The R&D Tax Credit Labor Report:
What Your CPA Actually Needs from Your A/E Firm
The R&D Tax Credit labor report sounds like a complex compliance document. It isn't. It is an eight-column export — staff, date, project, phase, activity, hours, direct labor, comments — generated from time tracking data that already exists in BaseBuilders as a normal byproduct of running the project. Here's what each column contains, why it matters to your CPA, and how to set up the report so it runs in minutes every April.
The Document Most Firms Don't Have — and Why That's the Only Real Barrier
The R&D Tax Credit has been available to A/E firms for decades. The work qualifies. The IRS test is satisfied. The credit is real. The most common reason firms don't claim it is not that they've evaluated the credit and concluded they don't qualify. It's that nobody has ever walked them through what the documentation actually looks like — and the assumption is that it must be complicated.
It isn't.
The labor report — the piece of R&D documentation that A/E firms most commonly don't have ready at tax time — is a structured export of time-tracking data organized into 8 columns. It is not a technical narrative. It is not an engineering study. It is not a document that requires significant professional preparation beyond exporting it from the project management system and handing it to the CPA.
The barrier is not the document. The barrier is having the underlying time-tracking data organized in the way the report requires — at the phase and activity levels, with direct labor rates configured per employee. Firms that have that data already generate the report in minutes. Firms that don't have it pay their CPA to reconstruct an approximation of what the tracking would have produced directly.
The rest of this article explains what each column contains, how BaseBuilders populates it, and what the one-time configuration looks like. By the end, the labor report should feel like exactly what it is: a standard export from a properly configured project management system.
→ Read: R&D Tax Credit for A/E Firms: The Complete Guide
Check with your CPA; BaseBuilders is not a tax advisor, does not play one on TV, and tax laws are constantly changing.
The labor report is not a complex compliance document. It is an eight-column export of time-tracking data that already exists in BaseBuilders as a byproduct of running the project.
The barrier is not the document — it is having the underlying data organized correctly before tax time arrives.
The Eight Columns — What Each One Contains and Why It Matters
Column 1: Staff
The name of the employee who performed the qualifying work. The R&D Tax Credit is calculated on qualified research wages — compensation paid to specific employees for time spent on qualifying activities. The labor report must identify who performed the work so the CPA can tie the qualifying hours to the corresponding W-2 wages in the payroll records.
In BaseBuilders, the Staff column is automatically populated with the employee who logged the timeslip. No additional data entry is required. Every timeslip carries the identity of the person who made it.
Column 2: Date
The date the work was performed. The IRS requires qualified research expenses to be tied to specific tax years. Date-level granularity in the labor report ensures that work performed in December of one year and January of the next is correctly allocated — a distinction that matters for projects spanning the year-end and for firms whose fiscal year doesn't align with the calendar year.
In BaseBuilders, every time entry carries the date it was logged. The date column in the labor report export is directly pulled from the timeslip record.
Column 3: Project
The project the work was logged against. The IRS now requires — for tax years beginning after December 31, 2025 — that qualified research expenses be reported by business component on Form 6765. Each project is a business component. The Project column in the labor report enables business component reporting without a manual, project-by-project reconstruction.
In BaseBuilders, every timeslip is charged to a project, proposal, admin item, or benefit. The Project column in the export is a direct pull from the time entry's project assignment.
Column 4: Phase
The project phase the work was charged to — Schematic Design, Design Development, Construction Documents, Construction Administration, and so on. The Phase column provides the CPA with context for each timeslip: where in the project lifecycle the work occurred and how that context bears on the qualification analysis.
Phase is a signal, not a gate. SD and DD hours are strong candidates for qualification. CA and Bidding hours are weaker candidates. But the CPA reviews the full export and makes the determination — a CA hour logged as technical redesign may qualify; a DD hour logged as project management does not. The Phase column informs that analysis without predetermining it.
In BaseBuilders, every timeslip is logged against a phase as part of the standard project management workflow. The Phase column in the labor report is directly pulled from the timeslip record. No additional configuration is required.
Column 5: Activity
The type of work performed within the phase — Design / Analysis, Structural Analysis, Energy Modeling, Project Management, Client Communication, and so on. This is frequently the most important column in the labor report for determining what qualifies.
