But No Section 41 Credit

Mr. Robert was President and COO of a Sub S that designed and built scoreboards for high school, college, and sports venues. When competitors began eating Sub S’ lunch, Scott Moore and Gayla Moore, T. C. Memo. 2023-20, filed 2/23/23, called in Mr. Robert to gin up the product line and turn things around. 

No doubt there was increased research, as Sub S’ engineering team delivered tornado-resistant scoreboard trusses, scoreboards that relayed scores, time remaining, and other goodies to fans’ personal electronic devices, cheap ribbons for scoreboards showing ads and pictures, hand-held programmers for scoreboards, and a slim shot clock impervious to errant basketballs flung at Second 23.

But were Mr. Robert’s handsome salary and bonuses creditable to increased research? He did meet with the chief engineer, an admitted researcher, and rode herd on new products. In fact, he spent north of 60% of his time on product development, despite being responsible for supervising the entire staff. True, Gayla, the Sub S owner, did a lot of management, and Scott oversaw the rest; they wanted Mr. Robert focused on new product.

But merely being involved in product development isn’t enough.

Judge Colvin: “An employee performs ‘qualified services’ by either ‘(i) engaging in qualified research, or (ii) engaging in the direct supervision or direct support of research activities which constitute qualified research.’ § 41(b)(2)(B).” T. C. Memo. 2023-20, at p. 8.

True, Mr. Robert had his name on two patents that came out of the research, but he had no timesheets, and the experimentation and technological tinkering was mostly done by staff engineers. His suggestions were certainly useful, and he was lead on some projects, but without specifics of time spent, that doesn’t qualify.

Mr. Robert met extensively with the chief engineer, but it was the chief engineer who supervised the research. Mr. Robert claims he provided “direct support”, but that means secretaries who type up results or machinists who make models, per Reg. Section 1.41-2(c)(3)(ii).

The Moores lose the research credit for the hefty salary and bonus they paid Mr. Robert.

Taishoff says a cheap time-billing computer program on Mr. Robert’s PC or smartphone, such as we attorneys have used for decades, would have saved its cost many times.