions.

The United States federal tax code and the Wisconsin state tax statutes provide robust financial incentives for enterprises engaging in qualified research activities. The fundamental policy objective underlying these statutory incentives is to stimulate domestic innovation, drive continuous technological advancement, and maintain the nation’s competitive edge within an increasingly complex global economy. For corporate entities and manufacturing operations located in industrial and technologically intensive corridors—such as the rapidly evolving city of Janesville, Wisconsin—these specific tax credits represent a highly critical financial mechanism. They serve to reduce effective corporate tax rates, offset payroll tax liabilities for early-stage enterprises, and inject vital capital back into the iterative development cycle. Historically, the application of the research and development tax credit has been fraught with intense regulatory complexity, requiring taxpayers to meticulously navigate a labyrinth of statutory definitions, interpretive Treasury Regulations, and a rapidly evolving body of judicial precedent. Recent years have introduced profound legislative shifts in how research expenditures are treated for tax purposes. At the federal level, the financial landscape has been significantly reshaped by the Tax Cuts and Jobs Act of 2017, the Protecting Americans from Tax Hikes Act of 2015, and most recently, the One Big Beautiful Bill Act of 2025. Simultaneously, the Wisconsin Department of Revenue has charted an independent fiscal course, actively decoupling from certain restrictive federal capitalization provisions while significantly enhancing state-level credits for highly specific manufacturing sectors. This analysis elucidates how specific technological activities satisfy the rigid legal thresholds established by the Internal Revenue Service and the Wisconsin Department of Revenue, contextualized within the unique economic and industrial history of Janesville, Wisconsin.

The Industrial Metamorphosis of Janesville, Wisconsin

To accurately analyze the application and economic impact of research and development tax credits in Janesville, Wisconsin, it is necessary to thoroughly understand the profound economic metamorphosis the municipality has undergone. Janesville’s industrial identity was established in the mid-nineteenth century, deeply tied to its geographic location along the Rock River. The city’s earliest economic prosperity was built upon the engineering required to harness hydroelectric power, which fueled the construction of lumber mills, grist mills, and woolen production facilities in the 1840s. As the surrounding agricultural sector expanded rapidly, particularly in wheat production, Janesville transitioned into a regional hub for the manufacturing of complex agricultural implements and heavy machinery.

The trajectory of Janesville’s economy was permanently altered in 1919. During this period, the Samson Tractor division of General Motors was formed through a merger with the locally established Janesville Machine Company. General Motors constructed a massive production facility in Janesville, initially employing three thousand workers to manufacture tractors. When an agricultural depression caused the Samson Tractor division to face bankruptcy in 1920, local leadership successfully convinced General Motors to retain the facility and pivot its operations. By 1923, the plant had been completely transitioned into an automobile assembly line, marking the beginning of an era that would define the city for nearly a century. For exactly ninety years, the Janesville Assembly Plant served as the dominant economic heartbeat of Rock County, ultimately expanding to encompass 4.8 million square feet of industrial space and employing approximately seven thousand workers at its absolute zenith in 1970. Parallel to the dominance of General Motors, the Parker Pen Company established Janesville as a global center for the precision manufacturing of writing instruments, further solidifying the region’s reputation for skilled, high-volume production.

The reliance on a monolithic industrial base ultimately exposed the region to severe macroeconomic vulnerabilities. In December 2008, amidst the catastrophic pressures of the Great Recession, General Motors permanently idled the Janesville Assembly Plant. This event precipitated a severe economic crisis, displacing thousands of skilled union laborers, devastating ancillary supply chains, and leaving millions of square feet of industrial real estate completely vacant. The sudden removal of the city’s primary economic engine forced an immediate and aggressive strategic pivot.

Rather than succumbing to the fate of many post-industrial Midwestern cities, Janesville executed a highly calculated economic redevelopment strategy. City planners and private sector organizations leveraged the region’s core enduring assets: a deeply entrenched blue-collar workforce highly skilled in complex assembly and metallurgy, abundant water and heavy utility infrastructure, strategic geographic proximity to the Chicago logistics hub, and synergistic relationships with the world-class research pipelines emanating from the University of Wisconsin-Madison. Over the subsequent decade, the local economy was systematically diversified. The sprawling, abandoned General Motors site and the surrounding industrial parks were remediated and marketed to advanced technological sectors. Today, the industrial landscape of Janesville is characterized by bleeding-edge innovations in nuclear medicine radiopharmaceuticals, precision food fermentation technology, custom thermoformed sterile packaging, hydrogen fuel infrastructure, and advanced heavy-duty engine design. This incredibly diverse, technology-forward manufacturing ecosystem provides a highly fertile environment for the generation of qualified research expenditures and the subsequent claiming of federal and state tax credits.

