Recent R&D Cases and Key Takeaways for 2025

Three recent R&D tax credit cases — Little Sandy Coal, Phoenix Design Group, and Meyer, Borgman & Johnson — illustrate how the IRS and Tax Court are raising the bar on documentation, qualification standards, and refund claim procedures. For tax teams managing credit exposure in 2025, these decisions are not background reading. They are a direct signal of where enforcement is focused.

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

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

In Little Sandy Coal Co., Inc. v. Commissioner, the Tax Court denied substantial R&D tax credits because the company could not demonstrate that at least 80% of its research activities followed a structured process of experimentation. The court’s analysis focused not on whether experiments occurred, but on whether the taxpayer could prove — with contemporaneous documentation — that a qualifying process governed the work. Design iterations, test results, and engineering notes are the evidentiary foundation for meeting the substantially all threshold. Without them, the credit does not survive scrutiny.

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

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

In Phoenix Design Group, Inc. v. Commissioner, the Tax Court disqualified a credit claim because the taxpayer failed to identify specific technological uncertainties before beginning research. General uncertainty about design outcomes was not sufficient. The court expected the taxpayer to articulate, at the outset of each project, the precise scientific or technical questions the research was intended to answer. Tax teams that document uncertainty only in retrospect, or at a high level of abstraction, are taking on significant audit risk under this standard.

Case #3: Refund Claims Face Higher Scrutiny Than Ever

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

In Meyer, Borgman & Johnson, Inc. v. Commissioner, the IRS denied an R&D tax credit refund claim before it reached an examiner, using its Classifier review system to screen the submission at intake. The case is a reminder that refund claims now face a gatekeeping step that did not always operate with this level of rigor. A claim that cannot clearly identify business components, link expenses to specific research activities, and articulate a process of experimentation may not advance past initial review. The documentation standard for refund claims is effectively the same as for examination and needs to be treated that way.

What These Cases Mean for Tax Teams in 2025

These three cases reflect a consistent enforcement direction: the IRS expects specificity, contemporaneous records, and a documented process — not reconstructed narratives or general descriptions of uncertainty. Tax teams that treat documentation as a filing-season task rather than an ongoing discipline are the most exposed. If your team wants to assess where your current credit process stands against these standards, MASSIE can help.

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...