R&D Basics Exam Questions

Question 1

LB/I

Answer 1

Large Business or International

$10 million or more in assets

Question 2

SB/SE

Answer 2

Small Business or Self Employed

Less than $10 million in assets

Question 3

What revenue procedure allows for the use of statistical sampling?

Answer 3

2011-42

Question 4

What is a 280C Election? When must it be made?

Answer 4

Allows a taxpayer to elect a reduced credit amount thereby eliminating the requirement to deduct qualified research expenditures claimed for R&D credit.

The election must be made on a timely filed original return. You then reduce the credit amount by the current corporate tax rate in lieu of having to do the add back. Current corporate tax rate is 21%.

The add back is when you add the dollar amount of your credit into your taxable income. Add back is made on an amended return.

Question 5

ZMF

Answer 5

Zerbe, Miller, Fingeret, Frank & Jadav

Question 6

Two elements for a funded contract

Answer 6

Economic Risk & Substantial Rights

Question 7

Patent Safe Harbor Rule

Answer 7

1.41-4(a)(3)(iii)

The issuance of a patent is conclusive evidence that you have met three out of four elements of the 4-part test. The element you don’t inherently meet is the POE.

Question 8

Raving Fan

Answer 8

1. Testimonial
2. Referral
3. Follow-Up Engagement

Question 9

Core Values

Answer 9

Investment: invests time and resources into their own work product, practice area, and professional development of team members.

Raving Fans: Committed to creating raving fans with all interactions. Treats every interaction as an opportunity to provide superior client experience.

Energy & Passion: Demonstrates high level of energy in the carrying out of day-to-day activities.

Active not Passive: Proactively drives resolution to issues and problems. Actively pursues solutions through collaboration with management and peers.

High Performance: Consistently delivers results exceeding expectations in quantifiable metrics specific to the position held.

Urgency: demonstrates a high level or urgency in execution of day-to-day activities. Is responsive to correspondence (both internal and external), assignments, and corresponding results (both positive and negative).

Transparency: demonstrates transparency in all activities. Communicates openly with project team, BD, and client relations teams to effectively provide updates on project status, personnel, and other issues.

Question 10

Start-Up Fixed Base Calculations

Answer 10

• 1-5 years is 3%
  *6th year is 1/6th of the (agg. QREs/agg.GRs) of years 4-5.
  *7th year is 2/6th of the (agg. QREs/agg.GRs) of years 5-6.
  *8th year is 3/6th of the (agg. QREs/agg.GRs) of years 5-7.
  *9th year is 4/6th of the (agg. QREs/agg.GRs) of years 5-8.
  *10th year is 5/6th of the (agg.QREs/agg.GRs) of years 5-9.
  *11+ years–best of 5 among the 5th through 10th taxable years.

Question 11

ERC qualifications

Answer 11

1. Significant Decline in Gross Receipts
2. Full or Partial Suspension to Business Operations Due to Governmental Order

Question 12

SOL Table

Answer 12

C-Corp
- 4/15 extended 10/15
- 9/15 extended 4/15 [6/15 FYE]

S-Corp
- 3/15 extended 9/15
- 15th day of 3rd month after FYE extended 15th day of the 9th month after FYE

Partnership
- 3/15 extended 9/15
- 15th day of 3rd month after FYE extended 15th day of the 9th month after FYE

Individual
- 4/15 extended 10/15

Question 13

2848

Answer 13

POA and Declaration of Representative

Question 14

3800

Answer 14

General Business Credit Form
- List all the credits in addition to 6775
- Where you can see carry-backs and carry-forwards

Question 15

4564

Answer 15

Information Document Request

Question 16

5701

Answer 16

Notice of Proposed Adjustment

Question 17

179D

Answer 17

Energy Efficient Commercial Buildings Deduction

• Owner of a commercial building
• Primary designer of energy efficient property owned by tax-exempt entity.