The United States Federal Research and Development Tax Credit Framework

The Federal Research and Development tax credit, formally codified under Section 41 of the Internal Revenue Code, represents a primary vehicle for reducing federal corporate income tax liability. The statute provides a tax credit for taxpayers that incur Qualified Research Expenses while engaged in the development of new or substantially improved products, processes, computer software, techniques, formulas, or inventions within the borders of the United States. The calculation of the federal credit is mathematically complex, generally determined by the amount of current-year qualified expenses that exceed a historically calculated base amount. Taxpayers typically elect to utilize either the Regular Research Credit method, which relies on gross receipts and historical research data, or the Alternative Simplified Credit method, which provides a more streamlined calculation based on the average expenses of the three preceding tax years.

The Statutory Four-Part Test for Qualified Research

To successfully qualify for the federal tax credit, a taxpayer’s specific engineering or scientific activities must satisfy a rigorous, conjunctive four-part test strictly outlined in Internal Revenue Code Section 41(d). The failure to meet any single statutory prong of this test automatically renders the entirety of the activity ineligible for the credit. Crucially, the Internal Revenue Service dictates that these tests must be applied separately to each discrete “business component” of the taxpayer, preventing the blending of unqualified activities with qualified research.

The first prong is the Section 174 Test, also referred to as the Permitted Purpose test. This statutory requirement dictates that the expenditures associated with the activity must be legally eligible for treatment as research and experimental expenses under Internal Revenue Code Section 174. Practically, this means the activity must relate to the development of a new or improved business component, and the improvement must specifically target functionality, performance, reliability, or quality. Activities aimed merely at cosmetic enhancements or seasonal style changes are statutorily excluded from consideration.

The second prong is the Technological in Nature test. The statute requires that the research must fundamentally rely upon the principles of the “hard sciences.” Acceptable fields of science explicitly include physical science, biological science, computer science, or engineering. Research that relies on the social sciences, arts, or humanities—such as market research, economic forecasting, or psychological studies—is strictly prohibited from generating qualified research expenses.

The third prong is the Elimination of Uncertainty test. The research activity must be specifically undertaken to discover new information that effectively eliminates a technical uncertainty concerning the development or improvement of the business component. Technical uncertainty legally exists if the information available to the taxpayer at the outset of the project does not establish the optimal capability to develop the product, the appropriate method to develop it, or the final appropriate design of the component.

The fourth and final prong is the Process of Experimentation test. The law dictates that substantially all of the activities—generally interpreted as eighty percent or more—must constitute elements of a rigorous process of experimentation. This process involves a systematic, scientific approach to resolving the identified technical uncertainty. It requires the taxpayer to identify the uncertainty, identify one or more conceptual alternatives intended to eliminate the uncertainty, and conduct a process of evaluating those alternatives through modeling, simulation, or systematic trial and error.

Furthermore, in circumstances where a taxpayer is developing internal-use computer software—defined as software developed primarily for the taxpayer’s internal administrative or operational needs rather than for commercial sale—an enhanced three-part “High Threshold of Innovation” test is applied. This supplementary test requires the software to be highly innovative, entail significant economic risk during development, and be commercially unavailable in the existing marketplace.

Qualified Research Expenses and Statutory Exclusions

Under Internal Revenue Code Section 41(b), the financial expenditures that can be claimed as Qualified Research Expenses are strictly defined and limited to three primary categories. The first category encompasses wages paid or incurred to an employee for performing qualified services. This includes all taxable wages reported on a Form W-2 for employees directly performing the research, directly supervising the researchers, or directly supporting the research activities. It explicitly excludes non-taxed income and fringe benefits. The second category includes amounts paid for supplies used and consumed directly in the conduct of qualified research. This definition covers tangible property, such as prototype materials and laboratory chemicals, but strictly excludes land, land improvements, and depreciable property. The third category involves contract research expenses, which generally allows taxpayers to claim sixty-five percent of amounts paid to third-party entities for performing qualified research on the taxpayer’s behalf.

