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that respondent concedes that petitioner has met the requirements
of I.R.C. � 174, which is simply not an issue in this case."
Petitioner objects to respondent's claim that its expenditures
"may be treated" as expenses under section 174 without in fact
meeting the section's requirements for a deduction. Petitioner
hazards a guess that respondent wants to have it both ways; that
is, respondent wants to avoid an adverse ruling on the issue (and
its potential impact on other tests under section 41) without
conceding that the section 174 requirements are actually satisfied.
We believe that the phrase "the research expenditures may be
treated as expenses under section 174" is meant to require the
taxpayer to satisfy all the elements for a deduction under section
174. The legislative history of section 41 supports this
requirement. See H. Conf. Rept. 99-841 (Vol. II), supra at II-71,
1986-3 C.B. (Vol. 4) at 71 ("the conference agreement limits
research expenditures eligible for the incremental credit to
'research or experimental expenditures' eligible for expensing
under section 174. * * * Under the conference agreement, research
satisfying the section 174 expensing definition is eligible for the
credit").
Thus, on the basis of respondent's concessions, each of
petitioner's eight sample activities satisfies the elements for a
deduction under section 174.
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