Project Summary
A mid-size independent E&P company was actively working to improve recovery rates and drilling efficiency across multiple basins; tackling challenges in reservoir modeling, completion design, and enhanced oil recovery. What they didn’t realize was that work already qualified as research under the IRS four-part test. After a thorough analysis, CSSI identified $513,225 in total R&D tax credits: $378,225 in federal credits and $135,000 in state credits.
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 improving recovery rates and drilling efficiency, qualifying as development or improvement of a business component under IRC §41.
- Elimination of Uncertainty: At the start of each project, the optimal method, design, or approach was unknown. The company’s teams were actively working to determine whether, and how, their technical objectives could be achieved.
- Process of Experimentation: Engineers and geoscientists evaluated multiple alternatives through modeling, simulation, and iterative testing, following a systematic process to resolve technical uncertainties.
- Technological in Nature: Activities including reservoir modeling, completion design, and enhanced oil recovery relied on principles of geology, petroleum engineering, and applied chemistry.
| Employee Wages | $3,200,000 |
| Supply and Contractor Costs | $1,002,500 |
| Total QRE’s | $4,202,500 |
| Total State Credit | $135,000 |
| Total Federal Credit | $378,225 |
Study Results
The analysis identified a total of $4,202,500 in Qualifying Research Expenses (QREs) across the tax year. Employee wages accounted for the largest share, with $3,200,000 attributable to staff directly engaged in qualifying research activities — including reservoir engineers, drilling technicians, and geoscientists working to solve technical uncertainties across the company’s operations. Supply costs contributed an additional $450,000 in qualifying expenses, primarily from materials used in completion testing, enhanced recovery trials, and downhole evaluation work. Contractor expenses added $552,500, 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 $378,225 and a state R&D Tax Credit of $135,000, bringing the company’s total tax credit benefit to $513,225.
Key Takeaways
- Everyday Engineering Qualifies Much of the work driving this company’s operations (reservoir analysis, completion optimization, and recovery testing) meets the IRS definition of qualified research. You don’t need a lab to claim the credit.
- Wages Are the Biggest Driver With $3,200,000 in qualifying employee wages, the largest credit opportunity came from the technical staff already on payroll; engineers, geoscientists, and drilling specialists doing what they do every day.
- Multiple QRE Categories Compounded the Benefit By capturing wages, supplies, and contractor expenses, the company maximized its QRE base, turning $4,202,500 in qualifying activity into $513,225 in combined federal and state credits.
- State Credits Add Meaningful Value The $135,000 in state credits weren’t an afterthought, they represented a significant addition on top of the federal benefit and are often overlooked by companies that only pursue federal credits.
- A Compliance-First Approach Protects the Benefit Every dollar claimed was supported by a thorough, defensible analysis, ensuring the credit holds up under IRS scrutiny and delivers lasting value without audit risk.
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.
