If you have ever computed an R&D tax credit, you are familiar with the R&D credit interview. Interviewing subject matter experts has been the primary method for gathering information for over 30 years.
The purpose of the R&D credit interview is to ask one question; "how much time do you spend performing qualified research activities?”
Is an hour-long interview the most effective way to gather this information?
In this article we will address the hidden costs of conducting an R&D credit interview and how modern technology can make this process more efficient.
The History
When taxpayers started claiming R&D credits back in the early 1990s, most documents were in hardcopy format and stored in banker boxes in storage sheds across America.
Determining how much time each employee spent performing qualified research activities would require days or weeks of sorting through boxes and reading thousands of pages of documents. Accountants quickly found an alternative…interview the subject matter experts. From this need for information the R&D credit interview was born.
Status Quo
For the past 30+ years every R&D credit practitioner at every firm has conducted interviews the same way. The process begins with 15 minutes of tax rule monologue and the interviewer asks the interviewee to explain their job description.
After this painful experience, the interviewee is asked to guess how much time they spend performing “qualified research” based on the monolog delivered at the beginning of the meeting.
If you think this sounds miserable from this description…try sitting through 60 to 90 minutes of such an interview. I remember one interviewee asking me years ago if I conducted these interviews full time. I explained that as an R&D credit expert that is what I did. He looked at me and said, “I would kill myself if that was my full-time job.”
This interview process has not changed for 30+ years. Although firms have tried to differentiate the interview by hiring people with diverse backgrounds or using various slide decks to explain the tax rules, etc., every firm follows this basic interview agenda.
And the poor individuals who are invited to suffer through the interview every year have tried numerous ways to get out of the ordeal. Some ignore the emails and fail to schedule the interview, others skip the interviews after they have been scheduled, and some simply say they do not do any research hoping they can be excused.
The Cost
The cost of a single interview can be measured in terms of your employee’s time. But it is more than just the 60 to 90 minutes they spend in the interview itself.
As soon as a person is invited to an interview, they begin to worry about and prepare for it. There is time spent scheduling and working out the logistics. After the interview, the person typically has follow-up tasks like finding documents, reviewing summary notes, or answering questions.
In total, the cost of a single R&D credit interview is about 3 hours per employee involved in the interview process. This is a very expensive process for asking one question.
The AI Alternative
A lot has changed over the past 30 years. Today documents are all stored in electronic format and easily accessed remotely. AI tools can read every word of every document and understand its meaning and context.
Other AI tools can analyze the data contained in the documents and predict if the project qualifies for the R&D credit, which individuals worked on the project, and how much time each person spent performing qualified research activities on the projects.
These tools completely change the R&D credit interview experience. By running the available data through AI models and allowing AI models to predict probable outcomes, the R&D credit interview becomes a quick task of validating the predicted outcomes.
Interviewees no longer spend hours preparing for, participating in, and completing follow up tasks. The interviewee simply takes a few minutes to review the predictions, make a few edits if necessary and press submit.
