By Angela Jackson

Photo by Brett Sayles from Pexels

This is the most recent R&D case before the U.S. Tax Court which was ruled in favor of the Commissioner and disallowed 100% of Siemer Milling’s 2011 and 2012 Research and Development (R&D) tax credit under Section 41.   Siemer’s claim was disallowed for not providing adequate supporting evidence to demonstrate its process of experimentation.



Siemer Milling is a company based in Illinois that specialized in milling and selling wheat flour operating since the 1950’s.

Siemer’s long-standing accounting firm had prepared their tax returns for more than two decades, and as a result was familiar with their business.  The accounting firm prepared Siemer’s returns, certified audits and financial statements, along with credit studies.  The R&D credit studies were prepared beginning in 2004, through the years at issue (2011 and 2012). During the tax years at issue, credit studies were claimed for seven different projects, some of which spanned both tax years.


  • Whether Siemer had proven that the activities qualify for credit under Section 41 for tax years ending May 31, 2011 and 2012
  • Whether Siemer is liable for accuracy-related penalties under 6662

Siemer  was seeking $238,670 in Section 41 credits for the years 2011 and 2012; which the Court disallowed.  The Commissioner argued several points, but the most compelling was the process of experimentation.  All seven projects claimed failed on the process of experimentation test with the majority failing in additional tests as well. At least three of the projects were simply denied due to inability of the taxpayer to identify and substantiate all the requirements under the process of experimentation test with proper documentation. In the Court’s finding, they note that according to the Commissioner the “record is devoid of evidence that petitioner formulated or tested hypothesis, or engaged in modeling, simulation, or systematic trial and error”. Nor was there any evidence that Siemer evaluated alternatives.

The Court also sited language from the Union Carbide Corp. & Subs v Commissioner, T.C. Memo 2009-50 in most of the seven cases which supports the theory that retesting a hypothesis does not constitute experimentation in the scientific sense. The project must involve analysis of the data as well as a series of trials testing the data.

Although the court held that Siemer was not entitled to the research credit, it determined that Siemer was not subject to the accuracy penalty under section 6662 because Siemer acted with reasonable cause and in good faith by relying on a competent tax professional.



This case serves as an important reminder that proper documentation is required to substantiate R&D Tax Credit claims.  This case will most likely be used by the Internal Revenue Service for siting lack of proper documentation in R&D tax credit examinations. Supporting documentation to substantiate all aspects of the 4-part test is essential for taxpayers claiming R&D Tax Credits. Otherwise, taxpayers will risk the IRS entirely disallowing their R&D tax credit claim.

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