R&E

Question 1

What constitutes the 4 part test?

Answer 1

• Qualified Business Component
• Technological in Nature
• Eliminating Uncertainty
• Process of Experimentation

Question 2

Qualified Business Component?

Answer 2

code requires that the research activity tie directly to a new or improved business component that is held for sale, lease, or license by the taxpayer or used by the company in its trade or business.

Question 3

Qualified Business Component Examples

Answer 3

business component could be any product, process, software, technique, formula, or invention, and the purpose of the research must be to increase the function, reliability, quality, or performance of that business component.

Question 4

Technological in Nature?

Answer 4

must fundamentally rely on the principles of hard science including, but not limited to, physical science, chemistry, biology, engineering, or computer science

Question 5

Technological in Nature Examples

Answer 5

research does not have to involve the discovery of information that is new to the world or even to the industry; it only needs to be innovative or new to the taxpayer.

Question 6

Eliminating Uncertainty

Answer 6

Even if there is no doubt the objective of the research project can be achieved, expenditures could still qualify provided that at the onset of the project there is uncertainty regarding the capability, methodology, or appropriate design of the business component. It’s important to note that the research need not be successful to qualify for the credit.

Question 7

Process of Experimentation?

Answer 7

experimentation means a process where one or more alternatives were identified as possibilities to eliminate uncertainty, and those alternatives were evaluated, discussed, designed, modeled, developed, and/or tested. The process of experimentation could involve a systematic method of trial and error and generally should be capable of evaluating more than one alternative.

Question 8

R&E Credit covered under what Code Section?

Answer 8

IRC Sec 41

Question 9

R&E Court Cases

Answer 9

• USTC 2021: who holds substantial rights with respect to contracted research QREs
• USTC 2018 (TSK America, Shiloh): Pilot model supply expenses

Question 10

Pilot Model

Answer 10

any representation or model of a product that is to be produced to evaluate and resolve uncertainty concerning the product during the development stage or improvement of the product. The term includes a fully-functional representation or model of the product or a component of the product