- 70 -
experimentation.) The conference agreement also provides
that research relating to style, taste, cosmetic, or
seasonal design factors is not treated as conducted for
a functional purpose and hence is not eligible for the
credit.
H. Conf. Rept. 99-841 (Vol. II), supra at II-72, 1986-3 C.B. (Vol.
4) at 72.
The parties do not seriously dispute the meaning of the
business component test or the legislative history. Indeed, it is
evident that Congress intended only that the taxpayer's activities
provide some level of functional improvement, at a minimum.
D. The Process of Experimentation Test
The process of experimentation test requires that
substantially all of the activities which constitute elements of a
process of experimentation relate to a new or improved function,
performance, reliability, or quality. The process of
experimentation test, which is referenced in the discovery test, is
explained by Congress as follows:
The term process of experimentation means a process
involving the evaluation of more than one alternative
designed to achieve a result where the means of achieving
that result is uncertain at the outset. This may involve
developing one or more hypotheses, testing and analyzing
those hypotheses (through, for example, modeling or
simulation), and refining or discarding the hypotheses as
part of a sequential design process to develop the
overall component.
Thus, for example, costs of developing a new or
improved business component are not eligible for the
credit if the method of reaching the desired objective
(the new or improved product characteristics) is readily
Page: Previous 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 NextLast modified: May 25, 2011