The R&D tax credit can be a valuable opportunity for companies with qualifying activities. But a polished presentation, short intake, or quick estimate is not the same thing as a supportable claim.

Section 41 is still a fact-driven area of tax law, and the taxpayer ultimately bears the burden of substantiating the claim. That is why companies should look closely at how the claim is being developed—and who is behind it.

In our experience, five warning signs show up again and again.

1. Prepackaged Narratives in Place of Taxpayer-Specific Analysis

Templates have a place. Copy-and-paste conclusions do not. If the uncertainty discussion or technical memo could be reused for another taxpayer with only minor edits, the analysis probably isn’t grounded in the company’s actual facts. The IRS has raised concerns about prepackaged submissions for years.

The risk today is that it’s easier than ever to produce generic narratives using AI and automation that look customized at first glance.

2. Credits Estimated Before the Facts Are Developed

An early range can be useful. But a number built mainly from revenue, headcount, or industry averages is still just a preliminary estimate. Once the facts are developed and the claimed costs are matched to the work actually performed, that number may come down materially—and in some cases there may be little or no supportable credit at all.

When the credit amount seems set before the fact development starts, the process is working backward.

3. Narratives that Don’t Match the Records

A strong write-up doesn’t help much if the underlying records tell a different story.

The key questions are still basic: what was being developed, what technical uncertainty existed, what was actually done to resolve it, and how do the claimed costs tie to that work?

The Tax Court’s decision in George v. Commissioner is a useful reminder. In that case, the court compared the narrative supporting the claim to contemporaneous records and rejected conclusions the evidence didn’t support. That is the risk taxpayers need to keep in mind. If the narrative outruns the documentation, the documentation usually wins.

4. Limited Transparency Around Technical Positions and Risk

This is often the hardest issue for a taxpayer to spot on the front end.

Some providers spend a lot of time talking about credit size and very little time talking about judgment calls, exclusions, and gray areas. Taxpayers should understand how projects or business components were defined, what was included and excluded, where the gray areas are, how labor costs were allocated, and whether anything material may have been left out.

They should also understand whether automation or AI-assisted tools are being used, what those tools are being used for, and who is reviewing the output against the taxpayer’s actual records before any return position is finalized.

That matters because if a claim is challenged, the process will eventually be tested against the facts, the records, and the technical positions behind it. A provider that can’t clearly explain what was included, what was excluded, and why those judgments were made may not have much to fall back on later. What looks efficient early in an engagement can become much harder to defend when questions start coming in.

5. Limited Clarity Around Who Did the Work and Who Will Support It Later

Because claim defensibility depends in part on who developed the analysis and can explain it later, taxpayers should ask who is actually doing the work. How long has the firm been conducting R&D tax credit analyses? What credentials and technical backgrounds does the team have? Do they have experience in your industry? Have they handled examinations, or only prepared claims? The work requires more than a general familiarity with the credit. It takes people who understand the tax law, are technical enough to evaluate the underlying activities, and stay current on changes in the law, IRS guidance, and new court cases.

Minimal-interview processes and broad promises about exam support should be viewed through that same lens. A provider that can reach conclusions with very little fact development may not be digging deep enough in the first place. And exam support is only meaningful if an experienced team can explain and stand behind the original work later.

Taxpayers should ask what that support actually includes, who would provide it, whether that team was involved in the analysis, and whether the firm has the depth and continuity to be a credible resource year down the road.

The takeaway is simple: a supportable claim is built on substance, not speed or polished messaging.

The right provider develops the facts, ties the analysis to the records, explains the technical positions, and has the experience to stand behind the work if questions arise later.

We’re Here to Help

For help evaluating the strength and support behind your company’s R&D tax credit claim, contact your firm professional.

Additional Resources

• Tax Credits & Incentives Services
• R&D Tax Services