The Technical and Professional Context of Arsham Amirikian

Arsham Amirikian was a civil engineer employed in the Bureau of Yards and Docks of the Navy Department in Washington, D.C. His work on naval dry-dock construction supplied the subject matter for the prize-winning paper. The appellate opinion establishes his employment and participation in the project; it does not determine whether his engineering activities would satisfy the requirements of a research tax credit enacted decades later.

Between October 1939 and April 1940, Amirikian participated in designing and supervising a new method of constructing caissons, or gates for naval dry docks, using arc welding. The court recorded substantial monetary savings for the United States Government. It did not make findings about particular welding uncertainties, comparative load capacity, weight reduction, or experimental procedures. Those engineering claims cannot be treated as established facts from the tax decision.

Amirikian prepared the contest paper with a fellow engineer who was Director of Planning and Design in the Bureau of Yards and Docks. Their paper described improved designs, development methods, and cost savings from the welded caissons. The following table distinguishes the recorded facts from technical assertions that the opinion does not establish.

The Lincoln Foundation Contest and the Genesis of Conflict

The Lincoln Electric Company established the James F. Lincoln Arc Welding Foundation in 1936 in honor of its president. The Foundation promoted scientific research and education concerning arc welding. In January 1940 it announced a contest for papers describing progress in the application of arc welding during a specified period.

The contest rules were specific and demanding. Participants were required to have been actually engaged in the design or execution of the work described in their papers. Furthermore, the Foundation established criteria for the awards, including the cost saved by using arc welding compared to previous methods used by the contestant’s employer and the industry at large. This requirement created a direct link between the professional labor of the engineer and the scientific documentation required for the contest.

Amirikian spent about forty hours preparing “Welded Caissons for Naval Dry Docks” with his co-author. They submitted it on May 30, 1942, and received notice in August that it had won a $13,700 first award. Amirikian received $6,850. He included that amount in his 1942 gross income, paid the tax under protest, and later sought a refund on the ground that the award was an excluded gift under the then-applicable gift provision. The Foundation purchased neither the paper nor publication rights.

The Judicial Trajectory: From District Court to the Fourth Circuit

The District Court for the District of Maryland initially allowed Amirikian a refund of $1,622.85, the additional tax attributable to the prize. The district court accepted the gift characterization. The subsequent appeal addressed the legal nature of the award, rather than whether the underlying engineering work qualified for any research incentive.

The United States appealed. On June 16, 1952, the Fourth Circuit reversed the district court, treating the Supreme Court’s June 2, 1952 decision in Robertson v. United States as controlling.

The Robertson Doctrine

In Robertson v. United States, 343 U.S. 711 (1952), a composer won a competition with a symphony written before the contest was announced. The Supreme Court reasoned that acceptance of a contest offer creates a contractual obligation and that payment discharging that obligation is not a gift merely because the sponsor receives no economic benefit.

The Fourth Circuit applied Robertson to Amirikian’s award. Compliance with the contest conditions supplied the contractual basis for payment. The decision did not require the Foundation to acquire publication rights or earn a commercial return. This was an income-inclusion ruling, not a finding that the Foundation funded the Navy’s earlier engineering work.

Amirikian illustrates why a contest sponsor’s educational purpose does not automatically make its prize a tax-free gift. Modern prizes and awards must also be evaluated under the applicable statutory rules, including Section 74 and its limited exceptions. Neither this historical ruling nor the receipt of taxable revenue determines whether a business separately qualifies for a research credit.

The Birth of the R&D Tax Credit and Section

Congress introduced the federal research credit in the Economic Recovery Tax Act of 1981. Now codified in Section 41, it encourages qualifying business research through a credit calculated under statutory formulas. The resulting credit can reduce tax liability dollar for dollar, subject to applicable limitations; it does not reimburse every dollar of qualified research expenses. Amirikian did not establish this credit or its eligibility tests.

Section 41(d)(4)(H) excludes research to the extent another person or governmental entity funds it. Treasury Regulations Sections 1.41-4(c)(9) and 1.41-4A(d) govern the analysis. Noncontingent customer payments can fund research, while retaining no substantial rights can cause the research to be treated as fully funded. Partial funding requires a separate calculation: where substantial rights remain, an eligible portion of research expenses exceeding funding may still qualify. A customer relationship alone does not eliminate eligibility.

