The section 41 research credit is the source of many protracted controversies between corporate taxpayers and the IRS.
This report discusses the legislative and administrative climate regarding the research credit and identifies several factors that have contributed to the frequency of research credit disputes. To assist taxpayers in avoiding or resolving those controversies, the report provides a comprehensive primer on section 41 and its underlying regulations, explaining the credit’s definitions, requirements, and computational rules and tracing their historical development. It also reviews several important cases
addressing the scope of the credit, such as McFerrin, Union Carbide, FedEx, and Trinity Industries, and discusses their potential implications for taxpayers in planning or defending their research credit claims.