How to defend your R&D tax credit before the IRS asks the hard questions
Author: Diane Stogiannes, B.Sc., President, DST Advisory Group
There’s a shift happening—and if you’re responsible for the R&D tax credit at a large organization, you’re likely already feeling it.
Recently, we’ve seen something unusual. A number of large taxpayers—across industries, across IRS offices, with credits ranging from a few million to well over $20 million—are being examined on a single tax year. Not a multi-year review. Not a broad sweep. One year. And in many cases, it’s the first year coming out of a loss position or sitting right on that edge.
That matters.
Because a single-year review changes the tone of an examination. It’s more targeted. More surgical. And often, more focused on whether the claim can stand on its own—without the benefit of trend lines or prior-year context.
If you’re a tax executive, the question isn’t just “Is our claim technically correct?”
It’s: “Will this hold up under the exact lens the IRS is applying right now?”
And that’s where we’re seeing a disconnect.
The Disconnect
Many claims—whether prepared by Big 4 firms, other providers, or internal teams—are technically sound on the surface. But when you peel back the layers, they don’t always align with how the IRS actually evaluates a claim during an examination. The gap isn’t necessarily in the law. It’s in the application, documentation, and linkage between activities and costs.
We recently lived this firsthand.
A large taxpayer engaged us to support their 2024 R&D credit. As we were onboarding, they received notice that their 2023 credit—prepared by another provider—was under IRS review. Instead of going back to their prior advisor, they called us.
Not because they were dissatisfied. But because they wanted a different perspective.
They wanted to understand how the IRS was going to approach this. What the Information Document Requests (IDRs) were really asking. Where the pressure points would be. And how to respond in a way that was not just compliant—but defensible.
We stepped in alongside their internal team.
We reviewed the existing study. Not to redo it. Not to critique it for the sake of critique. But to evaluate it through the same lens the IRS uses:
- Are the business components clearly defined and aligned with what’s being reported?
- Is there a direct and supportable nexus between the activities performed and the costs claimed?
- Does the documentation actually demonstrate a process of experimentation—or just describe it?
- Can employee-level activities be substantiated in a way that would withstand scrutiny under current case law?
- If an IDR is asking for something specific, what is the IRS really trying to validate?
What we found wasn’t uncommon. The claim wasn’t “wrong.” But there were areas where the narrative didn’t fully connect to the costs. Where documentation existed—but wasn’t organized in a way that told a clear story. Where responses to IDRs, if handled at face value, could unintentionally create more questions than answers.
So we worked with them to reframe.
We helped interpret the IDRs—not just respond to them. We guided their team on how to pull the right information from their engineers and project leaders. We clarified what mattered, what didn’t, and where to focus their time. And importantly, we helped them communicate with the IRS in a way that was aligned with how examiners actually think.
Because that’s the part that often gets missed.
Preparing a claim is one skill set. Defending it is another.
We understand the IRS perspective
And defending it effectively requires understanding the IRS perspective—not just in theory, but in practice.
At DST Advisory Group, we’ve invested heavily in that perspective. Our team includes former IRS professionals—an Appeals Engineer and a long-tenured Examiner—who have spent decades evaluating these claims from the other side of the table. They know what triggers deeper inquiry. They know where claims tend to break down. And they know how decisions are ultimately made.
That insight changes the conversation.
It allows us to move beyond “Does this meet the four-part test?” and into “Will this withstand an exam, given how the IRS is currently approaching these claims?”
For tax executives, that distinction is critical.
Because the real risk isn’t always in what you claimed.
It’s in how well you can support it when it’s challenged.
And in today’s environment—where single-year reviews are emerging, documentation expectations are higher, and the IRS is taking a more focused approach—that support needs to be intentional.
If you’re heading into an examination, or even if you simply want to understand your exposure before one begins, it may be worth asking a different question:
What would this look like from the IRS side of the table?
Sometimes, a second set of eyes—especially from those who have sat in that seat—can make all the difference.