R&D Tax Credit

The most under-claimed federal credit available to engineering-heavy companies

IRC §41 R&D credit studies, §174 R&E capitalization compliance, and the §41(h) payroll tax offset for pre-profitable startups. Led by Alfonso Nuñez, CPA, JD, whose 20+ years in corporate and international tax includes building audit-defensible credit packages for companies that have never been told they qualify.

  • CPA + JD Practice Lead
  • 20+ Years Corporate Tax
  • IRS Controversy Experience
  • Up to $500K Payroll Offset
  • Audit-Defense Package Included
  • Bay Area Focus
Schedule a Free Scoping Call (408) 383-9870

No commitment. 30 minutes. Al reviews your headcount and project mix and gives you a credit-size estimate on the call.

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The R&D tax credit under IRC §41 is the largest federal credit most engineering-heavy private companies will ever qualify for. Software teams, hardware shops, biotech labs, and manufacturing operations are leaving real money on the table every year, not because they don't qualify, but because their CPAs either don't specialize in it or don't substantiate it well enough to survive an IRS examination. A credit that gets clawed back at audit isn't a credit; it's a liability. This practice is part of our broader business tax consulting offering, but R&D is deep enough to warrant its own team and its own process.

There is also a second issue most companies are handling badly: the §174 change that took effect for tax years beginning after December 31, 2021. Under the TCJA-enacted version of §174, research and experimental expenditures must be capitalized and amortized over 5 years (domestic) or 15 years (foreign) rather than deducted in the year paid. That change interacts with the §41 credit in a way that is not obvious, and it may require a Form 3115 method change to fix prior-year treatment. The OBBBA 2025 legislation also introduced modifications to this framework, including a partial restoration of immediate expensing for domestic R&E, that need to be evaluated on a taxpayer-specific basis.

Silicon Valley Tax's R&D credit practice is led by Alfonso Nuñez, CPA, JD. Al spent his early career at Andersen Tax in San Francisco and later made Partner at RSM US LLP. His legal training means he writes credit memos that hold up in an examination, not just credit memos that generate a number. If you want a holistic tax and advisory relationship that includes R&D as one pillar, see our private company tax services.

What We Do

Three service lines, each one handling a piece of the puzzle

§41 R&D Credit Study & Form 6765

A properly built R&D credit study is a project-by-project analysis of your engineering and scientific work, tested against the four-part qualification standard, with a contemporaneous documentation package that can withstand IRS scrutiny. We build it right the first time.

Four-part test analysis: permitted purpose, technological in nature, elimination of uncertainty, process of experimentation
QRE identification and documentation: wages, supplies, and 65% contract research
Alternative Simplified Credit (ASC) vs. regular method selection
Employee time allocation methodology and project-level narrative
Contemporaneous documentation memo built to IRS examination standards
Form 6765 filing and full audit-defense package archived for you
Tax professional reviewing R&D credit documentation and project analysis

§174 R&E Capitalization & Method Changes

Most companies that have been writing off R&E costs immediately have been doing it wrong since 2022. Fixing it requires a Form 3115 method change. We handle the compliance work and make sure the §174 treatment and the §41 credit are coordinated, because you can capitalize and claim the credit on the same expenditures.

§174 mandatory capitalization analysis: 5-year domestic, 15-year foreign amortization
Software development classification under §174 (it applies broadly)
Coordination with §41: claiming the credit on the same QREs you are capitalizing under §174
Form 3115 method change to bring prior years into compliance
Treatment of unamortized §174 amounts on sale or abandonment of a project
OBBBA 2025 partial-repeal analysis: taxpayer-specific evaluation of domestic R&E immediate expensing eligibility
CPA and attorney reviewing R&E capitalization method change documentation

§41(h) Payroll Tax Offset for Qualified Small Businesses

Pre-profitable startups often assume the R&D credit is useless to them because they have no income tax liability. They are wrong. Under §41(h), qualified small businesses can apply up to $500,000 of the credit per year directly against the employer portion of FICA payroll taxes. That is real cash off a real quarterly bill.

Qualification analysis: gross receipts under $5M and no gross receipts in the 5-year lookback window
OBBBA 2025 threshold expansion evaluation for your specific filing
Up to $500,000 per year applied against employer FICA: cash benefit regardless of income tax position
Form 8974 preparation and quarterly Form 941 application
Multi-year carryforward strategy for unused credit amounts
Coordination with investor reporting: credit documentation that holds up in a Series A or Series B diligence process
Startup founders reviewing payroll tax offset benefit with their tax advisor

Who Leads This Practice

Meet Alfonso Nuñez

Alfonso Nuñez, Senior Tax Partner, CPA, JD, Silicon Valley Tax

Alfonso Nuñez

Senior Tax Partner, CPA, JD

BBA / JD: University of Nevada, Las Vegas (Boyd School of Law). Early career at Andersen Tax (San Francisco) and Partner at RSM US LLP.

"Most R&D credits that get disallowed at audit were claimed on thin documentation that wouldn't survive a basic IDR. The credit itself was probably real. The paperwork was not. We build the paperwork first."

Foundation

Al's career started at Andersen Tax in San Francisco, one of the most technically rigorous tax practices in the country. From there he built toward Partner at RSM US LLP, one of the largest accounting and advisory networks in the world. That path means his baseline is institutional: he has worked on the kinds of tax matters where documentation, legal position, and defensibility are not optional.

20+ Years of Corporate and International Tax

Al has spent more than two decades in corporate and international tax, covering M&A planning, tax for business owners and high-net-worth individuals, cross-border structuring, and IRS controversy work. R&D credits sit at the intersection of his two strongest areas: corporate tax engineering and IRS examination defense.

