In Uncategorized on 12/09/2019 at 15:11

Judge Goeke adds to the holiday joy at Populous Holdings, Inc., Docket No. 405-17, filed 12/9/19, by allowing the Section 41 qualified research credits it claims for the two years at issue, encompassing more than 100 (count ‘em, 100) contracts and subcontracts for its architectural design services.

To qualify, the research has to be “unfunded.” That means it can’t be paid for by “any grant, contract, or otherwise by another person (or governmental entity).” Order, at p. 2. Moreover, payment for the research must be contingent upon the research producing a successful result for the payor, and the researchers must retain substantial interests in the products of the research (no work for hire).

Populous had fixed price contracts. This means that, if the research doesn’t at first succeed, the cost of trying again falls on Populous.

“In general, fixed priced contracts have been considered unfunded research, qualifying the contractor for the credit. See Geosyntec Consultants, Inc. v. United States, 76 F.3d 1330 (11th Cir. 2015); Fairchild Indus., 71 F.3d 868. Fixed price contracts are inherently risky for the contractor if the research is unsuccessful. Under fixed price contracts, the contractor must remedy failed research at its own expense. Fixed price contracts ‘generally place maximum economic risk on contractors who ultimately bear responsibility for all costs and resulting profit or loss.’” Order at p. 3 (Citation omitted).

“None of the contracts expressly requires research; thus, none of the contracts expressly states that petitioner is being paid for research. Petitioner is paid for a work product at a fixed price. The work product included the need to perform research. If its research failed, petitioner would be required to incur additional expenses without additional compensation. Petitioner bore the financial risk of research failed. The capped expense reimbursement does not relate to research expenses and does not change our holding….” Order, at p. 3.

Right to reuse the research must be retained by the party claiming the credit. Increased knowledge or added professional experience doesn’t count.

Now per the contracts the clients owned all the documents, renderings, mock-ups, models, studies, manuals, as-built plans, and copyrighted the exterior features of the buildings, which Populous couldn’t use elsewhere without the client’s permission. And all that was left, says IRS, is repetitive, non-project-specific, pre-existing and other stuff not identifiable with the project.

But that’s just copyright, says Judge Goeke. “There were no provisions in these contracts that prohibited petitioner from using the research it performed or that required it to pay the client for use of the research.” Order, at p. 5.

Don’t conflate research with project. While the research gets folded into the project, it’s the project the client buys, not the research.

But since the amount of the SNOD here differs from that set forth in the stip of settled issues, do a Rule 155 beancount.

Now why Judge Goeke didn’t designate this enlightening order escapes me.



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