Norwest Corporation and Subsidiaries - Page 2

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                    Sec. 41(d)(1), I.R.C., sets forth four tests for                  
               qualified research: (1) The expenditures must qualify as               
               expenses under sec. 174, I.R.C.; (2) the taxpayer must                 
               discover information which is technological in nature;                 
               (3) the taxpayer must discover information the                         
               application of which is intended to be useful in the                   
               development of a new or improved business component; and               
               (4) substantially all of the research activities must                  
               constitute elements of a process of experimentation.                   
                    In the conference report accompanying the Tax Reform              
               Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2085,                
               H. Conf. Rept. 99-841 (Vol. II), at II-73 through II-74                
               (1986), 1986-3 C.B. (Vol. 4) 1, 73-74, Congress set forth              
               three additional tests for qualified research under sec.               
               41, I.R.C., for the development of internal use software:              
               (1) The software must be innovative; (2) the software                  
               development must involve significant economic risk; and                
               (3) the software must not be commercially available.                   
                    The parties agree that in order for the                           
               representative internal use software activities to                     
               constitute qualified research for purposes of the tax                  
               credit, all seven tests must be satisfied.                             
                    1.   Held:  The three additional tests for qualified              
               research in the development of internal use software                   
               enunciated in the conference report accompanying the TRA               
               1986 require a higher threshold of technological                       
               advancement and functional improvement than is necessary               
               in other fields of research.                                           
                    2.   Held, further:  One of the eight representative              
               internal use software activities, the development of the               
               Strategic Banking System's (SBS) customer module,                      
               satisfies all seven tests and constitutes qualified                    
               research pursuant to sec. 41, I.R.C.  SBS was a concerted              
               effort at advancing the state of technology in the field               
               of computer science and pushed existing technology to new              
               heights.                                                               
                    3.   Held, further:  N failed to establish that the               
               remaining seven representative internal use software                   
               activities constitute qualified research.                              









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