Overview
A full-service electrical contractor specializing in commercial and heavy industrial construction engaged Engineered Tax Services to evaluate and document its research and development (R&D) activities across multiple tax years.
Despite operating in a traditional industry, the company was actively developing custom electrical engineering solutions, optimizing system performance, and solving complex project-specific challenges—making them a strong candidate for the R&D tax credit.
The Opportunity
Like many contractors, the company did not initially identify its work as “R&D.” However, a deeper analysis revealed that their team consistently engaged in activities that met the IRS Four-Part Test, including:
- Designing and engineering custom electrical systems
- Experimenting with performance optimization and functionality improvements
- Solving project-specific technical challenges
- Evaluating alternative approaches through trial and error and modeling
These activities were performed across numerous projects, creating a significant opportunity to recover previously unclaimed tax credits.
The Challenge
The company faced several common barriers:
- No formal tracking of R&D time or activities
- Difficulty distinguishing qualifying vs. non-qualifying work
- Complex project environments with varying scopes and technical requirements
- Large workforce with diverse roles contributing to innovation
Without proper documentation, capturing eligible expenses in a defensible way would have been difficult.
Our Approach
We implemented a comprehensive, engineering-based methodology to identify and document qualified research activities.
1. Project & Activity Analysis
We worked directly with leadership and technical teams to:
- Identify qualifying projects
- Map activities to IRS criteria
- Validate eligibility using the Four-Part Test
2. Employee Interviews & Role Mapping
Because time tracking was not available, we:
- Conducted detailed interviews with key personnel
- Assigned R&D percentages by job function
- Identified roles involved in direct research, supervision, and support
3. Cost Analysis & Documentation
We analyzed wage data and applied qualified percentages to calculate Qualified Research Expenses (QREs).
- Primary cost driver: employee wages
- No supply or contract research costs were included in this study
4. Compliance & Risk Mitigation
We ensured:
- All activities aligned with IRS Section 41 requirements
- Foreign and non-qualifying activities were excluded
- Documentation met current IRS audit standards
The Results
Qualified Research Expenses (QREs)
- 2022: $2,927,030
- 2023: $3,188,941
- 2024: $3,276,541
- Total QREs: $9,392,512
R&D Tax Credits Generated
- Total Federal Credits: $729,805
- Estimated Net Benefit: $576,546 (after tax effect)
Key Insight
Approximately 33%–35% of total wages were identified as qualifying R&D expenses across the study period .
What This Means
This case highlights a major misconception:
Companies don’t need to be in a lab to qualify for R&D tax credits.
In this case, a construction-focused electrical contractor was able to unlock over half a million dollars in tax savingssimply by properly identifying and documenting the innovation already happening in their day-to-day operations.
Why It Worked
- Continuous technical problem-solving across projects
- Heavy reliance on engineering principles and experimentation
- Strong involvement of field personnel, estimators, and supervisors
- Structured methodology to convert real-world work into audit-ready documentation
Is Your Business Missing This Opportunity?
If your team is:
- Designing custom solutions
- Improving processes or performance
- Solving technical challenges on projects
…there’s a strong chance you may qualify.
At Engineered Tax Services, we combine engineering expertise with tax strategy to uncover opportunities others miss—while keeping everything fully compliant and defensible.
