Project Summary
An aerospace manufacturer specializing in structural components and propulsion systems was doing two things at once, scaling production while pushing forward on next-generation designs for both commercial and defense programs. The engineering complexity was significant, and so was the tax opportunity they hadn’t fully explored. By satisfying the IRS four-part test, the company unlocked $690,000 in federal R&D tax credits and $172,500 in state credits totaling $862,500 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: Research was directed at developing next-generation structural components and propulsion systems with improved performance for commercial and defense applications, qualifying as the development of a new or improved business component under IRC §41.
- Elimination of Uncertainty: At the outset of each development program, it was unknown whether new designs could meet the stringent performance, weight, and durability requirements of their target applications. Engineering teams worked to determine whether and how those standards could be achieved.
- Process of Experimentation: Engineers evaluated multiple design configurations, materials, and manufacturing approaches through simulation, prototype builds, and rigorous testing, iterating systematically until technical uncertainties were resolved.
- Technological in Nature: Activities including structural analysis, propulsion system design, and materials qualification relied on principles of aerospace engineering, thermodynamics, and advanced materials science.
|
Employee Wages |
$8,340,000 |
|
Supply and Contractor Costs |
$3,160,000 |
|
Total QRE’s |
$11,500,000 |
|
Total State Credit |
$172,500 |
|
Total Federal Credit |
$690,000 |
Study Results
The analysis identified a total of $11,500,000 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $8,340,000 attributable to structural engineers, propulsion specialists, and design teams directly engaged in qualifying research activities. Supply costs contributed an additional $1,920,000 in qualifying expenses, primarily from materials used in prototype fabrication, structural testing, and propulsion system development. Contractor expenses added $1,240,000, 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 $690,000 and a state R&D Tax Credit of $172,500, bringing the company’s total tax credit benefit to $862,500.
Key Takeaways
- Development and Production Can Happen at the Same Time This company wasn’t pausing operations to do R&D, they were scaling production while advancing new designs simultaneously. Both streams generated qualified research activity and contributed to the credit.
- Engineering Payroll Is the Foundation of the Credit With $8,340,000 in qualifying wages, the largest credit driver was the technical workforce already on staff, structural engineers and propulsion specialists generating R&D eligibility as part of their everyday roles.
- Materials and Testing Costs Qualify The $1,920,000 in qualifying supply costs, covering prototype materials, structural test samples, and propulsion development work, added substantial value to the QRE base.
- Defense and Commercial Programs Both Count Whether the end application is a commercial aircraft or a defense platform, the qualifying criteria are the same. Companies with mixed portfolios can capture credit across both.
- High Barriers to Entry Mean High R&D Credit Potential Aerospace is one of the most technically demanding industries in the world. The same complexity that makes these programs challenging is what makes them rich with qualified research activity.
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.
