- 7 -
OPINION
Issue 1. Research and Development Expenditures
Respondent determined that 3-Koam may not claim an $82,000
research and development deduction for 1990, because the alleged
agreement entered into by 3-Koam with Inkax was a sham
transaction, lacking both a business purpose and economic
substance. Petitioner asserts that 3-Koam properly incurred and
accrued a research and development expense in 1990, and therefore
may deduct such amount pursuant to section 174 and the
regulations thereunder.
Respondent's determinations are presumptively correct, and
petitioner bears the burden of proving otherwise. Rule 142(a),
Welch v. Helvering, 290 U.S. 111, 115 (1933); Durando v. United
States, 70 F.3d 548, 550 (9th Cir. 1995).
As a general rule, a taxpayer may deduct research or
experimental expenditures paid or incurred during the taxable
year in connection with its trade or business. Sec. 174(a); Snow
v. Commissioner, 416 U.S. 500, 504 (1974). Section 174 not only
applies to expenses paid or incurred directly by the taxpayer,
but it also includes expenditures paid or incurred for research
and development carried on in the taxpayer's behalf by another
person or organization. Sec. 1.174-2(a)(2), Income Tax Regs.
A taxpayer is generally free to structure its business
transactions as it pleases, though motivated by tax reduction
considerations. Gregory v. Helvering, 293 U.S. 465 (1935);
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011