Rev. Rul. 69-484, 1968-2 C.B. 109

Contributions made by an airline to an aircraft manufacturer to help defray the cost of designing, developing, fabricating, and testing a supersonic transport prototype aircraft are research and experimental expenditures under section 174 of the Code.

Rev. Rul. 69-484

The Federal Aviation Agency (FAA) entered into an agreement with an aircraft manufacturer pursuant to which the aircraft manufacturer will design, develop, fabricate, and test two supersonic transport prototype aircraft (SST) and perform other SST research and development work. The aircraft manufacturer and the FAA will each bear a portion of the cost thereof. In order to assure that the development phase of the SST aircraft program will proceed in a timely manner, the FAA has invited the taxpayer, who is engaged in the business of air transportation, and other airlines to participate in the SST aircraft program by making payments to the aircraft manufacturer to defray a portion of the research and development costs. The payments are not to be applied to the purchase price of any aircraft, there is no right to a refund, and the taxpayer receives no benefit other than that stated below.

The taxpayer, recognizing that the SST research and development work could ultimately benefit it by making such an aircraft available, entered into an agreement (characterized as the Group 1 Airline Contribution Agreement) with the aircraft manufacturer under which it made payments to the manufacturer to be used, along with payments made by other airlines under similar agreements, by the manufacturer, solely for SST research and development work.

Held, the payments made by the taxpayer under the Group 1 Airline Contribution Agreement are research and experimental expenditures under section 174(a) of the Internal Revenue Code of 1954.