- 53 -
(ii) performance, or
(iii) reliability or quality.
(B) Certain purposes not qualified.--
Research shall in no event be treated as
conducted for a purpose described in this
paragraph if it relates to style, taste,
cosmetic, or seasonal design factors.
Section 41 excludes certain activities from qualifying for the
credit, including the development of internal use software--except
to the extent provided by regulations or to the extent the software
is developed for use in an activity or process that otherwise
qualifies for the credit. Sec. 41(d)(4)(E).
The R&E credit under section 4132 was first created by Congress
as part of the Economic Recovery Tax Act of 1981 (ERTA), Pub. L.
97-34, sec. 221(a), 95 Stat. 172, 227, which provided for a
nonrefundable income tax credit for certain research and
experimental expenditures paid or incurred by a taxpayer during the
taxable year in carrying on a trade or business. The purpose of
the credit was to "stimulate a higher rate of capital formation and
to increase productivity", S. Rept. 97-144, at 76-77 (1981), 1981-2
C.B. 412, 438-439; H. Rept. 97-201, at 111 (1981), 1981-2 C.B. 352,
32 The tax credit was first designated sec. 44F by the
Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34, sec.
221(a), 95 Stat. 172, 227, and was then redesignated sec. 30 by
the Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 471(c),
98 Stat. 494, 826, and then sec. 41 by the Tax Reform Act of 1986
(TRA 1986), Pub. L. 99-514, sec. 231(d)(2), 100 Stat. 2085, 2178.
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