Conversely, the tax code explicitly excludes several types of activities from qualifying for the credit, regardless of whether they meet the four-part test. Notable exclusions include research conducted after the commercial production of the business component, research related to the adaptation of an existing business component to a particular customer’s requirement, reverse engineering of an existing product, and research conducted entirely outside the United States. Perhaps the most heavily litigated exclusion is “funded research” under Section 41(d)(4)(H). If a taxpayer’s research is funded by a contract, grant, or another entity, the taxpayer is ineligible for the credit unless they retain substantial rights to the research results and their payment remains fully contingent on the success of the research activities.

Legislative Volatility: Section 174 Capitalization and the One Big Beautiful Bill Act of 2025

The interplay between Section 41 tax credits and Section 174 expense deductions has experienced unprecedented legislative volatility in recent years. For decades, Section 174 allowed corporate taxpayers to immediately deduct their research and experimental expenditures in the very year they were incurred, providing massive cash flow advantages. However, the Tax Cuts and Jobs Act mandated that for tax years beginning after December 31, 2021, all domestic research and experimental costs must be capitalized and amortized over a strict five-year period, while foreign research costs were subject to a fifteen-year amortization schedule. This capitalization mandate severely impaired the cash flow of research-intensive startups and manufacturers across the United States.

This restrictive landscape was dramatically altered by the passage of the One Big Beautiful Bill Act in July 2025. The new legislation added Section 174A to the Internal Revenue Code, successfully restoring the ability for taxpayers to immediately deduct amounts paid or incurred for domestic research and experimental expenditures for tax years beginning after December 31, 2024. Crucially, the Internal Revenue Service subsequently issued Revenue Procedure 2025-28, which provided monumental retroactive relief for eligible small businesses. Taxpayers classified as small businesses—defined as those with average gross receipts under $31 million over the prior three years and not operating as tax shelters—were granted the option to retroactively deduct previously capitalized domestic costs from the 2022, 2023, and 2024 tax years. This allows eligible entities in Janesville to either amend previous returns or claim a massive catch-up deduction in 2025, thereby immediately boosting operating cash flow. Foreign research expenditures remain excluded from this relief and must still be amortized over fifteen years.

Concurrently, the Internal Revenue Service introduced stringent new reporting requirements via Form 6765, specifically Section G, which becomes mandatory in 2026. Taxpayers are now legally required to maintain contemporaneous documentation that segments all qualified research work strictly by individual business component. Organizations must now list each significant business component alongside the precise wages associated with direct research, direct supervision, and direct support activities for that specific component. This regulatory change entirely eliminates the previous practice of relying on high-level cost center estimations.

Pivotal Federal Jurisprudence and the Evidentiary Mandate

The interpretation of the four-part test is continually refined through intense judicial scrutiny. The defining theme of modern tax credit jurisprudence is the absolute necessity of contemporaneous, scientifically valid documentation. In the landmark 2026 decision George v. Commissioner (T.C. Memo. 2026-10), the United States Tax Court dealt a severe blow to the industry practice of retroactively reconstructing research credit claims. Adjudicating a case involving a vertically integrated poultry producer, the court ruled that satisfying the four-part test requires credible, contemporaneously generated records proving that technical uncertainty existed and that alternatives were systematically evaluated. The court expressly rejected the taxpayer’s reconstructed narrative that was assembled years later by an outside consulting firm, establishing a foundational principle that the research credit is an evidentiary exercise just as much as a technical one.

This rigorous judicial standard echoes the 2019 ruling in Siemer Milling Co. v. Commissioner, a highly relevant case for the food processing industry. In this instance, the Tax Court completely disallowed over $235,000 in credits claimed for the development of new flour products. The disallowance was predicated on the taxpayer’s failure to provide documentation demonstrating how the activities constituted experimentation in the scientific sense. The court found that simply reciting steps undertaken or making conclusory statements regarding technical involvement was legally insufficient to prove a methodical plan involving a series of trials to test a hypothesis.

The “funded research” exclusion has also generated critical appellate-level precedent. In Meyer, Borgman & Johnson, Inc. v. Commissioner (8th Cir. 2024), the appellate court upheld the denial of research credits to a structural engineering firm. The taxpayer attempted to argue that standard inspection, acceptance, and quality assurance provisions within their client contracts meant their payment was contingent upon the success of the research. The court emphatically rejected this, ruling that such standard provisions lacked the specificity required to transfer economic risk to the taxpayer, thereby rendering the research “funded” and ineligible. Conversely, in Smith v. Commissioner (2025), an architectural firm successfully survived summary judgment on the funded research issue because local law provisions and specific, meticulously drafted contract language indicated the taxpayer retained substantial copyright protection and bore the ultimate financial risk if the designs failed. This dichotomy proves that engineering and design firms can qualify for the federal credit, provided their master service agreements are drafted with extreme precision to avoid the funded exception.