M&A, Controversy, and Business Owner Tax

The R&D credit shows up in M&A diligence, in IRS examination, and in the ongoing tax planning of growth-stage companies. Al has been in all three rooms. That depth means he can see the credit not just as a form-filing task but as a strategic asset that needs to be protected across transactions, across years, and across examinations.

The JD Advantage

The legal training is not an accident. R&D credit memos are legal documents in the sense that matters most: they are the evidence you produce when the IRS asks you to prove your position. Al's JD from the Boyd School of Law at UNLV means he approaches credit substantiation the way a good litigator approaches a brief, with the examiner's arguments already anticipated and addressed in the document.

Industries

Which companies qualify? More than you think

Software Development

Algorithm development, machine learning model training, novel system architecture, and new platform infrastructure all routinely qualify. The misconception is that "it has to be rocket science." It doesn't. It has to be technically uncertain when you start.

Hardware & Electronics

Bay Area chip design, IoT device development, robotics, and embedded systems work. If your engineers are running experiments to solve design problems that don't have known solutions, that is a §41 qualified research activity.

Biotech & Life Sciences

Lab work, novel formulations, clinical trial methodology, and research toward FDA approval. Life sciences companies often have the highest QRE-to-headcount ratios of any industry, which means the credit per dollar of wages is substantial.

Manufacturing & Process Engineering

Production process improvement, automation design, and new manufacturing methodology. Many manufacturers don't realize that process work, not just product work, qualifies. The test is whether the process itself was developed through experimentation.

Engineering Services & Contract R&D

Contract R&D firms and engineering services companies can qualify when they bear the financial risk of the research, regardless of whether the IP belongs to a client. The "funded research" exclusion in §41(d)(4) requires careful analysis here.

SaaS & Data Products

SaaS companies have a dual complexity: their software development is often §174 R&E (requiring capitalization), AND much of that work qualifies for the §41 credit. Getting both right at the same time, with coordinated treatment, is exactly the kind of work this practice is built for.

When to Engage

If you recognize one of these situations, the conversation is overdue

You've never claimed the credit and you have engineers on payroll

If you have been paying engineers for 3+ years without a §41 credit, you are likely leaving 5-7 figures on the table annually. Prior-year amended returns can often recover 3 years of missed credits. The statute of limitations is running.

Your current CPA claimed it but the substantiation is thin

A credit claimed without a project-level narrative, without documented employee time allocation, and without a contemporaneous memo is a credit that does not survive an IRS information document request. Audit risk is real and the credit is a high-exam priority category.

You're a startup with under $5M revenue and the payroll offset would mean real cash

Up to $500,000 per year applied directly against your FICA employer match obligation. For a pre-profitable startup paying 15-20 engineers, that is a material number that shows up in your bank account quarterly. No income tax liability required.

You're being acquired and buyer diligence is asking about R&D credits

Acquirers want clean credit substantiation before they price the deal. Thin documentation discovered in diligence either kills the credit value in the purchase price negotiation or becomes an indemnification exposure. You need a binder that answers their questions before they ask them.

You're confused about §174 capitalization vs. the §41 credit

They interact. You capitalize the same expenditures under §174 that you claim the credit on under §41. Getting one right without the other creates a mismatched position that reads as an error in examination. Both need to be handled together, which is exactly what this practice does.

You're under IRS examination for a prior-year credit

Al's JD and IRS controversy background are built for exactly this. Examination defense for R&D credits requires legal-grade memo writing, familiarity with the examination team's playbook, and someone who has sat across the table from agents before. This is not a job for a generalist CPA.

How It Works

Four steps from first call to filed credit with a binder in your hands

  1. 1

    Free 30-minute scoping call

    Al reviews your headcount, payroll, project mix, and prior filing history, then gives you an honest credit-size estimate on the call. If the math doesn't work for your situation, he will tell you that, too. No minimum engagement to find out whether you qualify.

  2. 2

    Scoped engagement letter from Silicon Valley Tax

    Fixed-fee for the credit study and Form 6765 filing. Contingent fee option available for prior-year amended return claims. The engagement letter covers the study, the form filing, and the audit-defense package so there is no ambiguity about what is included.

  3. 3

    R&D credit study build

    We run structured interviews with your technical leads, map projects to qualifying activities under the four-part test, build the QRE schedule by project, select ASC or regular method based on your base period, prepare the contemporaneous-documentation memo, and handle any §174 method change via Form 3115 if needed. You review and approve before anything goes to the IRS.

  4. 4

    Form 6765 filing and audit-defense package archived

    We file Form 6765 with your return. We hand your CFO or controller a complete digital binder: project narratives, QRE schedules, employee time allocation methodology, and the contemporaneous-documentation memo. On day one of an IRS examination, you hand over the binder. That is what substantiation looks like.

Deep Reading

R&D Credit for Software Startups: §41, §174, and the $500K Payroll Offset

Our detailed technical breakdown of how §41 and §174 interact for software companies, how to calculate the payroll offset under §41(h), and what the IRS looks for when they examine a credit claim. Written for founders and CFOs who want to understand the mechanics, not just hand it off.

Read the deep dive on R&D Credit for Software Startups

Find out how much R&D credit your company has been leaving on the table

Schedule a free 30-minute scoping call with Alfonso Nuñez at Silicon Valley Tax, 2051 Junction Ave Suite 200, San Jose CA. Al reviews your headcount, payroll, and project mix on the call and gives you an honest credit-size estimate. No commitment required.

Fixed-fee credit studies. Audit-defense package included. Prior-year claims available.

Schedule a Free Scoping Call (408) 383-9870
Find out how much R&D credit you've been missing. Free 30-minute scoping call. Schedule a Free Scoping Call (408) 383-9870