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have Systems conduct research or experiments on behalf of IRC and
RIC, and (3) this research or these experiments are in connection
with IRC’s or RIC’s trade or business. Failure to satisfy any of
these requirements would lead to a conclusion that IRC and RIC
are not entitled to their claimed section 174 deductions. See
Green v. Commissioner, 83 T.C. 667, 691 (1984).
We consider first the question of whether the expenditures
were “paid or incurred * * * in connection with * * * [IRC’s or
RIC’s] trade or business”. Sec. 174(a)(1).
In Snow v. Commissioner, 416 U.S. 500, 503 (1974), the
Supreme Court contrasted the “in connection with” language of
section 174 with the “in carrying on” language of section 162.
The Supreme Court concluded that the difference in language meant
that the requirements of section 174 were different from the
requirements of section 162. The Supreme Court examined the
legislative history of section 174 in order to determine what
were the relevant differences between section 174 and section
162. Id. at 503-504. The Supreme Court then concluded that the
different statutory language meant that deductions under section
174 are to be available to companies “that are upcoming and about
to reach the market”, as well as to “ongoing companies”. Id. at
504.
Although the taxpayer need not be conducting a trade or
business at the time of the research or experimental expenditure,
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