Appealing a tax assessment: Braithwaite’s opportunity to shine

Client Background

A mobile commerce company designed a worldwide system that brought to the market an innovative service for cell phone users. Customers need only their mobile phones and passwords to authorize payments, fully secure and private, for a range of services. The company, a small business well represented in the U.S and Canada, operates internationally and independently of mobile phone providers.

A key factor in enabling this company to deliver a technology that authorizes payments through cell phones was research on software development and integration of leading edge technologies.

Aware of the existence of the federal SR&ED tax credit and of his company’s probable eligibility, the president and CEO approached Braithwaite (Braithwaite) to inquire about its services. The CEO was referred to Braithwaite by a business acquaintance who was familiar with Braithwaite’s expertise and success in research tax credit claiming.

The mobile commerce company also approached one of the Big 4 accounting firms. Both firms put proposals forward. The accounting firm reviewed the project and estimated it was eligible for a possible $400,000 tax credit.

Braithwaite was confident that the SR&ED was worth much more, around $900,000 in tax credits. Braithwaite’s technical staff based the estimate on their opinion that the project’s research and development involved more than just the creation of the core software that allowed for cell phone payments. R&D was also critical in the integration and adaptation of software and hardware technologies from partners such as vending machine operators, credit card companies, makers of hardware such as Cisco routers and others. Most of these technologies were still under development and there were major issues as to their interoperability and the overall system performance.

Braithwaite started working on the claim in May 2002. The process, however, was not to run smoothly.

Once the SR&ED tax credit claim was filed, a technical review followed it. It resulted in the approval of only 10 per cent of the original claim.

Not discouraged by the situation, Braithwaite challenged the first technical reviewer’s opinion. Due to years of experience and deep knowledge of the SR&ED tax credit program’s technical criteria, Braithwaite staff was confident that the project’s SR&ED, both on core software and on software integration and transformation, was eligible for a larger credit.

During the appeal, Braithwaite’s consultants collected extra information to support the case and came prepared to prove their point. The research on integrating software and systems met all the criteria of eligible SR&ED work: it sought technological advance, attempted to resolve a technological uncertainty and involved systematic investigation by appropriately qualified people.

On February 12, 2004, the mobile commerce company received notice that it had obtained the credit: an award of nearly $600,000 in tax credit (70 per cent of the initial claim); still far in excess of what the competing tax credit recovery firm believed was claimable.

What impressed the company’s CEO, however, was not the sizeable amount of tax credit that Braithwaite was able to collect for his company. “The place where Braithwaite distinguished itself was in the negotiations with the tax officials,” he says. “Braithwaite really shines when things go wrong. It is a difficult point to make (Braithwaite’s ability to face challenges on behalf of the client), but it is an important one.”

Braithwaite has enjoyed a great deal of success in preparing notices of objections to tax assessments due to the company’s cooperative and non-confrontational approach to the audit process. The other contributing factor to such a success is the deep knowledge of the tax credit program and of what kind of research and development it strives to support.