Judge Elizabeth A. (“Tex”) Copeland does a deep-dive into the Section 41 additional research credit (it its pre-TCJA iteration), with an almost obligatory dictionary-chaw over the word “use,” the Oxford English Dictionary serving as the pièce de resistance, in Jeffrey A. Harper and Katherine M. Harper, T. C. 2023-57, filed 5/10/23, and finds IRS comes up short in the summary J stakes.

This is another custom engineering-architectural-construction operation. Jeff’s and Kate’s outfit runs up all kinds custom buildings (hi, Judge Holmes), and decomposes massive amounts of brain tissue dealing with the arcana that envelops such things as Marine Corps recruit barracks and 200,000 gallon solar-powered water tanks.

IRS stresses processes, techniques, or inventions, which IRS claims are one-offs. But these could be used in other jobs, and could be components of the outfit’s business operations. Record not sufficiently clear.

Likewise, IRS’ limitation of the word “use” to continuous use in business is too narrow, and Judge Tex Copeland isn’t buying.

There’s also0 argy-bargy about who owns the land and structures once the stuff is built, but (a) I fail to see the relevance, otherwise than if “product” only applies to goods held for sale in ordinary course (way too restricted), and (b) even if relevant, a simple title search (which neither side apparently did) would answer the question as to the land, and the contracts for the structures (which likewise never made it into the record) would answer for the buildings. I never heard of a construction company claiming ownership of the buildings it built for anyone but themselves. Any number of research cases involve one-off projects.

In short, this is a case where summary J doesn’t work, because Jeff and Kate get the benefit of every favorable inference. Judge Tex Copeland rides far and wide through caselaw, and favorably infers at every turn.

Maybe the post-TCJA version (see T. C. Memo. 2023-57, at p. 6, footnote 4) gives IRS a better shot. But as this one is pre-TCJA they’ll have to try the case.

I make the morning line 3 to 1 IRS and Jeff and Kate settle.