Tax Court did not err in disallowing taxpayer’s assertion of research tax credit under Section 41 of Internal Revenue Code, where taxpayer claimed its expenses in designing and constructing 11 new shipping vessels qualified for said credit. In order to qualify for said credit, taxpayer must demonstrate that at least 80 percent of its research activities for its business component constituted elements of process of experimentation, and Tax Ct. could properly find that instant taxpayer did not satisfy its burden to qualify for said credit, where taxpayer: (1) failed to provide principled way to determine portion of its employees’ activities that constituted elements of process of experimentation in design and construction of said vessels; (2) offered only arbitrary allocations for non-production employee wages that merely estimated portion of employees’ time spent on qualified research; (3) failed to show that production activities were elements of process of experimentation; and (4) failed to adequately document that substantially all of its activities were research activities.
Federal 7th Circuit Court
Civil Court
Income Tax