In CRA Holdings U.S., Inc. v. United States, No. 15-CV-239W(F) (W.D.N.Y. 2017), the court considered whether sampling was appropriate for a research tax credit claim based on 6,100 projects.

The taxpayer asked the court to consider a judgment sample of 10 to 15 projects. When the IRS disagreed with the proposed sample, the taxpayer reduced its claims to 159 projects. The IRS still disagreed that a sample was appropriate even when the claim was limited to 159 projects. Because the taxpayer did not present expert testimony from a statistician explaining whether a smaller judgment sample was appropriate, the court ordered the parties to select 40 projects to test whether a judgment sample was appropriate.

The case is another example of the IRS’s approach to litigating R&D tax credits. This approach has forced many taxpayers to expend a significant amount of time and money defending their R&D credits. Before the R&D tax credit was made permanent, it was argued that the temporary nature of the credit frustrated the incentive policy for the credit. For many, the government’s approach to litigating R&D tax credits does the same.


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