Foreign branch gross receipts must be included in research credit calculation, Tax Court rules

The Tax Court October 22 held, in Deere & Company v. Commissioner, that the gross receipts of a U.S. corporation's foreign branches must be included in the corporation's section 41 research credit calculation.

While the case presented the Tax Court with an "issue of first impression" -- an issue the court had not considered previously -- and is noteworthy for that reason, the most important aspect of the case is that it involves foreign branches and not controlled foreign corporations (CFCs). The decision, therefore, does not resolve the issue whether gross receipts from CFCs (that is, from transactions between controlled group members) should be disregarded when a corporation computes its annual research credit.