Suder v. IRS: Big Tax Court Win for Small Businesses and R&D Tax Credit

In a decision that is being regarded as a major win for U.S. business owners, in the case of Suder v. IRS, the U.S. Tax Court has reaffirmed recent judicial precedent with respect to the R&D tax credit, reaffirming that businesses that are building on the work of others or performing applied research may be eligible to claim the incentive. The court’s ruling has basically put an end to the push to create a class of “routine research” or “routine engineering”, a concept that would have significantly reduced the number of businesses that could claim the credit.

“The court’s ruling in the Suder case is undeniably a big win for small and medium businesses,” said Steven Miller, former Acting IRS Commissioner and alliantgroup National Director of Tax. “This decision is basically in line with recent precedent, further reaffirming that companies don’t need to reinvent the wheel to be able to claim the R&D credit.”

In a trial that lasted over three weeks, the court heard extensive testimonial and documentary evidence, and determined that 11 out of the 12 projects reviewed met the requirements to claim the R&D tax credit. In the process, the court soundly rejected the IRS’s argument of “routine research” and “routine engineering”, permanently putting an end to the most recent attempt to resurrect the defunct “discovery rule.”

“The Suder decision essentially puts a stake through the routine research and engineering argument,” said Dean Zerbe, former Senior Counsel to the U.S. Senate Finance Committee and alliantgroup National Managing Director. “In reality, the R&D tax credit was always meant to cover a broad range of research activities, covering both basic and applied science. The court’s ruling today essentially brings us closer to the original intent of the credit.”