Modern Implications: The “Funded Research” Battleground

For architectural, engineering, manufacturing, and software firms, the funded-research inquiry requires examination of all relevant agreements. The governing framework comes from Section 41 and its regulations, not Amirikian. Two central questions are:

Economic Risk: Are payments contingent on successful research results, or is the researcher entitled to payment for its effort regardless of the outcome? Review enforceable payment, acceptance, termination, and repayment provisions together. Ordinary commercial risk is not necessarily the research risk contemplated by the regulations.

Substantial Rights: Does the researcher retain meaningful rights to use the research results? Exclusive ownership is not required, but incidental experience gained by employees is not itself a substantial right. A requirement to pay for use of the results can defeat this element. The partial-funding rules also require attention where noncontingent payments cover only part of the relevant research expenses.

Case Analysis: Smith v. Commissioner and Architectural Innovation

Smith involved partners of Adrian Smith + Gordon Gill Architecture, LLP, and research credits arising from architectural projects. The December 18, 2024 order denied the IRS summary judgment on funded research; it did not finally establish eligibility. Questions concerning the agreements and governing foreign law remained for trial.

The later trial opinion, Smith v. Commissioner, T.C. Memo. 2026-50, filed June 16, 2026, found that payments under all six sample contracts were not contingent on research success. AS+GG nevertheless retained substantial rights under four contracts. For those projects, partial credits could be available to the extent research expenses exceeded payments, subject to the regulatory allocation rules. The court did not determine the precise credit amounts. This result makes clear that milestone billing alone does not establish research risk, and that the payment and rights inquiries must be considered together.

Case Analysis: Dynetics and the Rigidity of Contract Clauses

Dynetics, Inc. and Subsidiaries v. United States, 121 Fed. Cl. 492 (2015), examined seven sample contracts in a larger refund dispute. They included cost-plus-fixed-fee, time-and-materials, and fixed-price-level-of-effort arrangements. One contract contained both fixed-price and cost-plus line items, but the challenged expenses under that contract concerned its cost-plus line items. Describing the decision as a general rejection of ordinary fixed-price research contracts would be misleading.

The court granted the government’s motion for partial summary judgment on the seven sample contracts. Its analysis addressed entitlement to payment and, for relevant agreements, retained rights. The inspection, warranty, rework, and termination provisions did not establish the necessary research risk on the facts presented. These clauses must be read in context; the decision does not establish that every warranty or inspection provision is irrelevant in every research contract.

The Four-Part Test: From Scientific Interest to Process of Experimentation

The funded-research exclusion addresses whether otherwise qualifying research is excluded because of its financing or retained rights. The separate four-part test addresses the character of the activities. Amirikian did not apply or anticipate that test. Section 41(d)(1), as applicable to the tax year, and Treasury Regulation Section 1.41-4 supply the relevant requirements.

The Research-Expense Test: Identifying Uncertainty

For tax years beginning after December 31, 2024, Section 41(d)(1)(A) refers to domestic research or experimental expenditures under Section 174A; earlier years used the applicable Section 174 framework. The analysis concerns uncertainty about capability, method, or appropriate design, not merely a project’s difficulty or novelty to the customer. Phoenix Design Group, Inc. v. Commissioner, T.C. Memo. 2024-113, decided December 23, 2024, found that the three trial projects did not qualify. The court examined the actual engineering activities and evidence, rather than treating professional expertise alone as proof of qualified research.

Technological in Nature

The information sought must be technological in nature, with the experimental process fundamentally relying on physical or biological sciences, engineering, or computer science. Arc-welding design is an engineering activity, but that label alone cannot establish every research-credit requirement.

Business Component Test

The research must be intended to improve the function, performance, reliability, or quality of a “business component“—a product, process, software, technique, formula, or invention to be held for sale, lease, or use in the taxpayer’s trade or business.

Process of Experimentation

Substantially all of the research activities must constitute elements of a process of experimentation directed to an eligible improvement. Modeling, simulation, and systematic trial and error can be relevant methods. Routine calculations or repeated design changes do not automatically establish such a process. Phoenix Design Group illustrates the need to show what uncertainty existed, what alternatives were evaluated, and how the activities evaluated those alternatives. It does not create a universal requirement to use a formal laboratory protocol.

