IRS Fails in Early Challenge to Engineering Research Credit Suit

The IRS failed to secure summary judgment against an automotive coating business because that company’s development of finishing systems wasn’t “funded” by its clients, and thus might qualify for a credit, the US Tax Court said.

System Technologies Inc., an Indianapolis-based engineering firm, sued the government after the IRS disallowed its claimed research tax credits for several projects related to different finishing systems it developed in 2016, under contract for those various clients.

The IRS issued a deficiency notice in 2021, denying about $99,300 in credits.

System’s research wasn’t funded, and therefore might qualify for the credit, because payment for ...