Tax Controversy & Resolution: Exam & Appeals Support

Exam & Appeals Support

(1) General Exam / Appeals Defense Services

AndreTaxCo leverages its extensive experiences working with legal, accounting, engineering, and scientific teams to help substantiate your position on exam and at appeals. Our tax controversy and audit defense will ensure you are best positioned to successfully stand up to examination and substantiate your tax position. AndreTaxCo's extensive experience representing clients before the IRS and state regulatory agencies in successfully defending taxpayer tax rights and positions.

(2) R&D Tax Credit Exam / Appeals Defense Services

Depending on the complexity and implication to a particular tax return, IRS or state audits can take an extraordinary amount of resources, costs, and time to resolve. However, there are many misconceptions regarding R&D credit claims and the likelihood of a future audit, even deemed per se qualified.

Because the R&D credit was classified as a Tier 1 issue (i.e. top priority for review) in the IRS old “tiered” system for tax examinations and enforcement, the R&D credit has continued to maintain a common hesitation by taxpayers when considering to claim the credit even with seasoned tax professional assistance. However, the IRS discontinued this tiered system for audit priority starting in 2012. Although, the IRS now leaves the choice to audit R&D tax credits to the discretion of field auditors and through proprietary IRS automated software, the R&D tax credit is arguably the largest credit benefit distributed to taxpayers and is still highly scrutinized by the IRS examination and audit teams. 

See IRS Exam Statistics link.

Factors & Considerations: IRS Audit of Taxpayer's R&D Credit Claim:

  • Size of your claim and impact to overall tax liability (e.g. larger your R&D credit claim, the greater risk of audit);

  • Credit claimed v. your industry average;

  • Amended return filings and/or refunds (e.g. claiming the R&D credit not on an original may increase risk of audit); and 

  • Your industry. If IRS perceives potential abuse within an industry, you may have a higher likelihood of audit. If your NAICS business code (industry classification) is one that indicates you may not be eligible for particular incentives and/or tax deductions, you probably have a higher likelihood to get audited. 

How to be Successful on an R&D Tax Credit Audit
Regarding the quantitative and legal interpretation aspects of claiming certain tax incentives, it is essential to substantiate the amounts of your qualified expenses with proper documentation that clearly demonstrate the nexus between the activities performed and amount of R&D credit being claimed. Regarding the qualitative aspects of the credit, it is important to provide documentation and/or create narrative(s) that addresses the tax code, treasury regulations, and case law interpretation to address any potential IRS scrutiny to validate claimed qualifying R&D activities. Implementing proper procedures for supporting the R&D tax credit significantly increases the likelihood the claimed will be accepted on audit for both original and amended returns.    

Other Ways to Achieve a Successful Audit Resolution:

  • Consult an experienced R&D tax credit specialist instead of responding on your own or relying solely on your R&D study deliverable.

  • Respond timely to information document requests (“IDR’s”).

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