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no commercially available products were available at the time
Norwest entered into the SBS project with EDS and Bank One.
In sum, the SBS customer module project satisfies all seven
tests for qualified research. The project, at the time,
represented a concerted effort at advancing the state of technology
in the field of computer science, pushing existing technology to
new heights. Its ultimate failure, at least at Norwest, does not
diminish its contribution to the field but only demonstrates the
rapid pace of technological advancement in the industry.
Respondent contends that even assuming arguendo that the SBS
customer module project satisfied the definition of qualified
research in section 41(d), the work performed by EDS did not
satisfy the requirements of contract research on behalf of Norwest,
and thus Norwest is not entitled to the R&E credit. Specifically,
respondent claims that Norwest did not retain a right to the
research results, and further, that the payments made to EDS were
contingent on the success of the research. We disagree.
Section 41(b)(3) allows the R&E credit for 65 percent of any
expenses paid or incurred by the taxpayer to any person (other than
an employee of the taxpayer) for qualified research. Section 1.41-
2(e)(2), Income Tax Regs., requires that the contractor of the
qualified research perform such research "on behalf of the
taxpayer" and that the payments not be contingent on the success of
the research. Section 1.41-2(e)(3), Income Tax Regs., further
states: "Qualified research is performed on behalf of the taxpayer
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