Tip #24 – Let rule 401 be your guide

Let rule 401 guide your preparation of R&D credit evidence. CPAs could learn a few tips from trial attorneys.

What evidence should you gather when preparing to defend your R&D credit?

It depends. It depends on who you are trying to persuade and what you are trying to persuade them to believe.

The Rules of Evidence: Rule 401 guides attorneys when evaluating what evidence should be and can be presented during a court case. While an IRS exam is not a court case, CPAs could benefit from applying the principles of rule 401.

SPRX R&D Credit Tip – Let rule 401 guide your preparation of R&D credit evidence. CPAs could learn a few tips from trial attorneys.

Rule 401

Rule 401 states, “Evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”

Many CPAs fail to sufficiently evaluate R&D credit evidence. Rule 401 provides a useful guide for evaluating evidence.

  • First, consider each consequential fact you need to establish to persuade the IRS that your credit is correct.  
  • Next, gather all available evidence related to your list of facts.
  • Last, evaluate each piece of evidence and ask if the evidence supports or refutes the fact.  


A judge only admits evidence if it is relevant. Relevant evidence is evidence that directly concerns the disputed facts of a case.

Use the principles of relevance when gathering documents to support your R&D credit. Don’t fall into the trap of grabbing the easy stuff on the top of the pile. You’ll get burned later. When you start with the key facts of your case and then find documents to support those facts, you have a much stronger case.

Consider an evidence grid

Before you present your R&D credit evidence, you need to figure out what evidence you wish to present depending on the IRS arguments and facts in dispute. An evidence grid can help you think on your feet.

The evidence grid is a simple concept. It is a grid listing all the relevant facts, all the evidence that supports your position, and all the evidence that may refute your position.

Yes, you need to also consider the evidence that may refute your position. In rare case, I heard of a taxpayer that took the position that her company conducted no research prior to 1987 this was a key fact of the case. The IRS agent assigned to audit her credit disagreed and said that there was research conducted prior to 1987. When she asked for his evidence, he said he was employed at the company from 1981 to 1985 and participated in research. Fortunately for the taxpayer the IRS agent didn’t have any documentation to support his position and she eventually successfully closed the exam.

An evidence grid helps you consider both sides of key facts. It provides a reference so you can react quickly during a critical debate. And it gives you a visual of where your evidence is strong and where it is weak.

Technology helps you apply rule 401

Attorneys use A.I. technology to review documentary evidence and now you can too. SPRX.tax document review tool uses A.I. technology to read, analyze and score documents. The tool scores documents based on how persuasive the document may be in substantiating the R&D credit qualification tests.

At SPRX.tax we build the tools that save you time…and money