Research conducted under fixed-price contracts held not “funded,” eligible for research credit

Washington National Tax Services
The US District Court for the Southern District of Florida has ruled that research expenses incurred by a taxpayer under fixed-price contracts do not fall within the ‘funded research’ exclusion to the definition of ‘qualified research’ and therefore are eligible for the section 41 research credit (Geosyntec Consultants, Inc. v. US, No. 9:12-cv-80334, April 17, 2013).

The court also ruled that research expenses of the taxpayer incurred under so-called ‘capped contracts’ – also known as ‘cost-plus subject to a maximum’ contracts -- are covered by the funded-research exclusion and therefore are not eligible for the research credit.

This decision should be of interest to taxpayers that perform research activities for others under fixed-price and capped contracts.


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