What information do I need to provide if I am using a statistical sample to determine my Research Credit

To determine your Research Credit using a statistical sample, you need to provide the following information:

1. Documentation for All Units in the Sample: Ensure that the documentation for all units in the sample contains the first four items of information referenced in FAA20214101F. This documentation must be provided with the claim for refund.
2. Total Qualified Expenses: You must provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year. These totals should be computed pursuant to Rev. Proc. 2011-42.
3. Compliance with Rev. Proc. 2011-42: Ensure that the statistical sampling methodology used meets the requirements set forth in Rev. Proc. 2011-42, including the criteria for the sampling plan, documentation standards, and technical formulas.
4. Sampling Plan Standards: Your sampling plan must be conducted in an unbiased scientific manner, using either a simple random sampling method or stratified random sampling method. The plan should include:
   • The objective of the plan.
   • Population definition and reconciliation to the tax return.
   • Definition of the sampling frame and unit.
   • Source of random numbers and method of selection.
   • Sample size and supporting factors.
   • Method to associate random numbers to the frame.
   • Steps for evaluating the sampling unit.
   • The estimator used for appraising the sample.
5. Sampling Documentation Standards: Maintain adequate documentation to support the statistical application, sample unit findings, and all aspects of the sample plan and execution. This includes:
   • The seed or starting point of the random numbers.
   • Pairing of random numbers to the frame.
   • List of sampling units selected and results of the evaluation.
   • Supporting documentation such as notes, invoices, purchase orders, and project descriptions.
   • Calculation of the projected estimate(s) to the population, including computation of the standard error.
   • Statement describing any slips or blemishes in the sampling procedure.
   • Computation of all associated adjustments.

By adhering to these requirements, you can ensure that your use of statistical sampling to determine the Research Credit is compliant with IRS guidelines.

Sources:
Rev. Proc. 2011-42
§ 1.41-4. Qualified research for expenditures paid or incurred in taxable years ending on or after December 31, 2003.
§ 41. Credit for increasing research activities
FAA 20212501F
Rev. Proc. 2007-35
Rev. Proc. 2011-35