Where phase provides project lifecycle context, activity provides work content. Two hours logged to Schematic Design look identical by phase. One logged as Structural Analysis and one logged as Project Management are immediately distinguishable by activity — the first is a strong candidate for qualification, the second is not. The Activity column provides the CPA with the granularity to make that distinction accurately, rather than estimating a qualifying percentage across all SD hours.
The activity list in BaseBuilders is fully configurable. The default activities cover the most common A/E work types and provide a starting point. For R&D credit purposes, the activity list should be reviewed once with the CPA to confirm that qualifying technical activities and non-qualifying administrative activities are captured as distinct, clearly labeled options. That one-time configuration is what makes the Activity column analytically useful every year the report is run.
Column 6: Hours
The time logged for the entry. Hours multiplied by the employee's direct labor rate equal the qualified research wage expense to which the credit is applied. The accuracy of the Hours column directly determines the accuracy of the credit calculation.
In BaseBuilders, timeslip hours are logged with the necessary details. The Hours column in the export is directly pulled from the timeslips.
Column 7: Direct Labor
The dollar value of the hours at the employee's direct labor rate is the compensation cost of the qualifying work. This is the qualified research wage figure the CPA uses for the credit calculation. The Direct Labor column converts the hour count into a dollar amount without requiring the CPA to apply separate rate tables or manually reconcile hours against payroll records.
In BaseBuilders, direct labor rates are configured per employee — the same rates used for overhead factor calculation, billing rate development, and project cost tracking. The Direct Labor column in the labor report is calculated automatically from the hours logged and the employee's configured rate. No manual calculation is required.
Column 8: Comments
The comments field on the time slip is where the staff member can describe, in plain language, what technical work was being performed and why it may qualify for R&D consideration. A time entry logged as "Structural System Evaluation" with a comment explaining that three alternative bay configurations were evaluated against seismic and program requirements — and why one was eliminated — gives the CPA a contemporaneous record that connects the hours directly to a specific process of experimentation.
This is the field that converts a labor report from a financial document into an audit trail. The Phase and Activity columns tell the CPA where to look and what kind of work was performed. The Comments column tells them what specifically was happening — in the words of the person who was doing it, recorded at the time it occurred.
The 2024 court cases involving A/E firms that were denied R&D credits cited vague time records as a primary failure point. Comments entered at the time of the time slip — not reconstructed weeks or months later — are exactly the contemporaneous documentation that addresses that vulnerability.
Encourage staff to use the Comments field whenever they are logging time to an activity that may qualify for R&D consideration. The comment does not need to be long. A sentence or two describing the specific technical problem being worked on, the alternatives being considered, or the uncertainty being evaluated is sufficient — and far more defensible than a bare activity label.
The Direct Labor column converts hours to dollars automatically using each employee's configured rate in BaseBuilders.
The same rates that drive the overhead factor calculation and the development of the billing rate also drive the R&D labor report — the R&D credit documentation and the firm's core financial metrics are drawn from the same data source.
How BaseBuilders Generates the Report
The labor report is not built at tax time. It is configured once — when the firm first sets up the R&D credit workflow — and then run annually as a saved template. The one-time setup is what determines whether the annual report run takes minutes or hours.
What's automatic from day one
Every timeslip in BaseBuilders automatically includes a staff identifier, a date, a project, a phase, and an activity. These five columns require no additional configuration for R&D purposes — they are populated as part of the firm's standard time-entry workflow for project management.
Direct labor rates, configured per employee during the standard BaseBuilders setup, automatically populate the Direct Labor column. The same rates used to calculate the overhead factor and billing rates are also used in the labor report.
These six columns — Staff, Date, Project, Phase, Hours, and Direct Labor — require no R&D-specific setup. They exist because the firm is using BaseBuilders to manage projects.
What requires one-time configuration
The Activity column requires that the firm's activity list be configured to clearly distinguish qualifying from non-qualifying work. The default BaseBuilders activity list provides a starting point — Design, Drafting, Field Work, and similar standard categories. For R&D purposes, the list should be reviewed to ensure that qualifying technical activities and non-qualifying administrative activities are captured as distinct options.
This configuration is a one-time conversation between the firm's principal or office manager and the CPA, in which they agree on which activities are qualifying, how they should be labeled in the time-tracking system, and how staff should be trained to apply the distinction when logging time. Once the activity list is configured and the team understands it, the tracking happens as part of the normal daily time entry process.
