Tax News

CCH (cch.taxgroup.com) reports:

  A corporation seeking a research credit for expenses incurred to develop a new computer business system was allowed to apply the rules in 2001 proposed regulations that provided an exception to the disallowance of the credit for the development of internal use software. Subsequently adopted 2003 final regulations, which the taxpayer could choose to apply to the tax years at issue, were silent regarding the test. The taxpayer, however, was not required to apply the discovery test in the 2001 regulations and could choose to apply the dramatically different discovery test in the 2003 final regulations.

  The IRS impermissibly attempted to amend the 2003 regulations with subsequently issued Announcement 2004-9, 2004-1 CB 441, that stated that the internal use software test in the 2001 regulations must be applied with the discovery test in the 2001 regulations. The announcement was not due substantial deference and could not override the 2003 regulations because it was inconsistent with the Treasury and IRS statement that the discovery test in the 2001 regulations did not accurately reflect the intent of Congress.

  Further, the 2003 regulations allowed the taxpayer to apply the rules to the tax years at issue and the two tests did not have to be applied together. Finally, the 2001 regulations were issued pursuant to the Treasury's delegated authority and had never been amended.

FedEx Corporation, DC Tenn., 2009-1 USTC ¶50,435

Other References:

 
Code Sec. 41

  CCH Reference - 2009FED ¶4362.03

  CCH Reference - 2009FED ¶4362.15

  CCH Reference - 2009FED ¶4362.25

 
Code Sec. 7805

  CCH Reference - 2009FED ¶43,282.1076

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,158.05
CCH Reference - TRC BUSEXP: 54,158.30
CCH Reference -
TRC IRS: 12,050