Project Summary
A materials engineering company was tasked with developing a proprietary elastomer compound for an industrial sealing application where standard EPDM and silicone formulations could not maintain dimensional stability and compression set resistance at sustained operating temperatures above 300°F. By applying for the R&D Tax Credit, and satisfying the four-part test, this company was able to attain a Total State Credit of $324,601 and a Total Federal Credit of $730,341.
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: Developing an improved sealing material with enhanced thermal performance, reliability, and service life under demanding operating conditions.
- Elimination of Uncertainty: It was unclear whether a custom fluoroelastomer blend could maintain acceptable compression set and chemical resistance over a 10,000-hour service life at elevated temperatures without premature hardening or outgassing.
- Process of Experimentation: The team iterated on compounding formulations across multiple cure systems, ran accelerated aging and compression set testing, and reformulated based on failure analysis until performance targets were consistently met.
- Technological in Nature: Grounded in polymer chemistry, materials science, and chemical engineering.
| Employee Wages | $30,265,874 |
| Supply and Contractor Costs | $3,726,972 |
| Total QRE’s | $7,545,465 |
| Total State Credit | $324,601 |
| Total Federal Credit | $730,341 |
Study Results
The analysis identified a total of $7,545,465 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the majority of the QRE figure, with $30,265,874 in total payroll and $3,888,963 attributable to qualifying research activities. Supply costs contributed an additional $3,525,628 in qualifying expenses, primarily from raw materials, prototype compounds, and accelerated aging test samples. Contractor expenses added $130,874, the 65% allowable portion of $201,344 paid to third parties under IRC §41. Based on those qualifying expenses, the study produced a federal R&D Tax Credit of $730,341 and a state R&D Tax Credit of $324,601, bringing the company’s total tax credit benefit to $1,054,942.
Key Takeaways
- Materials engineering and elastomer compound development are strong candidates for the R&D Tax Credit. Formulation work, cure system iteration, and accelerated aging studies map directly to the four-part test’s requirements for experimentation and uncertainty.
- Supply costs can rival wages in material-intensive R&D. This engagement captured $3,525,628 in qualifying supply costs, nearly equal to the $3,888,963 in qualifying wages, a reminder that prototype compounds, test samples, and aging coupons can substantially expand the credit beyond payroll alone.
- Large headcount doesn’t automatically translate into large QREs, careful identification does. Of $30,265,874 in total payroll across 863 employees, only $3,888,963 was attributable to qualifying research activity, demonstrating CSSI’s engineering-based approach to isolating defensible research wages.
- State credits can meaningfully expand the total benefit. Here, the state credit added $324,601 on top of $730,341 federal, bringing the total to $1,054,942, roughly a 44% increase over a federal-only analysis.
- Documentation drives defensibility. Failure analysis records, cure system trial logs, and accelerated aging data supported each component of the four-part test, reinforcing CSSI’s audit-ready methodology.
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.