Documentation: The Achilles’ Heel of Modern R&D Claims

Phoenix Design Group illustrates the consequences of failing to substantiate qualifying activities in the trial projects. Its findings should not be reduced to a rule that missing contemporaneous logs alone caused the loss. Taxpayers must establish both that activities qualify and that the claimed expenses relate to them.

Treasury Regulation Section 1.41-4(d) requires records sufficiently usable and detailed to substantiate eligibility. It does not prescribe a single mandatory time-tracking system. Estimation principles associated with Cohan do not substitute for evidence that qualified research occurred or supply a basis for unsupported allocations. Useful supporting records include:

• Time records or other reliable allocations connecting employees’ work to qualifying activities.
• Evidence of the alternatives evaluated (e.g., failed designs, test results).
• Project notes that describe the technical challenges encountered, not just the project status.

A technical paper like Amirikian’s could help explain a project, but a description of successful results would not automatically prove qualified research expenses. A modern claimant would need evidence of the relevant uncertainties, experimental activities, costs, and contractual position. Engineering logs may help, but no inference about a hypothetical credit for Amirikian can be drawn from the prize-tax opinion.

The Impact of State Law and Jurisdictional Nuances

In System Technologies, Inc. v. Commissioner, Docket No. 12211-21, an order dated January 3, 2025 denied the IRS’s motion for partial summary judgment on funded research. The court considered Indiana law governing the agreements and the obligation to return payments if the promised product was not delivered. It concluded that ultimate payment was contingent on success for the funding issue addressed. That order did not decide every element of research-credit eligibility.

Smith also illustrates the relevance of governing law and contractual rights, including issues concerning Dubai and UAE law. Its preliminary order must be distinguished from the June 2026 trial opinion. The practical lesson is to analyze enforceable agreements under their governing law; neither a choice-of-law clause nor a general breach remedy automatically proves eligibility.

Government Contractors and the “Amirikian” Context

Amirikian’s Navy employment provides historical context, but his prize case is not a government-contractor research-credit precedent. Government contractors should examine the actual FAR or other applicable data-rights and patent clauses. Government rights can be nonexclusive and need not extinguish a contractor’s substantial rights. The exact allocation of ownership, licenses, restrictions, and use rights matters.

Dynetics shows why a contractor must examine what inspection and correction provisions actually require. A duty to provide conforming effort, or a business decision to absorb rework costs, may differ from an enforceable requirement to deliver successful research results before earning payment. Funding and rights should be analyzed for each relevant agreement and expense category.

Future Outlook: Legislative and Administrative Shifts

The Tax Cuts and Jobs Act required capitalization and amortization of research and experimental expenditures for tax years beginning after December 31, 2021, generally over five years for domestic research and fifteen years for foreign research. Public Law 119-21 changed that framework in 2025. New Section 174A generally permits current deductions for domestic research or experimental expenditures in tax years beginning after December 31, 2024, with an alternative capitalization election and transition provisions. Foreign research expenditures generally remain subject to fifteen-year amortization under Section 174. Deduction timing and Section 41 credit qualification remain distinct questions.

The IRS also requires specified information for covered research-credit refund claims: identification of the relevant business components, the research activities for each component, and totals for the specified expense categories. Filing requirements must be checked for the particular return and tax year. The December 2025 Form 6765 instructions make Section G generally required for tax years beginning after 2025, subject to exceptions. These procedural requirements do not replace the substantive qualification and substantiation rules.

Strategic Implications for Future R&D Applications

The modern Section 41 authorities support the following practical considerations. They arise from research-credit law and should not be described as requirements established by Amirikian:

Contractual Risk Alignment

Review the actual allocation of research risk before claiming contract-related expenses. There is no universal requirement to abandon hourly or best-efforts contracts, and a fixed-price label is not a guarantee of eligibility. Depending on the commercial arrangement, review:

• Whether a fixed price purchases a successful result or merely a specified level of effort.
• Whether milestone payments are conditional on research success or simply measure progress.
• The interaction of acceptance criteria, rework obligations, termination rights, and repayment remedies.

Intellectual Property Retention

Examine ownership, work-for-hire, confidentiality, assignment, and licensing provisions together. A meaningful nonexclusive right to use research results can support substantial rights. Retention of general employee experience or institutional knowled