A recent Tax Court ruling in Scott Moore v. Commissioner serves as a reminder of the important role documentation plays in supporting claims for Research & Development Tax Credits.

In this case, the Tax Court disallowed a tax credit for research expenses claimed by a married couple due to inadequate documentation.

The Ruling:

The Tax Court found that the husband failed to establish how much time he spent conducting or directly supervising qualified research, making it impossible to determine whether the research was indeed “qualified”. The lack of written records and the taxpayer’s inability to estimate the time spent on experimentation led to the disallowance of the tax credit.

Key Takeaways:

• Contemporaneous documentation is important: Taxpayers must maintain thorough and contemporaneous documentation to support their claims for research and development tax credits.
• Insufficient documentation can lead to disallowance: Without proper documentation, taxpayers may struggle to establish or even recall the time spent on qualified research, leading to disallowed claims.
• This adds to the list of cases that highlight the importance of documentation: Other cases like Siemer Milling Company v. Commissioner demonstrate that inadequate documentation can be a key factor in disallowing research credits.
• Supporting technical documentation is crucial: Companies should ensure their R&D credit consultant provides thorough documentation substantiating R&D activity, as this documentation can be crucial in supporting claims for tax credits.

Is Your R&D Credit Provider Ensuring You Are Covered in an Audit?

To avoid similar disputes and audits, businesses claiming research credits should partner with a trusted R&D credit consultant who can ensure thorough and contemporaneous documentation. A reliable consultant will:

• Provide a comprehensive report substantiating your R&D credit claim
• Ensure thorough documentation of research activities, including experiments, tests, and development processes
• Verify accurate documentation of expenses and payroll records related to R&D activities
• Establish a robust documentation protocol to ensure consistent and thorough record-keeping
• Offer expert guidance to ensure compliance with regulations and substantiation requirements

With ICS Tax, LLC, businesses can ensure they have the necessary evidence to support their claims for research credits and avoid costly disputes and audits. Our experts will help you navigate the complex process and provide peace of mind that your claim is well-substantiated.

If you are uncertain about your current R&D credit provider, or do not have an R&D credit provider and feel that your claim may not be adequately substantiated, we encourage you to contact us today. Our R&D Credit team will provide a complimentary review of your current provider’s technical memo to ensure you have adequate coverage in case of an audit. Don’t risk losing out on valuable credits, contact us today to discuss your options and ensure your R&D credit claim is secure.