Wisconsin State Research and Development Tax Credit Laws

The State of Wisconsin provides a highly competitive and lucrative statutory environment designed specifically to attract and retain research-intensive industries. Wisconsin’s primary research expense credit, formally codified under Wisconsin Statute Section 71.28(4), is fundamentally modeled on Internal Revenue Code Section 41 but features highly specific, localized nuances designed to aggressively stimulate targeted manufacturing sectors. The credit is broadly available to C-corporations, individuals, partners of a partnership, shareholders of tax-option corporations, and members of limited liability companies.

Statutory Conformity, Decoupling, and the Geographic Nexus

A critical distinction between federal and Wisconsin tax law lies in the state’s strategic approach to Internal Revenue Code conformity. While Wisconsin generally adheres to a static conformity model, the state legislature intentionally chose to completely decouple from the Tax Cuts and Jobs Act’s Section 174 capitalization requirements. Under Wisconsin law, the state continues to apply the pre-2022 federal provisions. This decoupling is a massive economic advantage, allowing taxpayers conducting research within the state to fully and immediately expense their domestic research and experimental costs for state franchise and income tax purposes, rather than amortizing them over five years.

However, this generous treatment is bound by a strict geographic nexus requirement. According to the Wisconsin Department of Revenue, qualified research expenses must be strictly incurred for research physically conducted within the borders of the State of Wisconsin. Expenses incurred entirely outside the state cannot be allocated to Wisconsin, even if those external expenses were incurred for the ultimate benefit of a research project headquartered in Wisconsin. In highly complex scenarios where qualified research expenses are incurred both inside and outside the state, and the exact physical location cannot be perfectly isolated, the Department of Revenue permits a portion of the qualified expenses to be reasonably and mathematically allocated to Wisconsin. Furthermore, under the state’s combined reporting rules, a combined group member’s available research credits must first be used against its own gross tax liability, though specific rules govern how excess nonrefundable credits may be shared among the unitary group.

Tiered Credit Rates and Targeted Super-Credits

Wisconsin differentiates itself from the federal framework by offering a unique tiered credit structure that heavily favors both start-up enterprises and legacy heavy-industrial sectors.

The standard General Research Credit provides a rate of 5.75 percent on the amount of qualified research expenses for the taxable year that exceed fifty percent of the taxpayer’s average qualified research expenses over the three immediately preceding taxable years. To support nascent innovation, Wisconsin offers a General Startup Credit; if a claimant had absolutely no qualified research expenses in any of the three prior taxable years, they are permitted to simply claim an amount equal to 2.875 percent of their current-year qualified research expenses.

Beyond the general rates, the Wisconsin legislature created highly lucrative “super-credits” to incentivize targeted technological advancements. Under Wisconsin Statute Section 71.28(4)(ad)5, research activities related specifically to the design and manufacturing of internal combustion engines—which statutorily includes substitute products such as fuel cell, electric, and hybrid drives—are eligible for an enhanced 11.5 percent credit rate on excess expenses, or a 5.75 percent rate if no prior-year history exists. Similarly, under Section 71.28(4)(ad)6, research related to the design and manufacturing of certain energy-efficient products—specifically defined as energy-efficient lighting systems, building automation and control systems, or automotive batteries for use in hybrid-electric vehicles—receives the same enhanced 11.5 percent credit rate.

Refundability Mechanisms and Tax Appeals Commission Rulings

Recognizing that many highly research-intensive startups—particularly in the biotechnology and alternative energy sectors—operate in a net-loss position during their foundational developmental years and thus possess no immediate tax liability to offset, Wisconsin introduced vital refundability mechanisms. For taxable years beginning between January 1, 2021, and December 31, 2023, up to fifteen percent of the calculated research credit was refundable. However, legislation passed in 2023 significantly expanded this benefit. For tax years beginning on or after January 1, 2024, up to 25 percent of the state research credit is fully refundable in cash. The maximum refundable portion is mathematically computed as the lesser of the unutilized credit remaining after offsetting tax liability or twenty-five percent of the total calculated credit. Any unused, non-refundable portion may be carried forward for up to fifteen years to offset future state tax liabilities.

