IRS R&D Credit War Stories: Lessons From Decades Inside the Audit Room

IRS R&D Credit War Stories: Lessons From Decades Inside the Audit Room

What does it actually take to defend a research credit when the examiner has decided, before the first interview, that nothing qualifies? In this episode of TaxOps, Mark Dunning and Sean Espy trade hard-won stories from the front lines of IRS R&D credit controversy. Together they bring more than five decades of experience, and they use it to map the terrain tax professionals now face: an agency that has swung between reasonable and rigid, an engineering corps reshaped by waves of hiring and firing, and an enforcement posture that too often opens at zero. Sean walks through a seven-year audit, four years at exam and three at appeals, that turned on a single engineer's refusal to accept that engineering itself can involve genuine technical uncertainty. Mark shares pre-filing agreement battles, the value of showing examiners what is truly at stake (including crash-test footage that made the risk impossible to dismiss), and a case where a Section 382 limitation quietly erased a multimillion-dollar credit before the IRS ever understood why there was nothing left to audit. The throughline is practical: know when to escalate, bring the decision-makers into the room, and keep standing when the agency is betting you will give up. The conversation closes on a note of cautious optimism. With case inventories stretched thin and pressure mounting to settle, both partners see signs that the "return to zero" era may finally be receding. For CFOs, controllers, and tax leaders weighing whether to claim and defend the credit, the message is clear: a solid, well-documented study and a long-game mindset are what separate sustainable positions from costly disappointments. What You'll Learn ● Why the IRS posture on R&D credits has swung between reasonable and "return to zero," and what is driving the current shift toward settlement. ● How turnover among IRS engineers, many hired from industry and trained on unsupportable positions, reshapes the way audits unfold. ● Why escalating beyond the engineer to case managers, territory managers, and other decision-makers is often the key to resolution. ● How technical uncertainty, including design uncertainty in engineering work, fits the four-part test and why examiners frequently challenge it. ● When pre-filing agreements and fast track help, and when they break down over disputed facts. ● Why a thorough, audit-ready study and disciplined documentation matter more than ever as case law and IRS expectations evolve. ● How limitations like Section 382 and 383 can eliminate a credit's value entirely, independent of whether the underlying activities qualify. Connect ● TaxOps: https://taxops.com/ ● Mark Dunning: https://www.linkedin.com/in/mark-dunning-403a254/ ● Sean Espy: https://www.linkedin.com/in/seanespy/ #TaxOps #TaxStrategy #StateAndLocalTax #SALT #RDTaxCredit #Section174 #MultiStateTax #TaxCompliance #CorporateTax #CPAs Mentioned in this episode: Reach Out to Tax Ops Tax Op Internal [https://tax-intelligence.captivate.fm/taxops]

Auditor Independence in the Age of Private Equity: What CFOs Need to Know

When private equity buys into the firm auditing your financial statements, what happens to the fiduciary line that's supposed to protect you? TaxOps partners Lindsay Haskell and Dan DeLau take on one of the most quietly consequential shifts in the accounting industry: the erosion of auditor independence as private equity capital flows into CPA firms and bundled service offerings blur the lines Sarbanes-Oxley was designed to draw. Lindsay and Dan trace the arc from pre-SOX auditing practices, when audit firms routinely prepared the provisions they later audited, through the regulatory reset that followed Enron, WorldCom, and Tyco, and into today's environment, where private companies have largely drifted away from public-company-grade controls. They unpack FASB's ASU 2023-09, which forces new income tax footnote disclosures and pushes private companies closer to public-company parity beginning in 2026. And they raise the question CFOs should be asking but often aren't: when the firm auditing your books is private-equity-backed and pitching tax, 401(k), and advisory services in the same engagement letter, whose interests are really being served? The conversation closes with concrete guidance for CFOs, controllers, and heads of tax. Tax provisions are management's responsibility, full stop. If your audit firm is preparing the provision and then auditing it, you have a problem, regardless of how the engagement letter is structured or how attractive the bundled fee looks. What You'll Learn ● Why auditor independence is eroding in private-company audits, and how to tell if it's happening to yours ● How Sarbanes-Oxley reshaped public-company audit relationships, and why private companies are quietly reverting to pre-SOX patterns ● What ASU 2023-09 requires for income tax footnote disclosures, and when private companies must comply ● How private equity ownership of CPA firms is changing incentives in audit and advisory services ● Why bundling audit, tax, and 401(k) services with one firm can create independence risk even if the savings look attractive ● The specific tax provision work that should never be performed by your audit firm, and why it's management's responsibility Connect ● TaxOps website: https://taxops.com/ ● Lindsay Haskell on LinkedIn: https://www.linkedin.com/in/lindsay-haskell/ ● TaxOps on LinkedIn: https://www.linkedin.com/company/taxops/ #TaxOps #TaxStrategy #StateAndLocalTax #SALT #RDTaxCredit #Section174 #MultiStateTax #TaxCompliance #CorporateTax #CPAs #AuditorIndependence #SarbanesOxley #ASU202309 #PrivateEquity #TaxProvision #CFO #FinancialReporting Mentioned in this episode: Reach Out to Tax Ops Tax Op Internal [https://tax-intelligence.captivate.fm/taxops]

