Basim Shami and Rania Ardah v. Commissioner (2014)

Main Issue:

• Above first-line management qualification of time
• Oral testimony

Facts:

• Company was confirmed to have been performing R&D prior to litigation
• President and Executive Vice-President who were qualified at 80% and compensated in the millions were included as QREs
• Executives did not have technical backgrounds

Conclusion:

• Taxpayer failed to provide support for R&D activities of President and EVP
• Oral testimony deemed self serving and was not corroborated by other employees
• Could not apply “Cohan rule” since no reasonable basis on which to estimate the R&D

Take-Away Point:

• If higher level people performing R&D, taxpayer must be able to prove R&D involvement through credible oral testimony and research activity documentation