At the state administrative level, the Wisconsin Tax Appeals Commission adjudicates highly complex disputes between taxpayers and the Department of Revenue regarding these credits. A notable precedent shaping the application of state credits is found in the Oshkosh Truck Corp. ruling. In this case, the Commission formally recognized and applied the legal doctrine of “equitable recoupment.” This powerful doctrine permits a corporate taxpayer to offset additional franchise tax deficiency assessments levied by the Department of Revenue with allowable historical research credits that would have otherwise been completely barred by the standard statute of limitations. Furthermore, the Commission stringently enforces the state’s geographic sourcing rules, ensuring that taxpayers cannot claim the lucrative benefit of the research credit in Wisconsin while simultaneously attempting to look through intermediaries to apportion the resulting income to other jurisdictions to avoid state taxation.

Industry Case Studies in Janesville, Wisconsin

The following five comprehensive case studies illustrate how specific industries that have successfully taken root in Janesville’s post-recession landscape engage in complex technical activities that meet the stringent federal four-part test, and how they subsequently capitalize on Wisconsin’s targeted statutory super-credits.

Case Study 1: Nuclear Medicine and Radiopharmaceuticals (SHINE Technologies)

The most profound element of Janesville’s economic rebirth is its emergence as the central anchor of Wisconsin’s highly specialized “Nuclear Medicine Corridor”. SHINE Technologies, officially incorporated in 2010 by a University of Wisconsin-Madison nuclear engineering physicist, selected Janesville as the location to construct its state-of-the-art Chrysalis production facility. The core mission of the enterprise is to entirely replace the exceptionally fragile, overseas supply chain of critical medical isotopes—such as Molybdenum-99 and Lutetium-177, which are used globally in millions of cardiac stress tests and cancer treatments—that currently relies on aging, government-owned nuclear research reactors. Instead of utilizing highly enriched uranium in a traditional reactor, SHINE utilizes proprietary subcritical accelerator-based nuclear fusion technology. Janesville provided the massive industrial acreage, deep electrical grid capacity, and proactive municipal zoning support required to navigate the unprecedented licensing of a complex nuclear facility by the Nuclear Regulatory Commission.

The technical activities conducted by SHINE present a textbook application of the highest echelons of qualified research. The core developmental activities inherently satisfy the Technological in Nature test, as they rely completely upon the absolute limits of plasma physics, radiochemistry, and advanced mechanical engineering. Achieving a sustained, high-yield nuclear fusion reaction—which the company demonstrated by setting a world record of 46 trillion neutrons per second—involves massive technical uncertainty regarding thermal dynamics, neutron flux management, and target cooling. The Process of Experimentation is rigorous; engineers must systematically design, computationally model, and physically test subcritical assemblies and gaseous neutron generators to evaluate structural integrity under extreme radiation bombardment. Furthermore, the iterative development of delicate radiochemical separation techniques designed to isolate non-carrier-added Lutetium-177 to exact pharmaceutical-grade purity requires highly systematic laboratory trials.

From a federal tax perspective, the massive expenditures related to the design and testing of the fusion hardware, the wages of nuclear physicists and safety engineers, and the extreme costs of specialized materials consumed during pilot testing before commercialization represent highly defensible Qualified Research Expenses under Internal Revenue Code Section 41. Because the research occurs entirely within the Janesville campus, the company is eligible for the base 5.75 percent Wisconsin state credit. Given the exceptionally long regulatory lead time and massive capital burn rate required before achieving commercial viability in the nuclear sector, SHINE profoundly benefits from Wisconsin’s 25 percent refundability provision. This critical statutory mechanism allows the pre-revenue entity to monetize the tax credits in cash, offsetting the immense capital expenditures required during the ongoing construction of the Chrysalis facility.

Case Study 2: Advanced Food Processing and Alternative Proteins (GEA Group and Seneca Foods)

Janesville is geographically anchored by a rich agricultural heritage, surrounded by the fertile farmlands of Rock County. Seneca Foods, established in 1949, has long operated a massive 1.2 million square foot processing and packaging plant in the city, historically utilizing the region’s agricultural output and logistical rail networks. Expanding exponentially upon this historical food-science legacy, the global engineering firm GEA officially opened its $20 million New Food Application and Technology Center in Janesville in July 2025. This sophisticated facility was established as a global Center of Excellence dedicated strictly to the complex process of scaling up alternative proteins, precision fermentation, and cell cultivation technologies. Janesville’s historical expertise in high-volume food handling, combined with deep water resources, makes it an optimal location for scaling industrial biotechnology.

