Article
Five signs your R&D tax credit claim might not withstand scrutiny
April 8, 2026 · Authored by Travis Riley
The R&D tax credit can be a valuable opportunity for companies with qualifying activities. But a polished presentation, short intake, or quick estimate is not the same thing as a supportable claim.
Section 41 is still a fact-driven area of tax law, and the taxpayer ultimately bears the burden of substantiating the claim. That is why companies should look closely at how the claim is being developed — and who is behind it.
In our experience, five warning signs show up again and again.
The takeaway is simple: a supportable claim is built on substance, not speed or polished messaging.
1. Prepackaged narratives in place of taxpayer-specific analysis
Templates have a place. Copy-and-paste conclusions do not. If the uncertainty discussion or technical memo could be reused for another taxpayer with only minor edits, the analysis probably isn’t grounded in the company’s actual facts. The IRS has raised concerns about prepackaged submissions for years.
The risk today is that it’s easier than ever to produce generic narratives using AI and automation that look customized at first glance.
2. Credits estimated before the facts are developed
An early range can be useful. But a number built mainly from revenue, headcount, or industry averages is still just a preliminary estimate. Once the facts are developed and the claimed costs are matched to the work actually performed, that number may come down materially — and in some cases there may be little or no supportable credit at all.
When the credit amount seems set before the fact development starts, the process is working backward.
3. Narratives that don’t match the records
A strong write-up doesn’t help much if the underlying records tell a different story.
The key questions are still basic: what was being developed, what technical uncertainty existed, what was actually done to resolve it, and how do the claimed costs tie to that work?
The Tax Court’s decision in George v. Commissioner is a useful reminder. In that case, the court compared the narrative supporting the claim to contemporaneous records and rejected conclusions the evidence didn’t support. That is the risk taxpayers need to keep in mind. If the narrative outruns the documentation, the documentation usually wins.
4. Limited transparency around technical positions and risk
This is often the hardest issue for a taxpayer to spot on the front end.
Some providers spend a lot of time talking about credit size and very little time talking about judgment calls, exclusions, and gray areas. Taxpayers should understand how projects or business components were defined, what was included and excluded, where the gray areas are, how labor costs were allocated, and whether anything material may have been left out.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.