Fairchild v. United States (1995)

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Main Issue:

  • Funded research – economic risk


  • Taxpayer included QRAs associated with fixed price contracts
  • IRS argued that taxpayer did not have economic risk


  • 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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