Research and development within the food science sector is highly scrutinized by the Internal Revenue Service, as explicitly demonstrated in the Siemer Milling case, making strict adherence to the four-part test absolutely vital. Routine quality control, basic recipe tweaking, and standard nutritional testing are statutorily excluded. However, at the GEA Technology Center, the technical uncertainty revolves around the extraordinarily difficult physics of industrial scalability. While bio-engineers can successfully cultivate animal-free egg albumen or synthetic dairy proteins via precision fermentation in a small laboratory setting, scaling these biological processes to massive industrial bioreactors introduces severe uncertainties regarding optimal cell density, thermal heat transfer, destructive shear stress on fragile microorganisms, and the efficiency of downstream membrane filtration. The Process of Experimentation involves utilizing advanced digital twin simulations and pilot-scale infrastructure to iteratively adjust complex thermal processing and aseptic filling parameters until long-term stability, correct texture, and commercial cost-parity are achieved.

The wages of microbiologists, bioprocess engineers, and data scientists, as well as the substantial cost of expensive biological growth media and trial batches consumed and discarded during failed pilot runs, represent highly defensible federal Qualified Research Expenses. Furthermore, the complex mechanical engineering required to adapt legacy high-speed canning lines at local facilities like Seneca Foods to safely handle new, delicate bio-identical proteins without denaturing them also constitutes qualified research. Under Wisconsin state tax law, these food-technology entities claim the 5.75 percent state credit. The state’s strategic decoupling from federal Section 174 capitalization is paramount in this sector; early-stage alternative protein startups utilizing the GEA facility can immediately and fully deduct their experimental costs against their Wisconsin tax liabilities, preserving vital early-stage operating capital rather than being forced to amortize the expenses over five years.

Case Study 3: Custom Thermoformed Medical Packaging (Prent Corporation)

Founded in Janesville in 1967 by Jack Pregont inside a repurposed silo factory, the Prent Corporation has meticulously evolved into a global leader in custom thermoformed packaging, specifically catering to the highly regulated medical device and electronics industries. To maintain absolute control over product quality and intellectual property, Prent executed a strategy of vertical integration entirely within Janesville, establishing the sister company GOEX to handle raw plastic extrusion and electing to design and built all of their complex thermoforming machines completely in-house. The company thrived in Janesville by leveraging the region’s historically deep pool of highly skilled tool-and-die makers and precision machinists, a labor force originally cultivated by the automotive and pen manufacturing sectors.

Manufacturing custom packaging for life-saving, implantable medical devices requires extreme precision and absolute sterility, often involving ISO Class 8 cleanrooms and rigid sterile barrier protections. Prent’s developmental activities satisfy the Permitted Purpose and Technological in Nature tests because the ultimate goal is to engineer polymer packaging that perfectly maintains structural integrity and sterility while subjected to the extreme thermal and chemical stresses of autoclave, gamma, and ethylene oxide (EtO) sterilization methods. This engineering challenge fundamentally relies upon advanced polymer science and mechanical engineering.

When a major medical device manufacturer requires a new, complex tray for a delicate replacement heart valve or catheter kit, Prent’s engineers face significant technical uncertainty regarding exactly how specific rigid plastics will flow, thin out, and cool across the microscopic geometries of the proposed mold. The Process of Experimentation is highly advanced; engineers utilize 3D concurrent engineering software to design the initial parameters, employ 5-axis CNC machining to cut pilot aluminum tools, conduct systematic trial thermoforming runs, and utilizing lasers to measure microscopic deviations in wall-thickness tolerances. Under the Internal Revenue Service’s “shrinking-back rule,” even if the final plastic tray appears standard, the specific experimental design of the automated, lights-out tooling and the unique algorithmic control of the thermoforming machine itself qualify for the federal credit. The wages of the master toolmakers and CAD engineers, along with the massive volumes of raw plastic sheet extruded by GOEX and scrapped during test runs, are eligible expenditures. Furthermore, Prent’s integration of custom machine building implies that they retain all intellectual property rights to the underlying manufacturing technology, safely avoiding the strict “funded research” exclusion that routinely disqualifies contract manufacturers.

