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Sorting out the Details
Unraveling Risk, Government Contracts & Tax Credits
THE COMPANY
Michigan Aerospace Corporation is an advanced engineering services and products company that develops Light Detection and Ranging (LIDAR) and related optical systems for atmospheric measurement and holds patents that increase performance and efficiency of these instruments.
Founded in 1996 by members of the University of Michigan’s Space Physics Research Laboratory, Michigan Aerospace was initially intended to commercialize technology developed in the laboratory – space-based wind Light Detection and Ranging (LIDAR) systems.
THE CHALLENGE
“The battleground is understanding the contracts and how they relate to the credit,” said Hull & Knarr Partner David M. Hull. “It’s completely different than most of our R&E projects, but we perform this service equally for those who are on the extreme cutting-edge of science.”
Michigan Aerospace provides products to NASA and other U.S. government agencies, making the primary challenge reviewing the government contracts to ensure any tax credits were not “kick-backs” as well as determining the government’s role in the actual research.
“The government has federal acquisitions regulations,” Hull said. “In simple terms, you sit down with them and you want to see how the R&E Tax Credit interacts with federal acquisitions. It’s a very complex process, but it can be very lucrative.”
THE SOLUTION
Michigan Aerospace’s accounting firm of Clayton & McKervey turned to Hull & Knarr for its highly specialized R&E Tax Credit services. Hull & Knarr set out to delineate the relationship between Michigan Aerospace and its government clients to properly define “risk” in legal terms and the fact that Michigan Aerospace was assuming it.
“As always, we took time to make the case with science and engineering, “Hull said. “But we also had to delineate how the government interacts with Michigan Aerospace’s research.”
THE BOTTOM LINE
Hull & Knarr recovered a six-figure tax credit for Michigan Aerospace that covered four years of its past and present work.
“Just because the government is your customer doesn’t mean you’re automatically excluded from taking advantage of the R&E Tax Credit,” said David Hull. “The biggest recipients of federal tax credits are defense contractors and pharmaceuticals.”
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