Even when you have all of them, you still need to show who did what and have some notion of what time they spent doing it. Unhappily, Dennis Lincoln and Julia Lincoln, T. C. Memo. 2023-84, filed 7/6/23, didn’t even have the first three (the Trio Grande of the Section 41 Research Credit pre-TCJA) in most of the nineteen (count ’em, nineteen, and Judge Mega definitely has) projects for which Dennis and Julia claim the passthrough credit from the family Sub S.
One thing these Section 41s are good for: they’ll tell you more about a trade, business, or industry than you’d ever want to know. Judge Nega has written a book about removing Volatile Organic Compounds from the air. I thought those only had to do with wine, like certain esters. But what did I know? This business runs from 3M Post-It Notes to hamburger buns.
While you can Cohan a number when you can show someone did something that satisfied the Trio Grande, it has to be more than a de minimis activity like sending an e-mail. “The record contains an email from Mr. Betz to a Maxon representative asking about how to meet Celanese’s cold temperature specifications in designing the gas train. We further find that Mr. Betz’s email activity was an investigative activity within the meaning of the section 174 regulations. See Treas. Reg. § 1.174-2(a)(1). However, allocating a de minimis, estimated amount of wages to Mr. Betz’s email activity, pursuant to the Cohan rule, would be futile; we alternatively hold that Mr. Betz’s email activity was not part of a structured process of experimentation and thus fails to clear the higher bar of section 41(d)(1)(C).” T. C. 2023-84, at pp. 89-90. (Citations omitted).
And you have to show who did what, even if you don’t have timesheets or logs.
Organizational memorybanks play a role. A lot of the experimentation was done in years prior to years at issue. The Sub S had years of experience.
Quality control testing doesn’t count. And repairs and maintenance of new equipment doesn’t count, either.
Worse, five of the contracts the Sub S signed reserved to the customer all rights in whatever the Sub S produced. Thus, the contracts put the “fun” in “funded”, that is, research paid for by the customer. Three were not funded, but as no Qualified Research Expenditures were made in any of them, it doesn’t help.
Inexplicably, although the Sub S hired a high-priced consultant to scope out and compute their Section 41s, this is what they had to say about the Section 6662a negligence and five-and-ten understatement chops: “In posttrial briefing, petitioners made the single statement, as a proposed finding of fact, that they ‘are not liable for penalties under section 6662(a),’ with a supporting citation of the ‘Entire Record.’ Petitioners made no other statement or argument in their posttrial briefing with respect to their liability for accuracy-related penalties; nor did petitioners argue on brief that they had reasonable cause and acted in good faith with respect to any underpayment.” T. C. Memo. 2023-84, at pp. 112-113.
Judge Nega remarks that a skeletal assertion does not preserve a claim. Anyway, Judge Nega says he wouldn’t have bought reliance on the consultant even if they tried it, T. C. Memo. 2023-84, at p. 113, footnote 53.
Taishoff says maybe not, but why not worth a try? Especially where, as here, the chops are substantial.
Taishoff Law 
Dear Taishoff:
Why and when did the Tax Court decide that IRS engineers could not provide expert testimony (on valuation)?
PS. I have been following your posts for several years, having first gotten involved in fighting syndications of conservation easement donations when working with the nonprofit Land Trust Alliance. I still am following the trials (and tribulations) of these transactions in the Tax Court, and have been amazed at the IRS’s reluctance/inability to get to the very essence of the deals in those trials – the distorted appraisals that find these donations worth ten times their basis after no further investment and the passage of what is often less than a month between acquisition and donation.
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Mr Shay, Your comment has two (count ’em, two) parts.
First, experts must be qualified as such. The Supremes have defined role of the Federal Bench (including Tax Court) in Daubert. You may find enlightening this article from the Tulane University Law School: https://www.tulanelawreview.org/pub/volume68/issue6/dauberts-gatekeeper-the-role-of-the-district-judge-in-admitting-expert-testimony In addition, the Appraisal Institute is an accrediting body for real estate appraisers, and membership therein is highly considered https://www.appraisalinstitute.org/about/
Second, IRS’ attempts to avoid lengthy and expensive trials featuring duelling appraisers is not the result of IRS’ mental incapacity. It’s all about the money; experts, be they appraisers or engineers, be they employees of IRS or not, cost money. And employee expert testimony is often given scant weight, the employees being treated as “hired guns” or “professional witnesses.” Congress has systematically starved IRS, while bewailing the astronomical deficits they enact. I’ll spare you the political rant. As Judge Holmes pointed out in his dissent in Oakbrook, “Conservation-easement cases might have been more reasonably resolved case-by-case in contests of valuation. The syndicated conservation-easement deals with wildly inflated deductions on land bought at much lower prices would seem perfectly fine fodder for feeding into a valuation grinder. Valuation law is reasonably well known, and valuation cases are exceptionally capable of settlement.” 154 T. C. 10, at pp. 126-127.
The point is what Winston Churchill told FDR: “Give us the tools, and we will finish the job.”
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