The saved report template
Once the activity configuration is in place and the R&D column set has been defined, the report configuration is saved as a named template in BaseBuilders. Generating the annual labor report becomes a three-step process:
Query for the desired date range — typically January 1 through December 31 of the prior tax year.
Select the saved R&D column set.
Export.
The CPA receives the same eight-column CSV in the same format every year. The column set is already configured. The activity list is already in place. The direct labor is already calculated.
The entire report production takes minutes. The CPA has what they need without a reconstruction exercise. The credit gets filed on schedule.
Custom project fields
BaseBuilders supports custom fields at the project level — additional data fields configured by the firm to capture information specific to their workflow. For R&D credit purposes, custom project fields can be used to store the technical narrative summary for each qualifying project, document the specific technical uncertainty the project addressed, and record the CPA's qualification determination for each project.
This means the project-level documentation the IRS requires under Form 6765 business component reporting can be stored alongside the project data in BaseBuilders — creating a single source of record for both the financial data and the qualifying documentation, rather than maintaining a separate documentation file that has to be reconciled with the project management system at tax time.
The annual labor report production process consists of three steps: select the date range, select the saved R&D column set, and export. The configuration was done once.
The qualifying activities are already identified. The direct labor is already calculated. Minutes, not hours.
What the CPA Does With the Report
Understanding what the CPA does with the labor report clarifies why each column matters — and what happens when a column is missing, approximate, or poorly configured.
The qualified research wage calculation
The CPA's primary use of the labor report is calculating qualified research wages — the sum of the Direct Labor column for entries that satisfy the four-part IRS test. The CPA reviews the full export, organized by phase and activity, to identify which entries represent qualified research, applies professional judgment about borderline activities, and arrives at a qualified research wage total for the tax year.
When the Direct Labor column is populated, the Phase column provides lifecycle context, and the Activity column clearly distinguishes technical work from administrative work. This calculation is efficient and well-supported. When the CPA has to estimate the qualifying percentage from a raw time log with no phase or activity separation, the calculation involves more professional judgment, more assumptions, and more billing time.
Business component allocation
Under the updated Form 6765 requirements, the CPA must report qualified research expenses by business component (i.e., by project). The Project column in the labor report makes this allocation direct: the CPA sums the Direct Labor column by project to produce the business component allocation without a manual project-by-project analysis.
Payroll reconciliation
The CPA reconciles the qualified research wages in the labor report against the firm's payroll records for the tax year, confirming that the Direct Labor figures in the export are consistent with the compensation recorded on W-2s and in the payroll system. When direct labor rates in BaseBuilders are maintained accurately and updated when employee compensation changes, this reconciliation is clean. When rates are stale or inconsistently applied, the reconciliation requires adjustment.
Documentation of the qualifying determination
The CPA documents why the included projects and activities satisfy the IRS four-part test — technical narratives, evidence of experimentation, and the reasoning that connects the firm's work to the qualification criteria. The labor report supports this documentation by providing a specific, dated record of who did what on which project and in which phase — but the qualifying determination itself requires professional judgment that goes beyond the labor report.
Custom project fields in BaseBuilders that capture the technical uncertainty each project addressed and the alternatives the firm evaluated give the CPA richer source material for the technical narratives — reducing the back-and-forth that extends the documentation process and increases the CPA's fee.
What the filing looks like when the data is clean
When the labor report is well configured and the underlying data is accurate, the CPA's follow-up questions are minimal: a few clarifications on specific projects or activities, a reconciliation of direct labor rates against payroll records, and confirmation that the activity list correctly distinguishes qualifying from non-qualifying work. The filing proceeds efficiently. The credit is calculated accurately. The documentation is complete.
When the tracking is poor — project-level only, no activity separation, estimated rates — the CPA's follow-up is more extensive. Qualifying percentages need to be estimated and documented. Allocation methodology requires sign-off. Assumptions that would have been supported by direct tracking now require professional judgment, which carries greater audit risk and more CPA time.
The labor report is not just a filing convenience. It is the audit trail that supports the credit if the IRS requests it. A clean, complete, well-organized labor report — with phase and activity columns that reflect how the work actually happened — is the difference between an audit that resolves quickly and one that requires reconstructing records that should have existed all along.
→ Read: Financial Metrics for A/E Firms
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