Recent R&D Cases and Key Takeaways for 2025

The R&D tax credit landscape is constantly evolving, and recent court cases continue to shape how companies must approach their claims. If your company relies on R&D tax credits, these cases highlight the biggest risks, compliance pitfalls, and IRS scrutiny trends you need to be aware of.

Case #1: The IRS Is Taking a Stricter Stance on the Process of Experimentation

Little Sandy Coal Co., Inc. v. Commissioner (2021)

What Happened? The Tax Court denied significant R&D tax credits because the company failed to prove that at least 80% of their research followed a structured process of experimentation.

Key Takeaway: The IRS wants detailed documentation showing how companies conduct experiments, make iterative improvements, and resolve scientific uncertainty.

Best Practice: Maintain real-time documentation, including design iterations, test results, and engineering notes, to demonstrate a structured experimental process.

Case #2: The IRS Is Narrowing What Qualifies as Uncertainty

Phoenix Design Group, Inc. v. Commissioner (2024)

What Happened? The Tax Court ruled that a taxpayer failed to identify specific uncertainties before beginning their research, disqualifying their claim.

Key Takeaway: The IRS now expects clear documentation of technological uncertainty at the outset of a project—not just general uncertainty about design challenges.

Best Practice: Define the scientific or technological questions your research seeks to answer before beginning development.

Case #3: Refund Claims Face Higher Scrutiny Than Ever

Meyer, Borgman & Johnson, Inc. v. Commissioner (2024)

What Happened? The IRS used the new Classifier review system to deny an R&D tax credit refund claim before it even reached an examiner.

Key Takeaway: Refund claims must be bulletproof before submission. A weak claim may not even make it past the initial IRS gatekeeper.

Best Practice: Before filing a refund claim, ensure you can provide:

• A clear breakdown of business components
• Detailed documentation linking expenses to research activities
• A strong narrative explaining the process of experimentation

Final Thoughts: How to Stay Ahead of R&D Tax Compliance in 2025

The IRS is cracking down on vague claims and requiring higher levels of documentation than ever before. Companies must:

• Ensure they follow a structured process of experimentation
• Clearly define technological uncertainty at the outset
• Strengthen refund claims to withstand initial IRS review

Need expert guidance? MASSIE’s R&D tax specialists and Morgan Lewis’s legal experts can help you stay compliant and maximize your claims.

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...