In the world of R&D tax credits, one thing is clear. Good intentions are not enough. The IRS needs proof. That reality became obvious in the 2019 Siemer Milling Co. v. Commissioner case, where more than 235,000 dollars in claimed R&D credits were denied. The company believed it was conducting qualified research, yet the Tax Court found that the required evidence just was not there.
This case has turned into a key reminder for businesses claiming R&D credits. Without strong documentation, a clear process of experimentation, and a direct link to technological innovation, even legitimate work can get rejected. Here is a breakdown of what went wrong and how companies today can prevent the same outcome with the help of TaxDrone.AI.
The IRS did not argue that Siemer Milling did nothing at all. Instead, the focus was on the lack of substantiation. To qualify for an R&D credit, a company must show that the work involved technological uncertainty, a process of experimentation, and an effort to improve a product or process. More importantly, it must prove these points through documentation.
In Siemer’s case, the court found several issues:
The company could not provide real-time records showing what research was done, what variables were tested, or what results were analyzed. The IRS expects documentation that is created as the work happens. Reconstructed narratives created later were not enough.
R&D activities must involve a systematic process that includes testing, evaluating alternatives, and resolving uncertainty. The court did not find evidence of structured testing or analysis. Instead, many activities looked like routine quality control or troubleshooting.
The IRS requires companies to demonstrate uncertainty that can only be resolved through scientific or engineering methods. Siemer did not provide documentation showing what uncertainties existed or how its teams attempted to resolve them.
Qualified research must be tied to a specific business component. Siemer did not clearly connect its activities to identifiable products or processes. This made it difficult for the IRS to understand what the company was trying to improve.
These gaps made it impossible for the IRS to verify the claim. Even though the court agreed that the company acted in good faith, the credit was still denied due to insufficient evidence.
The biggest lesson from Siemer Milling is that performing research is not the same as proving it. The IRS requires companies to document their work the moment it happens. This includes:
Without this documentation, even legitimate research will be treated as ordinary operations. For businesses that rely on the R&D credit to offset innovation costs, missing documentation can mean losing substantial tax benefits.
The challenges Siemer faced are common. Many businesses struggle to maintain detailed documentation because project teams are busy, processes change often, and records are not centralized. This is where platforms like TaxDrone.AI become valuable.
TaxDrone.AI is built to support every step of the R&D credit process, providing the structure and documentation that the IRS expects.
Instead of rebuilding information later, companies can capture data as projects unfold. This ensures that every activity, cost, and task is supported by real-time evidence.
TaxDrone.AI organizes projects around IRS-defined business components. This eliminates confusion about which activities qualify and ensures each part of the project is correctly categorized.
The platform uses structured inputs to tie employee time and tasks directly to qualified research activities. This solves one of the biggest problems the IRS found in the Siemer case.
Every expense is linked to a documented activity, and every activity is placed within the IRS framework. The end result is a clean, consistent package that is ready for review if the IRS ever asks.
If something is missing or incomplete, TaxDrone.AI highlights it before a claim is filed. This reduces audit risk and helps companies stay proactive.
NTG’s tax and engineering teams review the technical story behind each project to ensure it aligns with IRS guidance. Their specialists validate eligibility, strengthen documentation, and ensure that studies reflect the standards seen in audit and case law.
Together, NTG and TaxDrone.AI deliver a combination of automation and human expertise that keeps R&D claims both efficient and defensible.
The Siemer Milling case illustrates a straightforward truth. Doing the work is not enough. The IRS requires clear proof that the work fits the definition of qualified research. When documentation is incomplete or created after the fact, companies risk losing the credit entirely.
With NTG’s specialized guidance and the structured documentation process provided by TaxDrone.AI, businesses can submit R&D claims that are complete, consistent, and ready for review. When innovation is supported by the right evidence, companies protect more of the credit they deserve.
If companies want their innovation to count, they need documentation that tells the full story. NTG and TaxDrone.AI help ensure that story is clear, compliant, and ready for the IRS.
