Tax Intelligence · Episode 05
IRS R&D Credit War Stories, Pt 2: Aggressive Positions, Long Audits, and Where the Line Really Falls
About This Episode
The second installment of the R&D war stories series takes tax leaders inside the examinations most firms never talk about openly. Mark Dunning and Sean Espy trade real accounts from decades of Research & Development credit work: a software company audit that dragged on for ten years, a Big Four firm that promised to double a long-standing credit without ever opening the study, and state auditors who kept fighting positions the IRS had already conceded.
Beneath the stories is a practical argument every CFO, controller, and tax director should hear. The R&D credit is one of the largest and grayest sections of the tax code, and the difference between a defensible claim and a costly one often comes down to who is sitting across the table from you. Mark and Sean unpack how aggressiveness plays out differently across the Big Four, boutique firms, and contingent-fee shops, why Circular 230 and the Ridgely case matter, and how a well-placed reserve can turn a contentious audit into a clean 75% settlement.
They also walk through the state landscape, from the California Franchise Tax Board’s appetite for high-dollar credits to Texas revising its regulations, Ohio’s R&D task force, Arizona finally codifying the ASC, and an Iowa cloud-computing dispute where the state changed its law mid-fight. The throughline: plan as if the IRS will show up, do the work by business component up front, and never play the audit lottery.
“You need to plan as if the IRS is going to show up. That is where you meet your burden, and you have to do that up front.”
Mark Dunning
What You’ll Learn
- Why some R&D examinations stretch for seven to ten years, and what actually keeps them moving toward resolution
- How aggressiveness differs across the Big Four, boutique firms, and contingent-fee shops, and what Circular 230 and the Ridgely case mean for your exposure
- How to evaluate a provider’s scope, experience, and fees before you sign, and why work done by business component is the baseline for meeting your burden of proof
- The strategy of identifying and reserving for the “gray” portion of a credit, and how it can lead to a stronger audit settlement
- Why state auditors, including the California FTB, sometimes pursue credits the IRS has already allowed, and how budget pressure shapes their positions
- Why planning as if the IRS will show up beats playing the audit lottery, and why the timing between your credit number and your final qualitative deliverable matters
Chapters
- 0:00Intro: R&D Credit War Stories, Volume Two, and a 10-Year Software Audit
- 5:39Big Four Methodologies, Circular 230, and Contingent Fees
- 10:10Aggressive vs. Gray: Software Regs and Engineering
- 15:52The Firm That Promised to Double the Credit
- 20:37Understanding Scope and Regional IRS Differences
- 25:46State Battles: California, Texas, Ohio, and Arizona
- 29:46Iowa, Cloud Computing Costs, and Shifting Law
- 34:16Reserving for the Gray and Avoiding the Audit Lottery
- 42:07Choosing a Provider and Delivering the Study on Time
In This Episode
Short Takes
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