Main Issue:
Funded research – economic risk
Facts:
Taxpayers included QRAs associated with fixed-price contracts
IRS argued that taxpayers did not have economic risk
Conclusion:
The court rejected the government’s position stating the contracts allowed the payment only for the success of the research and its acceptance
Progress payments did not relieve the taxpayer of economic risk
Take-Away Point:
Companies performing research on behalf of others need to show the economic risk of failure
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