IRS stands down in research tax credit case

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

IRS stands down in research tax credit case

The IRS has agreed not to contest a motion which would allow a company to exclude amounts accrued from controlled foreign subsidiaries (CFS) that were members of its controlled group in calculating its research credit.

The IRS has agreed not to contest a motion which would allow a company to exclude amounts accrued from controlled foreign subsidiaries (CFS) that were members of its controlled group in calculating its research credit.

Hewlett Packard, a US technology company, filed a motion in the Tax Court in the case of Hewlett-Packard Co v Commissioner, for summary judgment on the intercompany gross receipts issue. Although the IRS did not object to the characterisation of the CFS aspect of the issue, the agency is still opposed to the portion of HP's motion that relates to the definition of gross receipts, and specifically whether gross receipts should include dividends, interest, rents, royalties and other income.

Recently there has been significant litigation surrounding the computation of research credits. The courts are beginning to address the ambiguity in the statutory language of section 41 of the Internal Revenue Code, which governs issues pertaining to research credits.

In July 2010, the US District Court for the Southern District of Ohio ruled in favour of the taxpayer in Procter & Gamble Co. and Subsidiaries v United States, a case that stood for the proposition that all members of a controlled group should be conceived of as a single taxpayer when calculating the research credit.

Tax practitioners praised the outcome of the cases, and the willingness of courts to hear the arguments and issue rulings that will provide helpful guidance to taxpayers.

The IRS has also released settlement guidelines on research credit cases. The Appeals Office is continuing to coordinate the issue.

more across site & shared bottom lb ros

More from across our site

The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Rafael Tena tells ITR about the ‘crazy’ Mexican market, ditching the hourly rate, and refusing to grow his fledgling firm in an ‘unstructured way’
It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
Gift this article