The U.S. Tax Court issued a memorandum decision March 10 that found two of the five Union Carbide projects for which the company sought additional research credits under Section 41 of the Internal Revenue Code constituted qualified research.
See Union Carbide v. Commissioner, T.C. Memo. 2009-50.
Union Carbide negotiated an agreement with the IRS under which certain projects were allowed under Section 41 for the tax years 1994 and 1995. At issue in the trial were 106 additional projects, mainly centered around the costs of supplies used in the R&D process claimed by Union Carbine. The parties agreed to only try the five largest projects for purposes of the ruling.
The Tax Court found that Union Carbide established that it met the criteria for a ‘qualified supply’ cost with respect to two out of the five sampled projects. In addition, certain wages paid to plant employees were also found to be qualified wages in that those employees were engaged in qualified research. Other claimed supply costs and wages claimed on the remaining three projects were not QREs because the Court found such costs were incurred in the production of goods for sale, not in the conduct of qualified research.