SPECIAL REPORT: Companies Claiming R&D Credits Face IRS Challenges

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Recent court decisions addressing companies' research and development tax credit claims under Section 41 illustrate challenges taxpayers face in documenting qualified research expenses and meeting associated nexus requirements, practitioners tell BNA. The litigation in Union Carbide Corp. v. Commissioner and Bayer Corp. v. United States also illustrates the aggressive stance IRS has taken in challenging R&D credit claims, they say, warning taxpayers should be proactive and prepare as though an audit is inevitable. The R&D credit “is a marriage of tax and technical information,” says Jeremy Fingeret of Alliantgroup in Houston, but most companies do not document their research based on Section 41.