- 78 - 4. Summary of Internal Use Software Requirements Under the Seven Tests The higher threshold of technological advancement and functional improvement in the development of internal use software vis-a-vis other fields of research is consistent with the general rule that qualified research under section 41 excludes internal use software development. Sec. 41(d)(4)(E). Although the reasons for such discrimination are not readily apparent, they nonetheless do exist. The conclusion we draw from these higher threshold requirements is that Congress sought to limit the development of internal use software under section 41 only to those endeavors that ventured into uncharted territory.39 We are mindful, however, that 39 We recognize that commentators to the 1983 and 1989 proposed regulations under sec. 174 were concerned with language that could discourage the "evolutionary" nature of research. The Explanation of Provisions in the 1989 proposed regulations to sec. 174 states in pertinent part: A number of commentators suggested that the [1983] proposed regulations could be read to require a significant improvement for an activity to qualify under section 174. They suggested that such a reading would be overly restrictive because research and development activities may in many instances be part of an evolutionary process involving a series of minor improvements that, when taken together over a period of time, lead to a significantly improved product. The regulations proposed by this document do not include the reference to "routine" or "periodic" improvements. * * * 54 Fed. Reg. 21225 (May 17, 1989). The Explanation of Provisions in the 1993 proposed regulations to sec. 174 states in part: (continued...)Page: Previous 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 Next
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