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In other words, respondent reported that it was expected that the
parties would be able to agree on the amount of the expenses and,
hence, the substantiation of the credits, leaving the legal issue
for the Court’s consideration.
The focus of the legal issue was whether petitioner’s
research, which was performed pursuant to fixed-price Government
contracts, was “funded” within the meaning of section
41(d)(4)(H). The question of whether the research was funded is
dependent on whether the amounts petitioner received under the
fixed-price Government contracts were “contingent on the success
of the [petitioner’s] research and thus considered to be paid for
the product or result of the research”. Sec. 1.41-5(d)(1),
Income Tax Regs.
During November 1995, the Court of Appeals for the Federal
Circuit reversed the decision, Fairchild Indus., Inc. v. United
States, 71 F.3d 868 (Fed. Cir. 1995). Following this reversal of
fortune for the parties in this case, respondent advised that she
would concede the legal issue that had been decided by the Court
of Appeals. Respondent’s counsel also advised that they were not
prepared to stipulate to the amount of research credits based on
the engineer’s 1994 report, but that petitioner must quantify the
amount of expenses underlying any credit with respect to fixed-
cost Government contracts by reference to the contract line items
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