Norwest Corporation and Subsidiaries - Page 22

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          participant agreements between Norwest and Bank One, and Norwest            
          and EDS, are void of any reference to such a contingency.  Had              
          Norwest been dissatisfied with a development milestone, it could            
          have terminated the agreements at that point and taken the SBS              
          release as it then existed--but Norwest could not have recovered            
          the payments it had already made.  Thus, the requirements of                
          section 1.41-2(e)(2)(iii), Income Tax Regs., are satisfied.                 
               We hold that the expenses paid or incurred by Norwest in the           
          development of the SBS customer module constitute qualified                 
          research under section 41.  The only remaining issue then is which          
          expenses of EDS and Norwest in the SBS customer module project              
          constitute qualified research.  In this regard, respondent contends         
          that Norwest's installation and customization activities, and the           
          subsequent testing after it received the releases of SBS from EDS,          
          do not constitute qualified research.  Respondent specifically              
          relies on section 41(d)(4)(D)(v), which excludes from qualified             
          research any routine or ordinary testing or inspection for quality          
          control.  Respondent asserts that installation and customization,           
          and the testing activities related to those processes, are routine          
          or ordinary testing procedures in the software field and thus must          
          be excluded from qualified research.                                        
               While respondent's characterizations may be accurate in some           
          contexts, they are not accurate in the context of the SBS project.          
          The customer module's unique feature was its ability to interact            
          with other modules to permit the easy sharing of data and                   



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