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How to Leverage ISO 9000 Standards for Your Manufacturing R&D Tax Credit

Feb 19, 2019

iso 9000 standardsISO 9000 is an internationally recognized standard that clearly defines the requirements for a quality management system. It’s designed to help businesses of any type, including manufacturing, be more efficient with the intent of maximizing both profits and customer satisfaction. For organizations that have ISO 9000 certification, it’s a way of instilling confidence in all stakeholders — customers, buyers, suppliers, etc. — that you’ve implemented the system properly and they can have confidence in your business’ constant quest for excellence.

Choosing to implement ISO 9000 — whether you intend to be officially certified or not — can do more than just help you identify areas of opportunity, organize initiatives, and align processes. It can have tax benefits, too, through the Research and Development (R&D) Tax Credit.

At the heart of ISO 9000 is the idea of continual improvement, which is also the goal of the R&D Tax Credit. Congress created the R&D Tax Credit to encourage the development of new and/or improved products or processes. 

To qualify for the credit, activities must meet all the requirements of the law's Four-Part Test. Read below to learn more about those requirements and the aspects of ISO 9000 implementation that may qualify.

The Four-Part Test

The IRS clearly defined the types of activities that qualify for the R&D Tax Credit by creating this Four-Part Test:

  • Permitted Purpose. This is the activity intended to make or improve either a product or process that results in improved function, performance, reliability, quality or cost efficiency.
  • Technical Uncertainty. This is the activity intended to eliminate technical uncertainty when developing or improving a product or process related to methodology, design, techniques, formulas or inventions.
  • Process of Experimentation. This is the activity that includes a process of experimentation to eliminate or resolve technical uncertainty. During the process, various alternatives and approaches are evaluated by modeling, simulation, trial and error, prototyping and other methods.
  • Technological in Nature. The process of experimentation must rely on the hard sciences (engineering, physics, biology, chemistry, computer science).

It’s important to document every expense and all time spent by personnel in support of ISO 9000 organizational, product, and activity improvements to be sure you’re maximizing the amount of money your business can save through the R&D Tax Credit. As you can see through the ISO 9000 Principles below, many aspects of its execution are likely to be applicable.

ISO 9000 Principles

  1. Customer Focus. Allocating resources appropriately and efficiently through the knowledge of consumer needs.
  2. Good Leadership. Establishing unity and direction quickly in a business environment.
  3. Involvement of People. Substantive involvement of employees will lead to personal investment and eager participation in the continual improvement facilitated by the program.
  4. Process Approach to Quality Management. Quality management lowers cost and prioritizes objectives for peak efficiency and effectiveness.
  5. Management System Approach. Management groups combined correctly can result in the most efficient and effective overall management system.
  6. Continual Improvement. Dedication to continuous improvement will align activities, leading to more efficient development and flexibility in pursuit of new opportunities.
  7. Factual Approach to Decision Making. Making informed decisions increases confidence and the chances of making the right decisions.
  8. Supplier Relationships. Mutually beneficial supplier relationships create value and allow for better-optimized resources and costs.

Because the nuances of the R&D Tax Credit are complex, it is best to consult with an expert to determine which of these items included in ISO 9000 standards could help you get a great tax break.

Watch our 4-minute video on how we saved one client enough to buy a huge piece  of game-changing machinery with the R&D Tax Credit