- 108 -
Petitioner argues that Norwest, Bank One, and EDS were
"development partners" in the SBS project, noting that this was how
Mr. Teixeira characterized the relationship of the three entities
in the Am. Banker article. Further, petitioner contends that the
language of the regulations anticipates no more than this type of
relationship where each entity shares in responsibilities and the
rights to use the software upon completion of development. We
agree with petitioner that Norwest had a right to the research
results within the meaning of section 1.41-2(e)(2)(ii) and (3),
Income Tax Regs.
The regulations provide that a contractor may obtain the R&E
credit if it retains "substantial rights" in the research. Sec.
1.41-2(a)(3)(ii), Income Tax Regs. A taxpayer does not retain
substantial rights in the research if the taxpayer must pay for the
right to use the results of the research. Sec. 1.41-5(d)(3)(i),
Income Tax Regs. (applying to the pre-1986 version of the R&E
credit but cross-referenced by section 1.41-2(a)(3), Income Tax
Regs.). We believe that the right to use the results of the
research without paying for that right is at least a right to the
research results as that term is applied in section 1.41-
2(e)(2)(ii), Income Tax Regs.--although it may or may not
constitute "substantial rights in the research" within the purview
of the regulations.
Norwest retained a right to the research results in this case
through its perpetual license from EDS, the contractor, to use the
Page: Previous 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 NextLast modified: May 25, 2011