The general rule for R&D tax credit documentation is found under IRC 6001 – a taxpayer must retain documentation in usable form to substantiate (in this case the R&D tax credit), and IRS typically wants to see evidence of the R&D in the form of requirements, specs, design docs, power points and other documentation relating to software R&D. This ask by the IRS however matches better with the waterfall approach to software development where voluminous documentation is first assembled, then the design and coding starts – so a stage of documentation, stage of design, then testing stage in what is known as the waterfall method of software development lifecycle or SDLC. This approach to documenting the R&D tax credit however is quickly being replaced by the Agile method of iterative development, with some documentation assemble during very short 2 week sprints. But the Agile theory would suggest heavy documentation on the front end is wasting time and causing deadlines to be missed. So the tax department at a software company claiming the research credit likely cannot rely on huge volumes of records assembled by the dev team if they are using Agile.
However, this time of year (year end) is a good time to meet with software teams to ensure the documentation put together during their 2015 sprints are retained for the tax department to document the R&D tax credit. Under Agile, this typically means meeting minutes, notes, epics or stories prepared to document the 2 week sprints, with the typical means being wiki pages (internal wiki sites/pages). This can also prove challenging in that wiki pages can evolve over time and may not represent the project status as of one year ago for example). So taking snapshots of those wiki pages during the year and preserving those is important. Another Agile based documentation repository can be Jira which documents those sprints, so Jira logs and other attached documents in a system such as Jira can be very helpful to show the R&D efforts during the year. Other systems to ask about including
So in doing year end planning around the R&D tax credit, even the 2015 R&D tax credit in the assumption the credit will retroactively be reinstated would be sound advice to gather those records before year end to be ready when the credit is reinstated.