Tax Credit Litigation – Research and Development
No law firm has tried or handled more Research and Development Tax credit lawsuits than ZMF at both the Federal and State level. Our experienced trial attorneys, have not only represented clients with R&D cases in US Tax Court, Federal District Court and Court of Claims, but have also represented clients collectively in over 1,000 Federal and State examinations, including appellate and alternative dispute resolution matters.
We continue to be the firm of choice when clients and tax providers need assistance in examination or post-examination to handle the audit representation and ultimately, initiating and representing such clients in Court. We have been requested to either work alongside the existing tax provider and/or completely takeover the defense to completion.
Our team also has best in class “in house experts” both in tax law and IRS Practice and Procedure with former IRS Executives, as well as PHds, engineers, scientists, software and technology experts, valuation experts, as well as a number of scientists and statisticians. All of these experts work closely with the legal team in providing the highest level of technical expertise available in the industry.
Since our inception, we have been involved in nearly all significant Research and Development litigation as either lead trial counsel or as consulting experts. The below are representative matters:
Audio Technica, Inc. vs. U.S., Docket No. 19-3469 (6th Cir. 2020). Audio Technica (AT) is a designer of high-end electronics equipment, including microphone. AT designed and developed microphones for the NFL (boom mics), Congress (gooseneck mics), the Winter Olympics (mics buried in snow) and professional singers (studio mics). The IRS challenged AT’s R&D tax credits. This was the first ever jury trial for an R&D tax credit. The jury found that AT conducted qualified research in all years and had QREs in all years. After the Court found that AT substantially prevailed at trial, the government appealed to the 6th Circuit. ZMFF&J assisted in coordinating trial strategy at the District Court level and argued the case before the 6th Circuit.
U.S. v. McFerrin, 570 F.3d 672 (5th Cir. 2009). Artie and Dorothy McFerrin are the primary shareholders for three (3) entities: KMCO, Inc.; KMTEX, Inc. and South Coast Terminals, Inc. The companies claimed R&D tax credits based upon their work creating custom chemicals for their petrochemical industry clients. After losing their case before the Federal District Court, the taxpayers hired ZMF attorneys to appeal their case to the 5th Circuit. The McFerrin opinion is a landmark decision confirming a taxpayer’s right to use testimony, estimates and even institutional knowledge to support the R&D tax credit. It also sounded the death knell on the old restrictive “discovery rule” which limited the breadth and scope of a taxpayer’s R&D tax credit claims ZMFF&J served as lead counsel and argued the case to the 5th Circuit.
Suder v. Comm’r, T.C. Memo 2014-201 (2014). Eric Suder was the primary shareholder for Estech Systems, Inc. (ESI). ESI designs and develops Voice over Internet Protocol (VoIP) phone systems for small to mid-sized companies. The company claimed the R&D tax credit for the work they performed on these systems including call processing software, firmware, circuit boards, handsets, motherboards, other component parts to phone systems and entire integrated systems. This case was tried before the United States Tax Court in Dallas, Texas in July 2013. The resulting opinion is heralded as a huge victory for taxpayers claiming the R&D tax credit wherein the Court opined on many issues contested with regard to the tax credit ZMFF&J was lead counsel before the Court.
Populous Holdings, Inc. v. Comm’r, Docket No. 21079-18 (U.S. Tax Court 2020). Populous Holdings, Inc. (formerly known as HOK Sport) is an architecture firm that specializes in stadiums and event spaces. Populous claimed the R&D tax credit based upon their work. The IRS challenged the credits claiming that the Funded Research exclusion prevented Populous from taking the credit. Populous filed a Motion for Summary Judgment showing that their projects were not Funded Research as defined under the Code. In its finding in favor of Populous, the Court dismissed many common IRS arguments wherein they claim research is Funded. As counsel of record for Populous, ZMFF&J oversaw the litigation strategy, drafting of the Summary Judgment motion and case arguments.