The Client
The client is a U.S.-based arcade game manufacturer designing and building coin-operated games that blend custom hardware, embedded software, and proprietary gameplay systems. While arcade games may not fit the traditional image of R&D, their development process involves the same technical uncertainty and experimentation required to qualify for the R&D Tax Credit.
Objectives
Identify and properly claim federal and state R&D tax credits tied to ongoing hardware and software development, while ensuring documentation could withstand IRS and state scrutiny.
Challenges
Before working with Tri-Merit, the client encountered challenges that are common among manufacturers outside of “traditional” R&D industries:
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Uncertainty that arcade game development could qualify for the R&D tax credit
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Limited clarity around audit defense for complex development activities
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Difficulty capturing costs where software and hardware development overlap
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Questions surrounding evolving IRS guidance, including Section 174 capitalization
The Solution
Tri-Merit performed a focused R&D tax credit study tailored to the client’s product development lifecycle, from early game concepts through prototyping and production.
The review identified qualifying wages, contractor expenses, and supplies related to activities such as gameplay software development, circuit board design, cabinet manufacturing, iterative testing, and debugging. The team also evaluated specialized manufacturing equipment and explored depreciation strategies and potential energy-related incentives where applicable.
What set this engagement apart was Tri-Merit’s ability to clearly document how non-traditional R&D, like arcade game development, meets IRS criteria. The outcome was a defensible, audit-ready credit package supported by clear technical narratives and ongoing guidance related to Section 174 compliance.
Benefits
As a result of this engagement, the client gained:
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Millions of dollars in cumulative R&D tax credits over a decade
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Improved cash flow to reinvest in future game development
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Clearer internal processes for tracking qualifying R&D activity
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Reduced audit exposure through well-documented credit studies
Conclusion
This case demonstrates that R&D is not limited to laboratories or software startups. By applying an industry-specific lens, Tri-Merit helped an arcade game manufacturer confidently claim credits for innovation happening where few expect it, on the manufacturing floor and inside the game cabinet itself.
