Industry Spotlight – Architecture, Engineering & Construction
R&D Tax CreditJanuary 29, 2019
Architecture, engineering, and construction (“AEC”) firms frequently invest substantial resources to advance and improve building designs and processes. When contractors, architecture and engineering professionals develop and design new and innovative techniques, their activities may qualify for the R&D tax credit. As a result of unique project aspects and ever-changing structure and energy codes, many projects that appear similar on the surface are, in fact, at least partially new or improved with respect to function or performance.
New technological advances, e.g., green technology, solar energy, and radical new designs, may be provided by the project’s architects, engineers or other design services consultants. Architecture firms can attest that designing a building is not just about aesthetic design. However, the firms’ principals and officers may be unaware that the expenses associated with the development of unique functional and energy-efficient designs may allow them to take advantage of significant R&D tax incentives. With the increase in sustainable and “green” designs incorporated into building features, architecture firms are expending more time and effort in the design phase of projects to achieve optimal energy-efficient and functional designs.
Typically, most of the qualifying activities are performed in the first three phases of the architectural process. The phases, and the extent to which qualifying research activities may be performed in each phase, can be generally described as follows:
- Phase I—Ideation & Design: This phase typically involves allocation of space, space planning and assessment of available and required square footage. There is significant uncertainty at this phase, as the architect is called upon to determine how the proposed site may accommodate the functional and nonfunctional elements required by the client (e.g., placement of personnel and equipment) on an overall basis.
- Phase II—Schematics: This phase typically involves exploration of the general concept of the building. In this phase, several schemes will generally be designed, with one selected by the building owner. There is significant uncertainty at this stage, as the architect is called upon to:
- Consider several alternatives for development of the selected space; and
- Determine (on an overall basis) how each alternative may be constructed, given architectural and related principles.
- Model the architectural and engineering design alternatives.
- Phase III—Development: This phase typically involves expansion and redesign of the selected design, including assessment of alternative materials and energy sources and the cost of various options. There is significant uncertainty at this stage, as the architect is called upon to resolve major design issues in fitting the selected architectural scheme into a workable overall plan.
Examples of Qualifying Activities within the Architecture, Engineering and Construction Industry
Typical qualifying initiatives and activities generally fall within five general buckets including: 1) architecture, 2) civil engineering, 3) environmental engineering, 4) structural engineering, and 5) construction services.
Architecture Activities – design activities in connection with the following can potentially qualify for the Federal R&D credit:
- energy efficiency
- site orientation
- structural and functional features
This includes commercial office buildings, educational facilities, hospitals, correctional facilities, industrial facilities, airports, stadiums, etc.
Civil Engineering – engineering and design activities related to the following can potentially qualify for the Federal R&D credit:
- road design, bridges, water and wastewater treatment facilities
- foundations and earthwork
- retaining walls and structures
- site development and infrastructure
Environmental Engineering – design activities related to the following can potentially qualify for the Federal R&D credit:
- remediation design
- solid waste system design
- drainage system design and flare station design
Structural Engineering – engineering and design activities related to the following can potentially qualify for the Federal R&D credit:
- building superstructure design
- foundation design
- HVAC system design
- electrical systems and piping systems
Construction Services – activities related to the following can potentially qualify for the Federal R&D credit:
- developing new or unique methods to improve construction processes
- developing new construction techniques
- experimenting with new materials
If you have questions about other possible qualifying activities not listed here, we can help.
In addition to our R&D tax credit guidance, we also have established Architecture & Engineering and Construction industry groups that focuses on helping our clients with our full suite of Anchin services. Please contact us if you would like to be put in touch with those groups.