Project Summary
An automotive technology company was developing a next-generation advanced driver-assistance system (ADAS), fusing radar, camera, and LiDAR data into a single real-time perception pipeline capable of powering semi-autonomous braking and lane-keeping. Between tuning detection algorithms across weather and lighting conditions and validating response times on closed test tracks, engineers were deep in unresolved technical territory, but didn’t fully realize how much of that work qualified under the IRS R&D tax credit. By satisfying the four-part test, the company unlocked $127,500 in federal R&D tax credits and $44,300 in state credits, amounting to $171,800 in total savings.
Project Overview
To qualify for the R&D Tax Credit, each activity must satisfy the IRS four-part test. CSSI’s analysis confirmed that the qualifying activities identified for this company met all four criteria:
- Business Component: The company set out to develop a new ADAS platform integrating radar, camera, and LiDAR sensor fusion for real-time object detection and semi-autonomous braking and lane-keeping, a direct effort to develop a new or improved business component under IRC 41.
- Elimination of Uncertainty: At the outset, engineers didn’t know whether their sensor fusion algorithms could reliably detect and classify obstacles across varying weather and lighting conditions, or how to balance detection latency against false-positive braking rates. The team worked systematically to resolve those uncertainties.
- Process of Experimentation: Engineers ran hardware-in-the-loop (HIL) simulations, conducted iterative closed-course test drives, and tuned detection algorithms based on measured accuracy and response-time outcomes at each stage.
- Technological in Nature: The work drew directly on electrical engineering, computer vision and machine learning, and automotive systems engineering.
|
Employee Wages |
$718,200 |
|
Supply and Contractor Costs |
$344,500 |
|
Total QRE’s |
$1,062,700 |
|
Total State Credit |
$44,300 |
|
Total Federal Credit |
$127,500 |
Study Results
The analysis identified a total of $1,062,700 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $718,200 attributable to sensor engineers, embedded software developers, and systems validation engineers directly engaged in qualifying research activities. Supply costs contributed an additional $234,900 in qualifying expenses, primarily from prototype radar and LiDAR units, test-vehicle instrumentation, and closed-track testing costs used in development and validation. Contractor expenses added $109,600, representing the 65% allowable portion of third-party research costs under IRC 41. Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $127,500 and a state R&D Tax Credit of $44,300, bringing the company’s total tax credit benefit to $171,800.
Key Takeaways
- The core uncertainty is exactly what the credit targets: Reliably detecting and classifying obstacles across real-world driving conditions is precisely the kind of unresolved technical challenge the IRS R&D credit was built to reward.
- Engineering payroll is the biggest driver: At $718,200, wages for sensor, software, and systems engineers made up the bulk of the QREs, a reminder that credit eligibility accrues every day engineers do their normal iterative work.
- Testing and prototype costs compound the benefit: The $234,900 in supply costs, covering sensor hardware, vehicle instrumentation, and closed-track testing, added meaningfully to the total credit.
- Contractor spend is recoverable, and often missed: The $109,600 contractor QRE shows how many automotive technology companies leave money on the table by not capturing the 65% allowable portion of third-party validation and testing costs.
- Automotive tech is a natural credit hotspot: Safety-critical hardware-software integration under constant real-world uncertainty makes rigorous R&D credit analysis especially valuable for companies in this space.
Ready to Discover Your R&D Tax Credits Potential?
If your company is developing or improving products, formulas, or processes, you may be leaving significant tax credits on the table. CSSI’s engineering-based approach ensures every qualifying activity is identified, documented, and defensible, so you capture the full value of the work your team is already doing.
Request a Free Analysis today and find out what your business could qualify for.
