Norwest Corporation and Subsidiaries - Page 11

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               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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