Property which is installed as part of:
- the interior lighting systems,
- the heating, cooling, ventilation, and hot water systems, or
- the building envelope

Question 18

alliantNational

Answer 18

group of tax experts such as former IRS executives, congressional staffers, LLM attorneys, and litigators–specialize in helping U.S. businesses navigate complex tax matters, offering both representation and support on federal and international matters. Headed by former IRS Commissioners.

Question 19

80s Base

Answer 19

• 1 taxable year of BOTH QREs and gross receipts of the same year before 1984; AND
• 3 tax years between 1984 and 1988 with QREs and gross receipts in the same year

Question 20

Start-Up Begins

Answer 20

After December 31, 1993

Question 21

Base Amount Formula

Answer 21

Product of fixed base percentage and average annual gross receipts of the prior four years.

Question 22

Max Fixed Base Percentage

Answer 22

16%

Question 23

Minimum Fixed Base Percentage

Answer 23

50% of current year QREs

Question 24

Two Types of Statistical Samples

Answer 24

Variable

Attribute

Question 25

8 Exclusions

Answer 25

1. Research after commercial production 2. Adaptation 3. Duplication 4. Funding 5. Foreign 6. Internal Software 7. Social Sciences 8. Studies/Surveys

Question 26

Three Types of Uncertainty

Answer 26

1. Capability 2. Methodology 3. Appropriate Design

Question 27

Direct Supervision

Answer 27

Immediate supervision (first-line management) of qualified research (as in the case of a research scientist who directly supervises laboratory experiments, but who may not actually perform experiments)

Question 28

Name of the R&D Credit

Answer 28

Credit for increasing research activities

Question 29

Year R&D Credit was enacted

Answer 29

1981

Question 30

Direct Support

Answer 30

Services in the direct support of either: (1) Persons engaging in actual conduct of qualified research, or (2) Persons who are directly supervising persons engaging in the actual conduct of qualified research.

Question 31

4-Part Test

Answer 31

1. New or improved business component 2. Eliminate Uncertainty 3. POE 4. Technological in Nature

Question 32

Product Defined

Answer 32

Pilot Model, Process, Formula, Invention, Technique, Patent, or Similar Property Includes products to be used by the taxpayer in its trade or business as well as products to be held for sale, lease, or license.

Question 33

Pilot Model Defined

Answer 33

Any representation or model of a product that is produced to evaluate and resolve uncertainty concerning the product during the development or improvement of the product.

Question 34

Shrink-back Rule

Answer 34

If the requirements of 41(d) cannot be met at the business component level, the taxpayer can shrink back to the next significant subset

Question 35

Carry back?

Answer 35

1 year

Question 36

Carry forward?

Answer 36

20 years

Question 37

In-House Research Expenses

Answer 37

Supplies Wages Rental/lease of computer

Question 38

Contractor Expenses

Answer 38

65% of wages paid or incurred to another person other than an employee performing qualified research

Question 39

Qualified Services

Answer 39

Direct support Direct supervision Direct engagement

Question 40

Business Component

Answer 40

PPFIST Product, Process, Formula, Invention, Software, Technique

Question 41

Permitted Purposes

Answer 41

Performance Functionality Quality Reliability

Question 42

Non-Permitted Purposes

Answer 42

Style Taste Cosmetic Seasonal Design

Question 43

POE Definition

Answer 43

Process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as to the beginning of the TP's research activities. 1.41-4

Question 44

Credit v. Deduction

Answer 44

Credit = dollar for dollar reduction in tax liability Deduction = Reduction in taxable income

Question 45

Form R&D

Answer 45

6765

Question 46

Supplies 1. 41(b)(2)(A)(ii) 2. 1.41-2

Answer 46

1. any tangible property other than land or improvements to land; and property of a character subject to the allowance for depreciation 2. Supplies and personal property used in the conduct of qualified research if they are used in the performance of qualified services.