Can Established A/E Firms
Claim the R&D Tax Credit?
There is no age limit on the R&D Tax Credit. If your firm is doing technically uncertain design work — and most are — the credit applies regardless of how long you have been in business. Here is why the five-year rule most principals have heard about does not apply to them, and what actually determines eligibility for an established firm.
The Misconception That Is Costing Established Firms Real Money
A piece of content circulating in the architecture and engineering world suggests that the R&D Tax Credit is only available to firms less than 5 years old with gross receipts under $5 million. Principals at established firms read it and conclude they do not qualify. They move on. They leave money on the table.
That conclusion is wrong — and it is worth understanding exactly why, because the correction could be worth tens of thousands of dollars annually to a firm that has been dismissing this credit for years.
The five-year rule is real. It governs a specific provision of the R&D Tax Credit designed for startups — not the credit itself. The credit has no age limit. An architecture firm that has been in business for thirty years claims it the same way a firm in its second year does — through the standard credit calculation against federal income tax liability. The startup provision is an additional on-ramp for early-stage firms that are not yet profitable enough to have meaningful income tax exposure. It was never intended to be, and has never been, a ceiling on who else can participate.
Most established A/E firms that are not claiming the credit are not ineligible. They were told — or assumed — that the credit wasn't for them — and nobody corrected it.
The R&D Tax Credit has no age limit.
Architecture and engineering firms in business for decades claim it every year under the standard calculation method.
The five-year rule applies to one specific startup provision — not to the credit itself.
The Five-Year Rule — What It Actually Covers
The R&D Tax Credit is not a single mechanism. It has two application paths, each serving very different situations.
The standard credit
The standard credit is claimed against federal income tax liability via Form 6765. This path has no age restriction, no gross receipts cap, and no five-year limit. Any A/E firm that incurs qualified research expenses — regardless of how long it has been in business — can claim the standard credit if it has income tax liability to offset.
The credit is calculated as a percentage of qualified research expenses above a base amount derived from the firm's prior-year QRE history. The specific calculation method — the Regular Credit or the Alternative Simplified Credit — is determined with the CPA based on the firm's history and which method produces the most favorable result. Both methods are available to established firms with no age restrictions.
The payroll tax offset
The payroll tax offset is a provision added specifically for startups. Qualifying small businesses — defined as firms less than five years old with gross receipts under five million dollars — can apply the R&D credit against their payroll tax liability rather than income tax. This matters for early-stage firms that are not yet profitable enough to have meaningful income tax exposure. The offset is capped at two hundred fifty thousand dollars per year for the employer's share of Social Security taxes, with an additional two hundred fifty thousand dollars available against Medicare taxes — and it is limited to five years of eligibility.
These are two paths to the same underlying credit. The five-year rule applies only to the payroll tax offset. An architecture firm that has been in business for 30 years does not use the payroll tax offset — it claims the standard credit against income taxes, just as it always could.
Why the confusion persists
The confusion arises because the payroll tax offset provision was written to help startups access a credit they would otherwise not be eligible for early in their operating history. It was not written to exclude everyone else. Established firms that interpret the five-year language as a universal eligibility cap are misreading a startup-specific provision as a universal restriction.
The R&D Tax Credit existed for more than thirty years before the payroll tax offset was added in 2015. Every firm that claimed the credit during those 30 years — including large, mature architecture and engineering practices — did so under the standard mechanism that still exists today, unchanged.
The payroll tax offset was created to help startups access the credit earlier — not to prevent established firms from claiming it.
If your firm has income tax liability, the standard credit applies. The startup provision is an addition to the credit, not a definition of who the credit is for.
What Actually Determines Eligibility for an Established Firm
For a firm that has been practicing for more than five years, eligibility for the R&D Tax Credit comes down to the same four-part IRS test that applies to every taxpayer: the work must be technological in nature, intended to discover information that eliminates technical uncertainty, conducted through a process of experimentation, and tied to a new or improved business component.
