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NexusTax Credits

Qualified Research Consortia: The Hidden QRE

We research to innovate, to improve upon current technologies, and to learn and gain a better understanding of products and processes. The Research Tax Credit (RTC) rewards a taxpayer’s effort in pursuing research and development (R&D). Sometimes companies will turn to universities to help in the research process. But did you know that working with a non-profit university can help boost a taxpayer’s credit more than compared to normal contracted research? 

The qualified research expenses (QREs) that qualify for the RTC include wages, cost of supplies, rental or lease cost of computers, and contract research expenses. Often, expenses from what is referred to as a qualified research consortium (QRC) are integrated with the contract research expenses. If this is the case, the taxpayer could be losing out on potential QREs. 

In general, for qualifying contract research expenses, the RTC allows the taxpayer to claim 65% of the amounts paid or incurred by the taxpayer as QREs. But if the contracted research is conducted by a qualified research consortium, that percentage increases to 75%. 

What Is a Qualified Research Consortium?

First, let’s define what a QRC is. A QRC is a group of businesses that conduct research together in order to further their own individual research goals. These businesses pool their resources and share the costs and benefits of the research. However, there is a very specific definition under Section 41 that must be considered: a qualified research consortium refers to an organization that “is described in section 501(c)(3) or 501(c)(6) and is exempt from tax under section 501(a), is organized and operated primarily to conduct scientific research, and is not a private foundation.” Some of the organizations that may qualify include: 

  • Public charities 
  • Private foundations 
  • Educational organizations (not-for-profit and public universities) 
  • Scientific and literary organizations
  • Amateur athletic organizations
  • Testing for public safety
  • Business leagues

The Impact of Identifying Qualified Research Consortia Expenses 

Many are unaware that this rule exists, or that there is a distinction in the calculation between normal contract research and research consortia. Your RTC can benefit when the qualified research consortium expenses are separated and calculated using the method described under section 41. Claiming QREs related to a QRC can be a valuable tax credit for eligible taxpayers. However, it’s important to understand what qualifies as QREs and how to properly claim them on the tax credit calculation. Taxpayers should seek out expert guidance to ensure that they are maximizing their available tax credits. At DST Advisory Group, we have worked with taxpayers whose prior year’s RTC claim did not separate the research consortia expenses from the standard contract research expenses in the calculation. By simply identifying this distinction, taxpayers can maximize the QRE contribution of qualified research consortium payments and increase their overall RTC claims. 

Identifying niche rules such as qualified research consortia can seem daunting. Our team of Tax Attorneys, Tax Associates, and Tax Engineers at DST Advisory Group are well-versed in identifying these QREs. We analyze the qualified research expenses and qualified research activities to ensure that you as the taxpayer are receiving the correct amount you are entitled to.