Court Says Ships Qualify as Business Components

The United States District Court for the Northern District of Texas issued its opinion in Trinity Industries, Inc. v. United States, 3:06-CV-0726, concluding that the shipbuilder was entitled to part of its R&D tax credit. The court reached this conclusion by determining that, for some of its projects, the shipbuilder’s business components were the prototype ships rather than the subcomponents of the ships. In R&D tax credit lingo, the court applied the “substantially all” rule and Cohan doctrine without applying the “shrinking back” rule. It did this because the taxpayer did not offer evidence of the costs associated with “any subset of the vessels.”