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that, in part, made adjustments to the originally claimed credits
and was based on the engineer’s 1991 report.
During 1992, petitioner filed administrative claims on Forms
1120X seeking overpayments attributable to research credits in
connection with fixed-price Government contracts (increased
credits). Because petitioner had not originally accounted for or
claimed the increased credits, an accounting firm (accountant)
was engaged to identify and quantify the amount of the increased
credits. It was necessary to determine from among the costs in
fixed-price Government contracts those expenditures which
qualified for the research credit. The accountant was not able
to develop the amount of the research credits based on references
to particular contract line items or based on some method that
was specifically related to the contract terms.
Petitioner has explained that its costs were collected and
accounted for by work orders that were grouped by reference to an
aspect of various products under development or production. By
analyzing work orders and interviewing petitioner’s employees,
the accountant developed an amount that petitioner claimed
qualified for the credit. Respondent assigned the engineer who
had examined the credit claimed on petitioner’s original returns
to examine petitioner’s claim for increased credits. The
engineer, after examining the accountant’s materials and
recommending adjustments, issued a report in 1994 prior to the
issuance of the notice of deficiency, recommending that the
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