Case Study 4: Alternative Fuel Infrastructure (ANGI Energy Systems)

Founded in Wisconsin in 1983 as Automotive Natural Gas Inc., ANGI Energy Systems has a long history of engineering and manufacturing alternative refueling equipment. Now operating as a subsidiary of the global industrial technology company Vontier, ANGI manages a massive 141,000 square foot specialized manufacturing facility in Janesville. As the global commercial transportation sector aggressively pivots toward total decarbonization, ANGI has evolved its local operations to design end-to-end systems for compressed natural gas, renewable natural gas, and most recently, hydrogen fuel. Janesville’s deep history of heavy industrial manufacturing and large-scale assembly made it the optimal geographic location for producing the incredibly complex, high-pressure rotating machinery required for this sector. In 2024, the company broke ground on the Midwest’s first $4 million Hydrogen Refueling Test Facility directly on its Janesville campus.

The engineering challenges inherent in this industry are staggering. Handling highly volatile, gaseous hydrogen at extremely high pressures—often exceeding 700 bar—for the rapid refueling of heavy-duty commercial trucks introduces severe technical uncertainties. These uncertainties relate specifically to advanced material embrittlement, complex thermal dynamics (preventing the vehicle’s receiving tank from dangerously overheating during a rapid, high-pressure fill), and the long-term reliability of cryogenic compressors. ANGI’s new facility is dedicated entirely to the functional testing and validation of globally standardized SAE J2601 refueling protocols. The Process of Experimentation involves engineers iteratively testing compressor packages, cryogenic chillers, and highly specialized priority valve panels using “true gas” rather than simulations, attempting to validate safety and performance under extreme, simulated real-world flow rates.

The engineering hours dedicated to designing the dispensing architecture, the software development required for the advanced automated control systems that act as the “brain” of the station, and the materials consumed in both destructive and non-destructive testing of high-pressure flow components are clear federal Qualified Research Expenses. Crucially, at the state level, ANGI is perfectly positioned to claim Wisconsin’s highly lucrative 11.5 percent enhanced credit for Energy Efficient Products. Wisconsin Statute Section 71.28(4)(ad)6 explicitly applies to the design of systems that actively reduce the demand for traditional fossil fuels or significantly improve the efficiency of energy use. Hydrogen refueling infrastructure designed to entirely replace diesel consumption in heavy-duty logistical fleets aligns perfectly with the statutory intent of this super-credit, effectively doubling the standard research and development financial benefit for the company.

Case Study 5: Advanced Internal Combustion and Heavy Duty Powertrains (Cummins)

When General Motors permanently ceased its assembly operations in 2008, it left behind a sprawling workforce highly skilled in automotive assembly, complex powertrain integration, and heavy industrial fabrication. Global manufacturing companies like Cummins, which operates a significant manufacturing and engineering presence in Janesville, have capitalized on this deeply localized expertise. While the consumer automotive industry is rapidly shifting toward electrification, there remains massive, ongoing, and highly necessary research and development focused on optimizing heavy-duty internal combustion engines for commercial trucking, heavy agriculture, and large-scale power generation. This research specifically focuses on adapting legacy engine blocks to run on alternative fuels such as renewable natural gas or biodiesel, and achieving extreme exhaust emissions reductions to meet increasingly draconian federal standards.

Developing entirely new engine block architectures, optimizing high-pressure fuel injection spray patterns at the microscopic level, and designing advanced chemical exhaust after-treatment systems rely fundamentally on the hard sciences of thermodynamics, metallurgy, and fluid dynamics, easily satisfying the Technological in Nature test. To successfully meet stringent Environmental Protection Agency emissions standards without sacrificing the massive brake-horsepower required by commercial clients, mechanical engineers face extreme uncertainty regarding the exact geometry of combustion chambers and the timing of exhaust valves. The rigorous Process of Experimentation involves drafting new CAD models, casting prototype aluminum or steel piston heads, running these components on highly instrumented engine dynamometers for thousands of hours, computationally analyzing the chemical emission outputs, and refining the models in a continuous, iterative loop.

The development of these advanced engine components easily satisfies the federal four-part test. Under the 2025 One Big Beautiful Bill Act, if major manufacturers localized certain sub-tier engineering suppliers in Janesville that fall under the $31 million gross receipts threshold, those local suppliers could immediately deduct their engineering costs retroactively, drastically improving the cash flow of the regional supply chain. Furthermore, this specific industrial activity represents the exact target of Wisconsin Statute Section 71.28(4)(ad)5. The state legislature specifically grants an 11.5 percent enhanced credit for “research related to the design and manufacturing of internal combustion engines, including substitute products such as fuel cell, electric, and hybrid drives”. By actively conducting this advanced engine optimization research within a Janesville facility, the corporate entity legally entitles itself to double the base state credit rate, creating a massive financial offset against its Wisconsin corporate franchise tax liability.

