T.C. Memo. 2003-152
UNITED STATES TAX COURT
DAVID M. AND TERI L. SAYKALLY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
COMPUTER POWER SOFTWARE GROUP, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 555-00, 1821-00. Filed May 27, 2003.
P has extensive technical expertise in the
computer software industry. P’s wholly owned
corporation, C, was engaged in the marketing of
software products. P and C entered into an agreement
whereby P agreed to have research and development (R&D)
done in order to create developed technology. Under
the agreement, P would own the developed technology and
license it to C in exchange for royalties. P intended
that C would market the developed technology to its
customers. P deducted his 1995 and 1996 R&D
expenditures on Schedules C. R disallowed P’s R&D
deductions on the ground that they were not incurred in
a trade or business.
Held: At all times, P intended to market the
developed technology through C. P did not have the
objective intent to use the developed technology in an
activity that would constitute his own trade or
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