Trinity Industries v. United States (2014)

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Main Issue:

  • Supplies expense
  • “Substantially all” rule


  • Credits claimed for development of special order ships
  • Claimed all expenses associated with the construction and development of first article / prototype ships which were then sold
  • IRS argued that non-experimental aspects of the ship development were not included as a qualified expense


  • If at least 80% of the project is part of the process of experimentation, all costs associated with the project were eligible for the credit
  • Prototypes sold to third parties were also considered eligible expenses
  • Court allowed 2 of the 6 ships to be considered qualified for the credit

Take-Away Point:

  • Supplies can be substantial and if they are, need to make sure you have the analysis to prove that 80% of the project was part of a process  of experimentation

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