The Harper Decision Clarifies R&D Credit Boundaries for Design-Build Firms

The Tax Court’s decision in Harper v. Commissioner is frequently cited as a win for construction and design-build firms pursuing the R&D tax credit. That reading is incomplete. Harper did not approve the claimed credits, expand eligibility, or relax substantiation standards. Instead, it rejected a narrow IRS attempt to disqualify claims at the summary judgment stage and confirmed that the taxpayer still carries the full burden of proof at trial.

For contractors, engineers, and design-build firms, Harper removes one categorical barrier while leaving every substantive requirement firmly in place. The decision is best understood as a procedural correction, not a green light.

Background of the Harper Case

Jeffrey and Katherine Harper claimed R&D tax credits through their S corporation, Harper Construction Co., for the 2012 and 2013 tax years. The credits totaled approximately $825,000 across the two years and were tied to design-build construction projects.

The IRS issued a notice of deficiency disallowing the credits and later moved for summary judgment. Its position was that the activities failed the business component requirement under Section 41 as a matter of law.

The case reached the Tax Court after a procedural remand from the Ninth Circuit related to jurisdiction and administrative exhaustion. At issue in the Tax Court was not whether the Harpers ultimately qualified for the credit, but whether the IRS was entitled to shut the case down without a trial.

The Questions the Court Had to Resolve

The question before the court was limited and decisive. The court was not asked to approve the credit. It was asked whether the IRS had shown that Harper Construction’s activities could not qualify under Section 41 under any reasonable interpretation of the facts.

Specifically, the IRS argued that summary judgment was appropriate because:

The buildings constructed were not owned by Harper Construction
The designs produced were not “products” under the statute
The designs were not held for sale or meaningfully used in the business
Design activity was merely part of day-to-day operations and therefore outside congressional intent

If the court accepted those arguments, the credits would fail at the business component stage without any need to examine uncertainty, experimentation, or technical detail.

What the Court Actually Found

The Tax Court rejected the IRS’s request for summary judgment because the record did not support eliminating the claims as a matter of law.

The court found that:

The IRS applied an unduly narrow definition of “business component.”
While the designs were not tangible products, Section 41 also includes processes, techniques, and inventions. The statute does not limit business components to physical items held for sale.
Ownership of the completed structure was not dispositive.
Nothing in Section 41 requires that a taxpayer own the finished building for design-related research to qualify.
The IRS’s interpretation of “use” exceeded the statute.
The court declined to require ongoing operational change or habitual reuse of designs. The statute imposes no such restriction.
The record reflected iterative development activity.
Evidence showed a multi-step process of conceptual design and refinement, undermining the claim that the work was routine or conclusory.

Because these issues involved factual disputes, summary judgment was inappropriate.

What the Court Did Not Decide

This distinction is critical. The court did not rule that HCC’s activities qualified for the R&D credit. It did not rule that the claimed expenses were eligible. It did not relieve the taxpayer of substantiation obligations.

Instead, the decision preserved the Harpers’ right to proceed to trial, where they would still be required to prove:

Qualified research under the four-part test
Proper identification of business components
Credible wage and cost allocation
Contemporaneous documentation supporting uncertainty and experimentation

Harper removes a categorical barrier. It does not lower the evidentiary standard.

What Harper Means for Design-Build and Construction Firms

Harper confirms that design and construction activities cannot be dismissed outright. It also reinforces that survival at a procedural stage does not equal success on the merits.

Claims still fail when taxpayers cannot clearly define business components, document uncertainty and experimentation, or connect costs to qualifying work.

Eligibility must still be proven project by project, with evidence.

How National Tax Group and TaxDrone.AI Help Address This Risk

The procedural nature of Harper underscores the importance of defensibility. Claims survive only if they are built to withstand factual scrutiny, not just legal argument.

National Tax Group evaluates R&D claims through a compliance-first lens, separating qualifying research from routine services and testing positions against current IRS guidance and case law before filing.

TaxDrone.AI provides the infrastructure to maintain that discipline as work occurs. The platform helps companies capture project activity in real time, map work to IRS-defined business components, and connect wages and costs to documented research efforts without reconstruction.

Together, National Tax Group and TaxDrone.AI help ensure that claims preserved procedurally can also be defended substantively.

Closing Perspective

Harper v. Commissioner removes a categorical obstacle, but it does not make R&D credits easier to claim. It clarifies that courts will look at facts, not labels, and that taxpayers still bear the burden of proof.

A brief TaxDrone.AI demo can show how National Tax Group identifies risk early and helps prevent claims that cannot be defended.