FedEx v. United States (2009)

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Main Issue:

  • Internal Use Software
  • “Innovative” test standard


  • Taxpayer claimed IUS R&D relying on the original 1986 definition of the innovative test – “significant increase in speed or decrease in costs”
  • IRS argued that the taxpayer needed to meet the “high threshold of innovative test” that was in the 2001 regulations – “software was intended to be unique or novel”; in essence applying the “discovery test” that requires a taxpayer to “obtain knowledge that exceeds, expands, or refines the common knowledge…”


  • Court rejected the governments argument that the legal standard for IUS included the “high threshold of innovation” and “discovery” test standards

Take-Away Point:

  • When evaluating a credit including IUS, applying the proper innovative test is critical

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