industries, including medical, electronics, communications, appliances, transportation, government, computer, and lawn and garden. Services provided by S Corp consist of laser cutting, sheet metal fabrication, precision machining, welding and assembly.

The Indiana Department of Revenue ("Department") conducted an audit of S Corp for the years 2008 and 2009. S Corp claimed an increase in research activities for 2006 through 2008, which resulted in a "research expense credit" ("REC"). As the sole S Corp shareholder, Taxpayer claimed the REC on his joint individual income tax return. However, during the audit the Department determined that S Corp was unable to substantiate the claimed qualifying research activities and the related expenses and therefore disallowed the credit. The disallowance of the REC resulted in proposed tax assessments.
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Taxpayer protests the elimination of RECs whichhe knew what projects the engineers work on during the year, and he then estimated the percentages based on the baseline developed by CF. In response to questions the Department's auditor asked, Taxpayer stated that he would not be able to document what a particular employee did on a particular day, nor which projects a particular employee had worked on. None of CF's work papers were retained by S Corp.

After the hearing, Taxpayer provided additional documentation, along with a cover letter dated January 17, 2012. First, Taxpayer presented 2007 through 2010 R & D employee listings as well as project lists for each of those years. Second, Taxpayer provided a description of seven 2008 sample product development projects. The descriptions listed the product and industry that the research