Case Law | R&D Tax Credit

• Apple Computer, Inc. v. Comm’r, 98 T.C. 232 (1992) – U.S. Tax Court: Addressed qualified research expenses (QREs) for software development and the four-part test under Sec. 41(d).
• Fudim v. Comm’r, T.C. Memo. 1994-235 (1994) – U.S. Tax Court: Denied credits for lack of substantiation of experimental activities in invention prototyping.
• Fairchild Industries, Inc. v. United States, 71 F.3d 868 (Fed. Cir. 1995), rev’g 30 Fed. Cl. 839 (1994) – Fed. Cir. Court of Appeals: Landmark on funded research exclusion; payments to another party disqualify credits if taxpayer bears no risk.
• Norwest Corp. v. Comm’r, 110 T.C. 454 (1998) – U.S. Tax Court: Clarified base period gross receipts for financial institutions’ credit calculations.
• Lockheed Martin Corp. v. United States, 210 F.3d 1366 (Fed. Cir. 2000), rev’g 42 Fed. Cl. 485 (1998) – Fed. Cir. Court of Appeals: Expanded funded research analysis to “substantial rights” retention by taxpayer despite government contracts.
• United Stationers Supply Co. v. United States, 232 F.3d 440 (5th Cir. 2000) – 5th Cir. Court of Appeals: Narrowed “discovery test” to require technological advancements beyond current knowledge.
• Eustace v. Comm’r, T.C. Memo. 2001-66, aff’d 312 F.3d 1254 (7th Cir. 2002) – U.S. Tax Court (aff’d 7th Cir. Court of Appeals): Rejected Cohan doctrine approximations for unsubstantiated QREs; strict documentation required.
• TG Missouri Corp. v. Comm’r, 133 T.C. 278 (2009) – U.S. Tax Court: Allowed credits for foreign R&D under contract research rules if payments were arm’s-length.
• Union Carbide Corp. v. Comm’r, T.C. Memo. 2009-50, aff’d 697 F.3d 181 (2d Cir. 2012) – U.S. Tax Court (aff’d 2d Cir. Court of Appeals): Disallowed supply costs in routine process testing; emphasized “experimentation” prong.
• United States v. McFerrin, 570 F.3d 672 (5th Cir. 2009), aff’g in part, rev’g in part 492 F. Supp. 2d 695 (S.D. Tex. 2007) – 5th Cir. Court of Appeals: Upheld penalties for gross overstatement of credits due to inadequate records.
• FedEx Corp. v. United States, No. 08-2423 (W.D. Tenn. 2009) – W.D. Tenn. District Court: Ruled intercompany transactions must be included in gross receipts for base amount calculations.
• Trinity Industries, Inc. v. United States, 691 F. Supp. 2d 688 (N.D. Tex. 2010) – N.D. Tex. District Court: Credits allowed for barge design activities resolving technical uncertainties via modeling.
• Procter & Gamble Co. v. United States, 733 F. Supp. 2d 857 (S.D. Ohio 2010) – S.D. Ohio District Court: Confirmed intercompany gross receipts inclusion, rejecting consolidated group exclusions.
• United States v. Dow Chemical Co., 674 F.3d 1356 (Fed. Cir. 2012) – Fed. Cir. Court of Appeals: Routine data collection and testing do not qualify; must involve uncertainty elimination.
• Bayer Corp. v. United States, Nos. 09-cv-00351 (W.D. Pa. 2012) – W.D. Pa. District Court: Denied statistical sampling for QREs without tying to specific business components; factual variance issues.
• Shami v. Comm’r, T.C. Memo. 2013-41, aff’d 741 F.3d 560 (5th Cir. 2014) – U.S. Tax Court (aff’d 5th Cir. Court of Appeals): Allowed Cohan rule estimates for QREs with some contemporaneous basis.
