Norwest Corporation and Subsidiaries - Page 89

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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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