100 F.4th 986
8th Cir.2024Background
- Meyer, Borgman, & Johnson, Inc. (MBJ) is a structural engineering firm that created construction design documents and sought research tax credits for these activities.
- MBJ claimed about $190,000 in research tax credits for tax years 2010, 2011, and 2013, which the IRS Commissioner denied.
- The primary legal issue was whether MBJ’s research activities were "funded" by clients for purposes of the Internal Revenue Code, which would make them ineligible for the credit.
- The United States Tax Court granted summary judgment for the Commissioner, finding that MBJ’s research was funded and thus not qualified for the credit.
- MBJ appealed, and the Eighth Circuit Court of Appeals reviewed the case de novo, affirming the Tax Court’s decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MBJ's research was "funded" (thus ineligible for credit) | MBJ argued payments were contingent on research success, analogous to Fairchild; their contracts transferred risk of failure to MBJ. | Commissioner argued MBJ's contracts required only professional standards, not success. | MBJ's research was funded; contracts did not make payment contingent on successful research; credit disallowed. |
| Whether fixed price and inspection/acceptance provisions mattered | MBJ argued fixed price contracts and quality controls meant risk of failure was on MBJ (thus not funded). | Commissioner argued contract terms lacked specificity tying payment to research success. | Fixed price and quality assurance alone are insufficient; contracts need specific success-contingency provisions. |
Key Cases Cited
- Fairchild Industries, Inc. v. United States, 71 F.3d 868 (Fed. Cir. 1996) (articulates when research is not considered "funded" for tax credit purposes)
- Lockheed Martin Corp. v. United States, 210 F.3d 1366 (Fed. Cir. 2000) (examines requirements for research to be deemed unfunded)
- Geosyntec Consultants, Inc. v. United States, 776 F.3d 1330 (11th Cir. 2015) (distinguishes between successful vs. proper performance in funded research)