Many of your clients qualify for the R&D tax credit and don't know it. Here's a practical guide for accountants on which industries, activities, and companies are eligible.
If you've been around R&D tax credit litigation, you've probably come across United States v. Grigsby. The US government sued Cajun Industries, a Louisiana-based civil construction company, after it amended prior returns to claim significant R&D tax credits. One year alone involved roughly $1.3 million in credits, and the IRS had already issued a substantial refund before later seeking to recover it in court. The government ultimately prevailed.
We keep coming back to this case because the lessons haven't aged — if anything, they've become more important. Courts continue to scrutinize business component definitions, contract terms, funding issues, and documentation methodology exactly the way Grigsby laid out. For founders and CFOs claiming the credit, it remains a clear reminder that how a study is prepared truly matters.
Here are four key takeaways and how we approach each at Staxiom.
1. Contracts Matter A Lot
One of the central issues in Grigsby was contractual language around financial risk and rights to research. Courts look closely at who truly bears economic risk and who owns the research outcomes.
Our approach: We review contracts carefully when applicable and evaluate risk and rights before claiming any project. If a contract shifts financial risk away from the taxpayer, we do not stretch the position.
Many of our clients, particularly SaaS and technology companies, develop and own the platforms and intellectual property they are improving. That ownership clarity often simplifies the risk analysis. When contracts are involved, we treat that review as foundational, not optional.
2. Contemporaneous Documentation Is Critical
Courts consistently reinforce that reconstructed narratives will not hold up without credible substantiation.
Our approach: We document:
- Business components clearly, distinguishing process improvements from routine activities
- Technical uncertainty
- The experimentation process
- Employee roles tied to qualified activities
Importantly, we produce a formal substantiation report as part of our engagement.
In today's market, many SaaS-based CPA firms and AI automation R&D platforms prioritize speed and automation. Not all of them generate a comprehensive technical substantiation report, and in some cases would not provide one as part of their service package if an IRS audit arises.
At Staxiom, audit-ready documentation is not an add-on. It is part of the study.
3. Employee Time Allocations Require Reasonable Methodology
There is ongoing discussion in the industry about the difficulty of perfect tracking. The reality is simple: there is no flawless system for allocating engineering time across innovation activities in most growth-stage companies. Most companies do not track experimentation hours in real time at a granular level.
Our position: We use structured technical interviews, role-based analysis, and reasoned estimates grounded in:
- Project timelines
- Jira or sprint data when available
- Leadership validation
- Cross-checks against payroll and engineering headcount
Estimates are permitted under tax law, but they must be reasonable, supportable, and tied to real projects. We do not manufacture artificial precision.
Court cases focusing on the R&D tax credit serve as a useful internal checkpoint for us. They prompt us to continually review:
- Whether allocation methodologies can be further standardized
- Whether cross-validation procedures can be strengthened
- Where documentation can be tightened proactively
Continuous improvement applies to compliance as well.
4. Courts Are Looking for Substance, Not Marketing
A consistent theme from Grigsby and broader enforcement trends is that aggressive positioning without substance will not survive scrutiny.
At Staxiom, we focus on:
- Explaining why a business component qualifies
- Identifying technical uncertainty
- Demonstrating iterative experimentation
- Avoiding boilerplate narratives
- Aligning with leadership such as CFO and CTO validation
We believe R&D studies should read like a technical defense file, not a marketing brochure.
One of the problems highlighted in Grigsby is that Cajun's business components were not accurately set forth. They were framed at the product level rather than at the process level. This reflects a failure to properly understand the taxpayer's business and how a qualified business component should be defined under the statute.
At Staxiom, we take the time to gain a clear understanding of what your business does and how it could potentially qualify for the R&D tax credit. We work to understand each business component in detail so we can demonstrate how and why it qualifies.
Understanding the business is not optional. It is foundational.
A Broader Industry Reflection
The Grigsby decision is not an indictment of the R&D credit. It is a reminder that this incentive is technical and fact-specific.
At Staxiom, we have a responsibility to:
- Be conservative where risk exists
- Avoid percentage defaults
- Document methodology clearly
- Pressure-test our own assumptions
- Deliver audit-ready substantiation as part of the engagement
We use court decisions like Grigsby as an opportunity to review and refine our processes internally. That is how the industry matures.
The R&D credit remains incredibly valuable, but it must be earned through defensible methodology.
