Main Issue:
- Funded research – economic risk
Facts:
- Taxpayer included QRAs associated with fixed price contracts
- IRS argued that taxpayer did not have economic risk
Conclusion:
- Court rejected the government’s position stating the contracts allowed the payment only for 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 economic risk of failure
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