Norwest Corporation and Subsidiaries - Page 19

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               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          



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