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Methodology

R&D tax audit risk score: the methodology

The score is a weighted measure of evidence gaps. It is published here so a result can be checked by hand, and so it is clear what the number does and does not say.

The formula

Each question has a weight. A Strong rating scores 0 points, Weak half the weight, Missing the full weight. The score is total points divided by the total weight of the applicable questions, times 100, rounded to the nearest whole number. Lower means fewer identified gaps.

score = Σ(weight × status points) ÷ Σ(weight) × 100, where Strong = 0, Weak = 0.5, Missing = 1

Bands

Rounding happens before the band is read, so 24.5 rounds to 25 and reads as Medium.

BandScore
Low0 to 24
Medium25 to 49
High50 to 100

Red-flag override

A red-flag question rated Missing raises the band to at least High. The score is unchanged; the report marks the override. A red flag rated Weak is reported but does not override.

What is in scope

  • Only applicable questions count. In a state with no credit program the state questions are excluded and only federal scores are shown.
  • Project questions are scored per project; company-wide questions are scored once. The two are not mixed.
  • Risk by area uses the same formula on each area's questions.

Worked example from the sample claim

The fictional vision-system project has five federal project questions Weak and one Missing out of eight. Weights 6, 6, 6, 4 at half and 5 in full give 16 points of a possible 41: 39, Medium. Its two state questions are both Weak: 8 of 16 points, 50, High.

What the score is not

Note.The score is a product methodology. It is not the probability of an audit, not an IRS or state determination, and not approval of a claim.

General in nature, not tax advice.

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