2021 – 05/20 Businesses that conduct research and experimentation (R&E) may qualify for an R&E tax credit. To qualify, activities must pass four tests, including the Section 174 test. This test requires that amounts claimed represent research “in the experimental or laboratory sense,” not ordinary testing or quality control testing, and must be conducted to address and eliminate an uncertainty. One taxpayer, a fashion designer, claimed the R&E credit for the costs of an elaborate designing and testing process. The IRS argued the research was “nontechnical, typical of the industry, and concerned more with style, taste, and seasonality.” The U.S. Tax Court agreed and denied the credit. (TC Memo 2021-37)
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