Statistics in Litigation, Two Tax Court Case Studies.

Music City Center 

Two recent Tax Court cases, Phoenix Design Group Inc. v. Commissioner (No. 4759-22, U.S. Tax Ct. filed Mar. 29, 2023) and Kapur et al. v. Commissioner (T.C. Memo 2024-28), involved disputes over denied credits for increasing research activities (research credits). In each case, the taxpayer used sampling and estimation to file their Research Tax Credit (RTC) claim, but later when audited, attempted to limit discovery to a small number of selected example projects … and the Tax Court, naturally, rejected the motion! This paper discusses the similar facts in the two cases and the broader regulatory implications of "bad statistics" as well as broader repercussions.