Shami, et al. v. CIR, No. 12-60727 (5th Cir. 2014)Annotate this Case
Petitioners appealed the Tax Court's judgments upholding in part the deficiency asserted by the Commissioner related to research and development tax credits claimed by Farouk Systems, a company which petitioners were investors. The court concluded that the Tax Court did not abuse its discretion by limiting petitioners to the introduction of dozens of sample records of its laboratory tests as opposed to the over 4,500 pages that petitioners sought to admit where introduction of all the records would have resulted in needless delay, wasted time, and unnecessary cumulative evidence, which substantially outweighed the minimal probative value of the additional records; the court rejected petitioners' argument that the Tax Court's conclusion that they had not proven their case amounted to acceptance of a reversal of an unrecorded concession that the Commissioner would not "challenge the sufficiency of available documentary substantiation;" petitioners' argument that the Tax Court imposed an inappropriate "standard of exactitude" that required them to produce specific documentation was unsupported by the record; the Tax Court did not err in refusing to estimate the amount of credit due petitioners for the qualified services performed; the Tax Court's implicit inclusion that petitioners had not proven that Defendant Shami engaged in direct supervision was not clearly erroneous; the Tax Court did not clearly err in finding that petitioners had not proven whether Defendants Shami and McCall had engaged in qualified research and, if so, how much of their time was spent on such activities; petitioners waived their argument alleging that the Tax Court's findings was clearly erroneous because it ignored the fact that Shami was credited as an inventor on certain patents; and the Tax Court's failure to include the supply costs as proper qualified research expenses when calculating each petitioner's deficiency was clearly erroneous. Accordingly, the court affirmed in part, vacated in part, and remanded.