Tax Incentives Blog

Earlier this year, the Eighth Circuit Court of Appeals upheld a lower tax court decision denying research and development credits on the basis that a taxpayer’s contracts were considered “funded.” The case in question, Meyer, Borgman & Johnson, Inc. v. Comm'r of Internal Revenue, No. 7805-16 (U.S.T.C. Nov. 19, 2020), centered on whether specific contracts contained the necessary risk of financial loss language, where payment would be contingent on the success of Meyer, Borgman & Johnson, Inc.’s (MBJ) research. Having financial risk is a crucial element to claim a research and development tax credit, as noted in Section 41 of the Internal Revenue Code and the associated Treasury Regulations. This tenet has been noted in a number of cases throughout the years.

The Fourth Circuit of the United States Court of Appeals recently affirmed a decision involving Section 41 of the Internal Revenue Code, which encompasses the Research and Development (R&D) Tax Credit. Specifically, on June 24, 2024, the Fourth Circuit upheld a Tax Court decision in favor of the Internal Revenue Service (IRS).