- 69 -
or both of which allows the taxpayer "to make known or visible" or
"to obtain sight or knowledge for the first time", the definition
of discovery discussed above. Congress' goals of stimulating a
higher rate of capital formation and improving the U.S. economy
cannot be achieved unless the taxpayer goes beyond the preexisting
knowledge of the principles of the hard sciences. Expanding or
refining those principles are two, but not the exclusive, ways of
satisfying these goals.38
C. The Business Component Test
The business component test (which is actually part of the
discovery test) requires that the research be undertaken for the
purpose of discovering information the application of which is
intended to be useful in the development of a new or improved
business component of the taxpayer. This test was addressed by
Congress as follows:
Under the conference agreement, research is treated
as conducted for a functional purpose only if it relates
to a new or improved function, performance, reliability,
or quality. (Activities undertaken to assure achievement
of the intended function, performance, etc. of the
business component after the beginning of commercial
production of the component do not constitute qualified
38 Respondent relies on the language in TSR, Inc. & Sub.
v. Commissioner, 96 T.C. 903 (1991), in which we stated that the
technological-in-nature requirement amounted to a requirement of
a "technological breakthrough". Id. at 920. Inasmuch as TSR,
Inc. did not involve the R&E credit as it exists under sec. 41,
we do not consider that language an element of the discovery
test.
Page: Previous 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 NextLast modified: May 25, 2011