- 100 -
In both the Davis and Teixeira reports, it appears that
respondent's experts found that Norwest was not engaged in
qualified research in the SBS project because the majority of the
work was performed by EDS. This is only relevant, however, if EDS
was not performing contract research on behalf of Norwest.
Respondent contends that EDS did not perform contract research.
We find that together Norwest and EDS engaged in qualified
research in the SBS project with respect to the customer module.
See sec. 1.41-2(e)(5), Examples (5) and (6), Income Tax Regs.
(allowing R&E credit where in-house and contract research are
performed together).62 In making this finding, we are influenced
by the writings of respondent's expert, the Tower Group, which were
prepared before its involvement in this case and are a part of the
record.
The SBS project was a massive effort at developing an
integrated banking system that could interact with several other
systems and handle a tremendous volume of data. Although some
integrated systems existed in 1986 (about 25 percent of the top 100
U.S. banks had such systems according to Mr. Teixeira), none of
them could handle the volume of data in the SBS system, nor were
they customer based (rather, they were product or account based).
62 Although petitioner claimed that it was a "development
partner" with EDS in the development of the SBS system, neither
petitioner nor respondent suggests that Norwest and EDS were
engaged in a partnership that would implicate the rules under
sec. 1.41-2(a)(4), Income Tax Regs.
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