- 56 -
expenses for purposes of the credit. The committee
believes that the definition has been applied too broadly
in practice, and some taxpayers have claimed the credit
for virtually any expenses relating to product
development. According to early data on the credit, the
Treasury has reported, many of these taxpayers do not
engage in high technology activities.
S. Rept. 99-313, supra at 694-695, 1986-3 C.B. (Vol. 3) at 694-695;
see also TSR, Inc. & Sub. v. Commissioner, 96 T.C. 903, 919 (1991);
H. Rept. 99-426, supra at 178, 1986-3 C.B. (Vol. 2) at 178.
Congress amended the R&E credit by TRA 1986 sec. 231(b), 100
Stat. 2173, to provide the definition of qualified research that
now is codified in section 41(d).
2. Internal Use Software
As part of the 1986 amendment to the R&E credit, Congress
addressed the application of the credit to the expenditures paid or
incurred in the development of internal use software. Congress did
not define what it meant by internal use software, other than to
indicate that the phrase refers to software that supports general
and administrative functions (such as payroll, bookkeeping, or
personnel management) or provides noncomputer services (such as
accounting, consulting, or banking services). H. Conf. Rept. 99-
841 (Vol. II), at II-73 (1986), 1986-3 C.B. (Vol. 4) 1, 73. (The
parties herein agree that each of the eight sample activities
constitutes internal use software.)
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