• Suder v. Comm’r (dba Emerald Solutions, Inc.), 141 T.C. 1 (2013), aff’d sub nom. Stratasys, Inc. v. Comm’r, 781 F.3d 414 (8th Cir. 2015) – U.S. Tax Court (aff’d 8th Cir. Court of Appeals): Software-hardware integration qualifies under experimentation if resolving uncertainties.
• Geosyntec Consultants, Inc. v. United States, 115 Fed. Cl. 403 (2014), aff’d 776 F.3d 1330 (11th Cir. 2015) – U.S. Court of Federal Claims (aff’d 11th Cir. Court of Appeals): Engineering services qualify if retaining substantial rights; parol evidence admissible for contract intent.
• Dynetics, Inc. v. United States, 121 Fed. Cl. 158 (2015) – U.S. Court of Federal Claims: Government contracts allow credits if taxpayer retains substantial rights to research results.
• Quebe v. United States, No. 3:15-cv-294 (W.D. Wis. 2017) – W.D. Wis. District Court: Denied credits for construction management lacking technological experimentation.
• Populous Holdings, Inc. v. Comm’r, T.C. Docket No. 405-17 (2019, stipulated decision 2020) – U.S. Tax Court: Architectural design under fixed-price contracts is unfunded; credits allowed for innovative projects.
• Siemer Milling Co. v. Comm’r, T.C. Memo. 2019-37 (2019) – U.S. Tax Court: Shrink-wrapping and packaging qualify if addressing technical uncertainties in processes.
• Little Sandy Coal Co. v. Comm’r, T.C. Memo. 2021-15, aff’d 62 F.4th 287 (7th Cir. 2023) – U.S. Tax Court (aff’d 7th Cir. Court of Appeals): Mining process improvements qualify under experimentation test.
• Leon Max, Inc. v. Comm’r, T.C. Memo. 2021-41 (2021) – U.S. Tax Court: Fashion design R&D qualifies if eliminating uncertainties in materials or techniques.
• Tangel v. Comm’r, T.C. Memo. 2021-121 (2021) – U.S. Tax Court: Architectural/engineering services retain rights if not fully transferred; unfunded research upheld.
• Moore v. Comm’r, T.C. Memo. 2023-20, aff’d 101 F.4th 546 (7th Cir. 2024) – U.S. Tax Court (aff’d 7th Cir. Court of Appeals): Scoreboard design qualifies; CEO wages allocable to QREs with documentation.
• Meyer, Borgman & Johnson, Inc. v. Comm’r, T.C. Memo. 2023-107, aff’d No. 23-1523 (8th Cir. 2024) – U.S. Tax Court (aff’d 8th Cir. Court of Appeals): HVAC engineering is funded if payments not contingent on success; routine adaptations denied.
• Grigsby v. United States, 85 F.4th 258 (5th Cir. 2023) – 5th Cir. Court of Appeals: Architectural projects qualify if experimentation on business components; reversed district denial.
• Betz v. Comm’r, T.C. Memo. 2023-84 (2023) – U.S. Tax Court: Software development for clients qualifies under integrated process rules.
• Phoenix Design Group, Inc. v. Comm’r, No. 4759-22 (T.C. 2024) – U.S. Tax Court: Denied credits for engineering prototypes lacking documentation of experimentation; high bar for “substantially all” test.
• Intermountain Electronics Inc. v. Comm’r, No. 11019-19 (T.C. Order 2024) – U.S. Tax Court: Order allowing credits for electrical systems design; resolved funded research dispute.
• System Technologies Inc. v. Comm’r, No. 12211-21 (T.C. Order 2024) – U.S. Tax Court: Denied IRS summary judgment on funding; fixed-price contracts retain risk for taxpayer.
• Smith v. Comm’r, Nos. 13382-17, 13385-17, 13387-17 (T.C. Order 2024) – U.S. Tax Court: Architectural services under foreign law not funded; factual disputes prevent summary judgment (trial pending 2025).
• CHA Holdings Inc. v. Comm’r, No. 27453-21 (T.C. Stipulated Decision 2024) – U.S. Tax Court: Stipulated allowance for engineering R&D in water treatment processes.