The expenses for legal and accounting work incurred by a taxpayer in applying for a Federal income tax ruling in connection with a research and development project and a determination of a regulatory commission with respect to the effect of the project on the taxpayer’s rate structure are not deductible as research and experimental expenditures under section 174(a) of the Internal Revenue Code of 1954. Whether such expenses are capital expenditures will depend upon the facts of the particular case. The expenses, if not chargeable to capital account, are ordinary and necessary business expenses deductible under section 162(a) of the Code.

Rev. Rul. 67-401

Advice had been requested as to whether the costs of legal and accounting work performed in applying for a Federal income tax ruling and a determination of a regulatory commission with respect to a research and development project are deductible as research and experimental expenditures under section 174(a) of the Internal Revenue Code of 1954.


In this case, the taxpayer, a regulated public utility, applied for a Federal income tax ruling involving a research and development project. The taxpayer also applied for a determination of a regulatory commission with respect to the effect to be given the costs of the project on its rate structure.

Section 1.174-2 of the Income Tax Regulations provides, in part, that the term “research or experimental expenditures” as used in section 174 of the Code, means expenditures incurred in connection with the taxpayer’s trade or business which represent research and development costs “in the experimental or laboratory sense.” The term includes generally all such costs incident to the development of an experimental or pilot model, a plant process, a product, a formula, an invention, or similar property, and the improvement of already existing property of the type mentioned.

Since the tax ruling relates to the Federal income tax liability of the taxpayer and the determination of the regulatory commission relates in general to the taxpayer’s rate structure, the costs with respect thereto cannot be said to have been incurred in the experimental or laboratory sense.

Accordingly, the expenses for legal and accounting work incurred by the taxpayer in applying for a Federal income tax ruling in connection with a research and development project and a determination of a regulatory commission with respect to the effect of the project on the taxpayer’s rate structure are not deductible as research and experimental expenditures under section 174(a) of the Code. Whether such expenses are capital expenditures will depend upon the facts of the particular case. The expenses, if not chargeable to capital account, are ordinary and necessary business expenses deductible under section 162(a) of the Code.

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