For architecture and engineering firms, qualifying work is typically found in schematic design and design development — phases where technical uncertainty is highest and where the process of evaluating and rejecting alternatives is most visible. Structural system selection, envelope performance, energy modeling, complex site conditions, MEP integration, and custom material assemblies are all examples of work that regularly meets the four-part test.
Construction administration and bidding generally do not qualify, because by those phases the design uncertainty has been resolved. The labor a firm claims should reflect where the technical problem-solving actually occurred — and the Activity and Comments fields on each time slip connect the hours to the specific work performed.
Documentation is the differentiator
The other factor that matters for established firms — more than it does for startups — is documentation. The IRS places the burden of proof on the taxpayer. Two 2024 tax court cases involving A/E firms, Meyer Borgman & Johnson and Phoenix Design Group, resulted in denied credits specifically because time entries were too vague to establish which activities were technically qualifying. Both cases turned on the quality of time records, not on whether the work itself was legitimate.
The courts specifically cited entries that said "design" or "engineering" without connecting the hours to specific technical uncertainty, specific alternatives evaluated, or a specific experimental process. Time-tracking systems, the Tax Adviser noted in its 2025 analysis of the cases, must go beyond vague labels and allocate hours to specific experimental tasks — with enough specificity that an IRS examiner can link the hours to qualifying activity without relying on after-the-fact reconstruction.
An established firm with 20 or 30 years of project history and a mature time-tracking system is often better positioned to document a credible claim than a startup with limited records. Age is not a liability here. It can be an advantage — provided the time tracking has been maintained with the specificity the IRS requires. Comments entered on individual time slips at the time the work was performed are the most valuable documentation asset a firm can have. A time entry logged as "Structural System Evaluation" with a comment explaining that three alternative bay configurations were evaluated against seismic requirements and that one was eliminated due to a column placement conflict — recorded the day the work happened — is exactly what survives audit scrutiny.
Prior years may still be open
An established firm that has not been claiming the credit is not limited to the current year. Amended returns for prior years are available for years that are still within the statute of limitations — typically the three most recent filed returns. Your CPA can advise on which years are open and whether the prior-year labor report data in BaseBuilders supports a retroactive claim.
→ Read: Qualifying Activities for the R&D Tax Credit in Architecture and Engineering Firms
Documentation is where established firm claims succeed or fail.
Detailed time records by project, phase, activity, and description — not summary payroll figures — are what survive IRS scrutiny.
An established firm with a mature, well-maintained time tracking system is often better positioned than a startup with limited records.
How BaseBuilders Organizes the Data Your CPA Needs
When an A/E firm is ready to work with a CPA on an R&D Tax Credit claim, the labor report is the foundation of the engagement. The CPA uses it to identify which employees spent time on qualifying projects, in which phases, and performing which activities — and then makes the determination about what qualifies under the four-part test.
BaseBuilders generates this report as a time slip export, organized into 8 columns: Staff, Date, Project, Phase, Activity, Hours, Direct Labor, and Comments. The Comments column is particularly significant in light of the 2024 court cases — it gives each time entry a narrative anchor that connects the hours to specific technical work, recorded at the time the work was performed rather than reconstructed at tax time.
The software does not make qualification determinations. That is the CPA's role. What BaseBuilders does is make sure the underlying data is clean, complete, and organized in a format that supports a defensible claim — one that can answer the questions an IRS examiner would ask without requiring the firm to reconstruct its own work history from memory.
Firms that have been in business for decades often have years of qualifying labor already recorded in their system. The labor report does not just support this year's claim — it can also support prior-year amended returns for years that are still within the applicable statute of limitations. That history is an asset. The only question is whether the time tracking was maintained with enough specificity to use it.
The R&D Tax Credit is not a startup program. It is a federal incentive for firms doing technically uncertain work in the United States. If your firm has been doing that work for thirty years, it has been eligible for thirty years. The firms that have been claiming it know something that the firms that haven't were never told.
→ Read: The R&D Tax Credit Labor Report: What Your CPA Actually Needs from Your A/E Firm
→ Read: Time Tracking for Architecture and Engineering Firms
→ Read: A/E Accounting for Architecture and Engineering Firms
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