Following the Tax Court’s ruling in Populous Holdings, Inc. v. Commissioner (12/6/19), taxpayers who conduct research and experimentation activities in connection with customer contracts should re-assess the availability and/or risks associated with claiming the R&D tax credit with respect to such activities.
Many such companies have passed on some or all of the R&D tax credit with respect to such activities, thinking the credit was unavailable because either (1) they bore no risk on these customer-funded research activities, or (2) the customer, not the contractor, obtained all of the rights to the research findings, or (3) both (1) and (2) applied.
The Tax Court’s analysis in the aforementioned case provides very useful guidance on how to assess whether your company is in fact bearing the risk and obtaining the rights to the research. A careful review may open up opportunities for claiming the R&D credit, claiming more R&D credit, or minimizing risks associated with prior tax reporting positions.
Interested in learning whether or not this applies to you? Contact us today.