Strategic Audit Defense and Documentation Standards for Janesville Firms

While the financial rewards generated by the Federal and Wisconsin State Research and Development tax credits are substantial and vital for maintaining competitiveness, the regulatory and administrative environment is becoming increasingly hostile to unsubstantiated tax claims. Manufacturing and technology enterprises operating in Janesville must proactively align their internal accounting systems and engineering project management workflows with the stringent evidentiary standards recently established by the tax courts.

The decisive 2026 ruling in George v. Commissioner unequivocally dictates that advanced companies like SHINE Technologies, GEA Group, and Prent Corporation cannot simply rely on post-hoc, end-of-year interviews with engineering managers to establish their research claims or estimate the time spent on design. Instead, they must implement rigid internal systems that capture highly granular, contemporaneous documentation as the research actually occurs. Taxpayers must permanently abandon high-level cost center accounting and fully transition to meticulous project-based accounting. For example, when a mechanical engineer at ANGI Energy Systems logs their weekly hours, those hours must be tied directly to a specific, documented technological uncertainty—such as “Project H2-44: Hydrogen Dispenser Valve Thermal Dynamics”—rather than being broadly categorized under a general “Engineering” or “Administration” code.

Furthermore, the statutory Process of Experimentation test legally requires concrete evidence of the specific alternatives that were evaluated. In the context of a federal audit, the Internal Revenue Service frequently looks for documented evidence of technical failure. Archived iterations of CAD models, highly detailed logs of scrapped or deformed plastic prototypes at Prent, and failed dynamometer thermal test readouts at Cummins represent the strongest possible legal defenses to conclusively prove to an auditor that severe technical uncertainty actually existed at the outset of the project.

Finally, Janesville companies engaging in contract manufacturing or highly specialized design-build engineering must strictly scrutinize their master service agreements. Based directly on the precedent established in the Meyer, Borgman & Johnson ruling, if a contract legally guarantees payment to the Janesville firm regardless of the ultimate success or failure of the research outcome, the Internal Revenue Service will instantly classify the project as “funded research” and fully disallow the tax credit. Commercial contracts must be drafted by legal counsel to explicitly tie financial compensation to the successful resolution of the technical milestones, and they must unambiguously ensure that the Janesville manufacturer retains substantial legal rights to the underlying intellectual property and methodologies developed during the process. Furthermore, starting in 2026, the strict compliance mandates of the new Internal Revenue Service Form 6765 Section G will require all Janesville taxpayers to seamlessly segment all of these meticulously documented hours, supply costs, and contractor invoices by individual business component prior to filing their returns.

Final Thoughts

The city of Janesville, Wisconsin, serves as a premier historical microcosm of American industrial resilience and strategic economic adaptation. The catastrophic, permanent closure of the General Motors assembly plant in 2008 initially devastated the local economy, but ultimately catalyzed a necessary transition away from traditional, monolithic automotive assembly and toward a highly diversified, advanced technological ecosystem. Today, Janesville is characterized by world-class, globally impactful innovations in nuclear medicine radiopharmaceuticals, precision food fermentation scaling, ultra-clean thermoformed medical packaging, high-pressure hydrogen infrastructure, and advanced heavy-duty internal combustion engine design.

The United States Federal and Wisconsin State Research and Development tax credits are absolutely fundamental to sustaining the aggressive capital requirements of this complex ecosystem. By fully leveraging the immediate expense deduction options strategically provided by the 2025 One Big Beautiful Bill Act, and by aggressively targeting Wisconsin’s highly lucrative 11.5 percent enhanced statutory credits for internal combustion and energy-efficient designs alongside the vital 25 percent refundability provisions, Janesville enterprises can systematically lower their cost of capital and reinvest in continuous innovation. However, as both the Internal Revenue Service and state-level audit scrutiny radically intensifies through stringent new reporting forms and unforgiving judicial precedents, these massive financial benefits can only be secured and retained through meticulous, contemporaneous engineering documentation and air-tight contract structuring that unequivocally satisfies the rigid statutory four-part test.

The information in this study is current as of the date of publication, and is provided for information purposes only. Although we do our absolute best in our attempts to avoid errors, we cannot guarantee that errors are not present in this study. Please contact a Swanson Reed member of staff, or seek independent legal advice to further understand how this information applies to your circumstances.