Tax Intelligence · Episode 04
IRS R&D Credit War Stories: Lessons From Decades Inside the Audit Room
About This Episode
What does it actually take to defend a research credit when the examiner has decided, before the first interview, that nothing qualifies? Mark Dunning and Sean Espy trade hard-won stories from the front lines of IRS R&D credit controversy. Together they bring more than five decades of experience, and they use it to map the terrain tax professionals now face: an agency that has swung between reasonable and rigid, an engineering corps reshaped by waves of hiring and firing, and an enforcement posture that too often opens at zero.
Sean walks through a seven-year audit, four years at exam and three at appeals, that turned on a single engineer’s refusal to accept that engineering itself can involve genuine technical uncertainty. Mark shares pre-filing agreement battles, the value of showing examiners what is truly at stake (including crash-test footage that made the risk impossible to dismiss), and a case where a Section 382 limitation quietly erased a multimillion-dollar credit before the IRS ever understood why there was nothing left to audit.
The conversation closes on a note of cautious optimism. With case inventories stretched thin and pressure mounting to settle, both partners see signs that the “return to zero” era may finally be receding. For CFOs, controllers, and tax leaders weighing whether to claim and defend the credit, the message is clear: a solid, well-documented study and a long-game mindset are what separate sustainable positions from costly disappointments.
“The research credit exists to encourage companies to go where no one has gone before.”
Sean Espy
What You’ll Learn
- Why the IRS posture on R&D credits has swung between reasonable and “return to zero,” and what is driving the current shift toward settlement
- How turnover among IRS engineers, many hired from industry and trained on unsupportable positions, reshapes the way audits unfold
- Why escalating beyond the engineer to case managers, territory managers, and other decision-makers is often the key to resolution
- How technical uncertainty, including design uncertainty in engineering work, fits the four-part test and why examiners frequently challenge it
- When pre-filing agreements and fast track help, and when they break down over disputed facts
- Why a thorough, audit-ready study and disciplined documentation matter more than ever as case law and IRS expectations evolve
- How limitations like Sections 382 and 383 can eliminate a credit’s value entirely, independent of whether the underlying activities qualify
Chapters
- 0:00Introduction: Working With the IRS on R&D Credits
- 1:54The Ebb and Flow of IRS Enforcement
- 8:37A Seven-Year Audit: Engineering and Technical Uncertainty
- 16:03Bringing the Adults Into the Room
- 22:07Pre-Filing Agreements and Proving Real Stakes
- 27:57Fast Track and the Revolving Door of IRS Engineers
- 31:47Why a Solid Study Matters
- 37:49War Stories: Sleeping Agents and a Section 382 Surprise
- 40:01Wrap-Up: Turning the Corner on Zero
In This Episode
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