Tax Court Considers R&D Tax Credit Supply Expenses

In Union Carbide Corporation and Subsidiaries v. Commissioner, T.C. Memo. 2009-50 (2009), the U.S. Tax Court examined the taxpayer’s research tax credits. The taxpayer determined its research tax credits to be $18 million. The IRS conceded these amounts in a negotiated settlement; however, the taxpayer believed it was entitled to an additional $8 million in research tax credits for supply costs it incurred. The IRS did not agree. The Tax Court reviewed a small sample of five of the taxpayer’s research projects for purposes of the trial. A mere 298 pages later, the taxpayers multimillion dollar research tax credits were reduced to a mere thousand dollars. This is the first time a court has provided a comprehensive review of how research tax credits are computed. This is one court case that is well worth reading in full. You can find a copy of the court’s opinion on the U.S. Tax Court website.