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On March 7, 2023, the U.S. Court of Appeals for the Seventh Circuit issued an opinion in Little Sandy Coal v. Commissioner that will affect how the Internal Revenue Service (IRS) will audit research credit claims. While the appeals court affirmed the Tax Court’s decision in favor of the IRS, largely on the basis of a failure of proof, the case is more significant for the appeals court’s analysis, important elements of which are taxpayer-friendly.
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