- 6 - might be, as petitioners argue, that RCC is involved in the business of developing recyclable containers with the intention of manufacturing them. Then again, it might not. It is up to petitioners to prove that they engaged indirectly through RCC in research or experimentation. This they have not done. It is also up to petitioners to prove that their expenditure was paid or spent in connection with their own trade or business. The controlling inquiry in determining whether an expenditure under section 174 was made "in connection with" a taxpayer's trade or business is whether the taxpayer is "'actively involved in the * * * [research project] as a trade or business.'" LDL Research & Dev. II, Ltd. v. Commissioner, 124 F.3d 1338, 1342 (10th Cir. 1997) (quoting Nickeson v. Commissioner, 962 F.2d 973, 978 (10th Cir. 1992), affg. Brock v. Commissioner, T.C. Memo. 1989-641), affg. T.C. Memo. 1995-172. As stated by the Court of Appeals for the Ninth Circuit: The language of * * * [section 1.174-2(a)(2), Income Tax Regs.] makes clear that a taxpayer may enjoy the section 174 deduction for research conducted by another entity. Read in isolation, the regulation might suggest that the * * * [taxpayer] is entitled to the deduction even though it engaged the research firm to conduct its research. The regulation, however, does not eliminate the trade or business requirement of section 174. If a * * * [taxpayer] engages another firm to conduct its research, it must satisfy the trade or business requirement in some other way, such as by manufacturing or marketing the resulting technology. * * *Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011