TL;DR

Two common questions about the R&D tax credit are: “Are some industries more heavily scrutinized by the IRS?” and “Can I claim both federal and state credits?” The answer: Yes, some industries see more questions during audits, but with proper documentation, claims remain secure. And yes, companies can often claim both federal and state R&D credits, though not all states offer them. At B10 Capital, we specialize in maximizing benefits at both levels while ensuring compliance.

Do Some Industries Face More IRS Scrutiny?

The IRS applies the same four-part test to all R&D claims, but in practice, some industries face closer attention. This is often because their activities are less obviously “R&D” or because claims in these areas have historically been over- or under-reported.

Industries More Frequently Scrutinized:

• Architecture, Engineering, and Construction (AEC) – The IRS may question whether activities are design vs. experimentation.
• Software & IT – Given the rapid pace of development, documentation is critical to distinguish innovation from routine coding.
• Financial/Insurance Tech – Projects often appear “operational” rather than experimental, sometimes requiring stronger evidence.
• Food & Beverage – Recipe or process changes may or may not qualify, depending on the nature of experimentation.
• Professional Services – Law, accounting, or consulting firms usually do not qualify, leading to higher review of borderline claims.

The takeaway: The IRS isn’t targeting industries, but claims that don’t clearly show experimentation, uncertainty, or technical development are at risk.

How to Protect Against Scrutiny

The best defense is building a claim that’s complete and defensible from the start:

• Identify eligible projects accurately. Don’t overstate “business as usual” work.
• Maintain reasonable documentation. Project notes, prototypes, iterations, test data, or time logs.
• Work with experts. Specialists who understand industry nuances can present claims in ways the IRS recognizes as valid.

At B10 Capital, we’ve guided companies across every sector, including those subject to higher scrutiny, through successful, compliant claims.

Can I Claim Both Federal and State R&D Tax Credits?

Yes. if your state offers it. The federal R&D tax credit is available to all qualifying U.S. businesses, and many states offer their own versions.

Federal R&D Credit:

• Available nationwide.
• Applies to qualified research activities as defined by the IRS.
• Can offset income tax liability (and in some cases payroll taxes).

State R&D Credits:

• Available in some states, not all.
• Often mirror federal rules but may have unique calculations, thresholds, or definitions.
• Credits can be stacked with the federal credit, increasing total savings.

Example: A company in California may claim both the federal R&D credit and the California state R&D credit, maximizing benefit at both levels.

Which States Offer R&D Credits?

Most states with significant manufacturing, tech, or innovation hubs offer credits, but each has unique rules. Examples:

• California: Generous credit structure for research activities.
• Texas: Offers both franchise tax and sales/use tax exemptions.
• Massachusetts & New York: Strong state-level credits aligned with federal definitions.
• Utah, Arizona, Florida, and more: Credits vary in rate and eligibility.

Some states (like Nevada or South Dakota) do not currently offer R&D credits.

Why State Credits Are Often Missed

• Companies assume only the federal credit exists.
• CPAs may not track all state programs.
• Rules differ from federal. What qualifies at the federal level may not fully align with state requirements.

This means many businesses in these areas only capture half of what’s available.

How B10 Capital Maximizes Both Federal and State Credits

We specialize in identifying opportunities at every available level:

• Federal R&D credits that apply universally.
• State credits in the states that offer them.
• Customized strategies for companies with multi-state operations.

Our expertise ensures you’re not just filing federally, you’re capturing the maximum benefit allowed in your state.

The Combined Value

When businesses claim both federal and state credits, the impact multiplies:

• Federal credit: Reduces federal income or payroll tax.
• State credit (if applicable): Provides additional savings directly at the state tax level.
• Stacking effect: Combined, the two can deliver six- to seven-figure benefits annually for mid-sized firms.

Final Thoughts

So, are some industries more scrutinized by the IRS? Yes. But with the right documentation, claims remain secure. And can you claim both federal and state R&D credits? In many cases, yes. And doing so can significaitnly increase your benefit.

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At B10 Capital, we’ve helped clients across industries and states navigate scrutiny, maximize credits, and stay fully compliant.

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Don’t leave half your R&D benefit unclaimed, or risk an audit with an incomplete filing.

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Contact B10 Capital today to see how we can help you secure both federal and state R&D tax credits. Our team is experienced in every state that offers credits, ensuring you get the maximum return while staying 100% compliant.

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