Union Carbide Corporation v. Commissioner of Internal Revenue, No. 11-2552 (2d circuit 2012)


This is an appeal from the U.S. Tax Court denying Union Carbide Corporation (UCC) a credit for supplies used in the conduct of qualified research.  Judge Pooler agrees with this judgment and files a separate concurrence.

UCC conducted three research projects at two production plants in the 1994 and 1995 tax credit years.  UCC requested a research credit for the costs of all supplies used in these projects even though they would have been used if the research and projects hadn’t been carried out.  It was argued that UCC only is entitled to credits for the additional supplies that were used in these projects.

Basic Facts

The three projects are as follows:

  1. Amoco anticoking project: UCC conducted research  and production on industrial furnaces to diminish the creation of coke in the furnace however they found their project did not result in lower productions of coke and they discontinued the research.
  2. UCAT-J proejct: UCC attempted to lower costs in the production of polyethylene products.  They ran this project 19 times and this project was discontinued after it resulted in higher levels of off-grade polyethylene.
  3. Sodium Borohydride: This project was used to find if sodium borohydride would reduce the presence of an unwanted byproduct.  The test ran for two weeks and they were successful.

At the bench trial in Tax Court, the costs for supplies used for the anticoking project were not credible as an “amount paid for supplies used in the conduct of qualified research”.  They acknowledged that if UCC had not purchased these materials, these woudl have been treated as inventory and costs of goods sold.  The sodium borohydride project did not fulfill the “process of experimentation test”.

The main issue in this case is whether the cost for supplies used during these projects would have been used in UCC’s manufacturing process regardless of any research performed and would they qualify as “an amount paid or incurred for supplies used in the conduct of qualified research.”

  • UCC argues for the dictionary definition of qualified research however this kind of definition does not constitute the beginning and end of statutory construction.  The Court and this Opinion agree that these research costs claims are merely indirect research costs excluded from QREs.


The decision of the Tax Court is affirmed with response to the anticoking project and the UCAT-J project.  This Opinion is also in agreeance with the Tax Court’s decision in regards to the sodium borohydride project because it is not considered qualified research.

Click Here to view the full case: Union Carbide Corporation v. Commissioner of Internal Revenue, No. 11-2552 (2d circuit 2012).


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