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Corp. v. Commissioner, supra at 497; sec. 1.41-2(d)(2), Income
Tax Regs. A “process of experimentation involves something more
than simply debugging a computer program.” United Stationers,
Inc. v. United States, supra at 445. In this case, “qualified
research” consists of activities at least 80 percent of which
constitute a process of experimentation aimed at eliminating
uncertainty about the technical ability to develop software. See
sec. 41(d)(1)(C); Norwest Corp. v. Commissioner, supra at 496-
497; sec. 1.41-2(d)(2), Income Tax Regs.
II. Parties’ Contentions
Respondent contends that Applied Systems did not conduct
“qualified research” because its employees did not undertake
research to discover information that is technological in nature,
and substantially all of the employees’ research activities did
not constitute elements of a process of experimentation.
Petitioners contend that the section 41(d) definition of
“qualified research” requires “only that there be significant
programming changes to software”. Petitioners further contend
that Applied Systems’ work meets the requirements of the
discovery test, because “All computer programming relies on
computer science principals [sic]”, and the process of
experimentation test, because employees did “consider
alternatives when adding additional functionality to the
Petitioner’s [sic] computer programs.”
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