The IRS Wants to Interview My SMEs

Q: I manage the R&D tax credit at my company. The IRS is examining our claim and wants to interview our subject matter experts. What should we do?

Jason Massie answers:

Take a breath. You know your facts better than the IRS does, and you know which SMEs would perform well as interview witnesses. Before deciding how to respond, it helps to understand why the IRS is making this request in the first place.

The IRS currently carries a significant backlog of filed returns, amended returns, and refund claims. Many senior agents have retired in recent years, and newer agents often lack the experience to navigate a complex R&D exam efficiently. As a result, the IRS frequently bypasses the normal Information Document Requests (IDRs) process, which can take months or even years, and jumps directly to SME interviews instead. We do not recommend agreeing to SME interviews at the outset of an exam.

During the opening conference, we recommend presenting the work the taxpayer and provider completed during the study. The goal is to demonstrate that the IRS already has access to everything it needs. We do not recommend turning over the full study, however. The volume of information typically overwhelms the exam team. Instead, we prefer that the IRS submit questions through IDRs. This gives the taxpayer a defined response window, generally 30 days, and lets you engage with SMEs without the pressure of a live interview.

The IDR path is preferable for a practical reason: it gives you time. During a live interview, an SME may not recall critical details and could inadvertently say something that damages the claim. The IDR process lets you gather the information needed to respond thoroughly and review SME answers before submitting them to the IRS.

After several rounds of IDRs, if the IRS continues to request SME interviews to clarify specific facts, we recommend agreeing to them. Continued resistance at that stage creates more risk than it mitigates. The IRS can subpoena SMEs if necessary, and Appeals will view unfavorably a taxpayer who blocked interviews that would have clarified facts relevant to the claim. At that point, cooperation is the stronger strategic position.

Our team works directly with tax executives and CFOs navigating exactly these situations. Let’s talk through how to manage your IRS exam from the outset.

Jason Massie, CPA, Esq.

As the Founder and President of MASSIE R&D Tax Credits, Jason is responsible for the quality, consistency, and integrity of our services. His strategic vision and leadership drive innovation within the company, encouraging collaboration and ne...