Section 174 Decoupling: What Tax Pros Need to Know State by State

With over 20 states taking different positions on Section 174 capitalization, filing season has become a minefield for tax professionals. TaxOps partners Jamie Overberg and Sean Espy break down which states have decoupled, why the guidance keeps shifting, and what it all means for your clients' returns. From Arizona's executive order tug-of-war to DC's federal lawsuit to California finally adopting the ASC, Jamie and Sean walk through the real-world chaos of 174 decoupling — conflicting research sources, states reversing course mid-session, and departments of revenue that can't confirm their own positions. They also cover major state credit changes in Michigan, Oklahoma, Texas, Iowa, and more, plus why international 174 capitalization is still very much in play. Key Takeaways ● Roughly 20 to 30 states have decoupled from federal Section 174 provisions, but guidance remains inconsistent across research platforms, state websites, and even departments of revenue. ● States facing the largest budget shortfalls are most likely to decouple, forcing companies to add back previously deducted R&D expenses at the state level. ● Section 174 applies wherever technical uncertainty exists, and states are requiring companies to include activities performed outside their borders in 174 calculations. ● California adopted the Alternative Simplified Credit (ASC) for the first time, though at a lower rate (3% with a three-year base, 1.3% without), and eliminated the AIRC. Switching back from ASC to the regular credit method requires a formal methods change. ● Michigan restored its research credit with a $100 million annual budget and a calendar-year-only filing requirement, with an application deadline moving to March 15 next year. ● Texas increased its R&D credit rate from 5% to 8.6% and removed the outdated discovery test by updating its static conformity date to January 1, 2025. ● Section 174 capitalization for international R&D activities remains in effect, even as domestic capitalization requirements have been repealed. About the Hosts Jamie Overberg — Partner, TaxOps Minimization. Jamie has more than 20 years of Research & Development (R&D) tax credit experience, with deep expertise in R&D credit execution, tax minimization strategies, and ASC 730/740 and FIN 48 reporting. She also handles Section 263A and Section 382 work and has led numerous R&D tax controversy engagements across the automotive, engineering, manufacturing, software, biotech, and oil and gas sectors. Jamie previously spent 13 years at Ernst & Young, including a national role in E&Y's Washington, D.C. R&D practice, and holds a BBA in Accounting from Drake University. Sean Espy — Partner, TaxOps Minimization. Sean brings more than 25 years of consulting experience across public accounting, legal, and industry to complex tax minimization engagements, specializing in Research Credit consulting. He has led R&D credit studies across software, manufacturing, financial services, aerospace, medical devices, oil and gas, and renewable energy, and has represented clients before the IRS and state tax authorities in nine states. Sean holds a BA from the University of Kentucky, a JD from Ohio Northern, an LL.M. in Taxation from Capital University Law School, and is admitted to the U.S. Tax Court and the Supreme Court of the United States. Resources ● Blue J: www.bluej.com (tax research platform referenced for 174 decoupling guidance) ● OBBA (One Big Beautiful Bill Act): federal legislation driving state decoupling decisions ● Section 174 / 174A: IRS provisions governing R&D expense capitalization and software development costs ● RevProc 2000-50: IRS revenue procedure covering software development expenses (now folded into 174A) ● Section 59E: alternative amortization election for R&D expenditures ● TCJA (Tax Cuts and Jobs Act): prior federal tax reform from which several states remain decoupled ● IFRS (International Financial Reporting Standards): accounting framework referenced by some companies choosing to continue capitalizing ● Michigan Research Credit: calendar-year application, deadline April 1 (moving to March 15 in 2027), $100 million annual budget ● Oklahoma Research Rebate: new refundable credit, first-come-first-served, application window approximately March 21 through March 28 ● Iowa Research Credit: reinstated supplies and lease computer costs with a pre-application certificate requirement ● Arkansas Research Credit: five-year pre-application window model Connect ● TaxOps: www.taxops.com ● TaxOps on LinkedIn: www.linkedin.com/company/taxops-llc TaxOps #TaxStrategy #StateAndLocalTax #SALT #RDTaxCredit #Section174 #MultiStateTax #TaxCompliance #CorporateTax #CPAs #174Capitalization #StateTaxDecoupling #OBBA #ResearchCredit #ASC Mentioned in this episode: Reach Out to Tax Ops Tax Op Internal [https://tax-intelligence.captivate.fm/taxops]

State Nexus Demystified: Navigating Tax Compliance After Wayfair

What creates a tax obligation in a new state? In this episode, Mark Gordon, Head of State and Local Tax, and Lindsay Haskell, Head of Corporate Tax practice at TaxOps, explore state nexus, the expanding rules that determine when businesses must collect and remit sales tax. They break down physical vs. economic nexus after South Dakota v. Wayfair, Inc., the risks of overlooking nexus exposure, and how Voluntary Disclosure Agreements (VDAs) can help companies resolve past liabilities and move forward in compliance. Episode Highlights 1. What nexus means for your business. 2. How Wayfair changed sales tax rules. 3. Risks of ignoring nexus. 4. Using VDAs to reduce past liabilities. Connect with TaxOps: https://taxops.com/ [https://taxops.com/] Mentioned in this episode: Reach Out to Tax Ops Tax Op Internal [https://tax-intelligence.captivate.fm/taxops]