General Dynamics Corporation and Subsidiaries - Page 5

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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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