Project Summary
A custom metal fabricator with 78 employees was pushing the boundaries of precision fabrication, developing new forming and welding techniques, engineering custom tooling, and refining manufacturing processes to meet increasingly demanding customer specifications. What they didn’t fully realize was how much of that work qualified under the IRS R&D tax credit. By satisfying the four-part test, the company unlocked $258,604 in federal R&D tax credits and $176,940 in state credits, amounting to $435,544 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 new fabrication processes, custom tooling, and refined forming and welding techniques to achieve measurable improvements in precision, structural integrity, and manufacturability, a direct effort to develop a new or improved business component under IRC §41.
- Elimination of Uncertainty: At the outset, it was unknown whether target tolerances, material behavior, and joint integrity could be consistently achieved across the range of geometries and specifications demanded by customers. The engineering and fabrication teams worked systematically to resolve those uncertainties.
- Process of Experimentation: Teams evaluated multiple material selections, weld parameters, forming sequences, and tooling configurations through hands-on prototyping, destructive and non-destructive testing, and iterative process refinement, adjusting their approach at each stage based on measured outcomes.
- Technological in Nature: Activities including process engineering, tooling design, fixture development, and metallurgical analysis relied on principles of materials science, mechanical engineering, and manufacturing engineering.
| Employee Wages | $2,184,500 |
| Supply and Contractor Costs | $537,650 |
| Total QRE’s | $2,722,150 |
| Total State Credit | $176,940 |
| Total Federal Credit | $258,604 |
Study Results
The analysis identified a total of $2,722,150 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $2,184,500 attributable to fabricators, engineers, and process technicians directly engaged in qualifying research activities. Supply costs contributed an additional $378,400 in qualifying expenses, primarily from prototype materials, tooling, and supplies used in process development and design validation. Contractor expenses added $159,250, 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 $258,604 and a state R&D Tax Credit of $176,940, bringing the company’s total tax credit benefit to $435,544.
Key Takeaways
- Process Development Work Is Exactly What the Credit Rewards: When the engineering challenge involves genuine uncertainty (unknown weld parameters, untested forming sequences, material behavior that hasn’t been characterized) that’s the IRS definition of qualified research in action. Custom fabricators solving those problems every day are generating credit eligibility without realizing it.
- A Skilled Trade Workforce Is a Significant Credit Driver: With $2,184,500 in qualifying wages, the company’s deepest credit opportunity came from its own people. Fabricators, process engineers, and technicians refining techniques and solving production challenges were generating R&D credit eligibility with every hour worked.
- Material and Tooling Costs Add Up: The $378,400 in qualifying supply costs )covering prototype runs, tooling, and materials used in process development) added meaningfully to the QRE base and amplified the total credit beyond wages alone.
- Outsourced Technical Work Is Recoverable Too: At $159,250 in qualifying contractor expenses, the company recovered credit on third-party research costs that many fabricators leave on the table entirely.
- Custom and Precision Fabrication Is a Credit Hotspot: When work requires solving for tight tolerances, novel geometries, or demanding customer specs with no proven process to follow, technical uncertainty is high and qualified research is abundant, making R&D credit analysis especially valuable for shops doing this kind of work.
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.
