Innovation, oversimplification and a race to the bottom - A buyer’s guide to selecting an R&D tax credit service provider
Choosing an R&D tax credit service provider can be challenging despite the many options available. Not all providers are equal; many lack the necessary tax expertise and fail to deliver what is required to claim the credit. This misconception leads to the market parity fallacy—the belief that all R&D credit services are equivalent.
Current Market Landscape
The federal R&D tax credit has been around for over 40 years, leading many to assume that consensus exists on how to claim it successfully. While innovation has simplified processes, some providers ignore essential standards, opting for ease over substance, creating a market imbalance.
Key Contributing Factors to Market Imbalance
Strong Demand Funnel: Trusted advisors often recommend R&D service providers due to the complexity of the credit, ensuring constant demand and attracting new entrants.
Market Parity Fallacy: The belief that all providers offer similar services leads to prioritizing cost and speed over quality.
Ease of Use Over Substance: Many providers focus on user-friendly processes at the expense of meeting IRS requirements.
Misleading Guarantees: Guarantees are often structured to give a false sense of security, masking inadequate service offerings.
Additional Incentives: Some providers offer cash advances or financing options, increasing customer acquisition costs and potentially compromising service quality.
Buyer Affinity for Tech Solutions: Companies often favor tech-driven providers, seeing them as innovative, even if they lack substantive value.
Low Audit Risk: The historically low risk of audits encourages providers to focus on simplicity rather than thorough compliance.
Types of Service Providers
Traditional Accounting Firms: Early entrants with dedicated R&D tax credit specialists, using a leveraged resource delivery model.
Boutique Firms: Specialize in R&D tax credits and similar incentives without being traditional accounting firms.
Tech Platform Players: The newest entrants, leveraging technology for simplified user experiences but often oversimplifying the process.
Conclusion
The R&D tax credit service provider market is imbalanced, with varying levels of service quality. Companies must understand these contributing factors and the different provider categories to make informed decisions. We will explore these categories in more detail in a future article, discussing their strengths and weaknesses and what to look out for when deciding on which service providers to use.
