Dynetics is an engineering company that claimed a R&D credit for their work related to developing technological systems. At issue in this case was whether the research performed was funded and thus ineligible for inclusion in the R&D tax credit.
The court examined a sample set of 7 contracts from the approximately 100 contracts maintained by Dynetics. The court ruled that the fixed price or lump sum contracts were eligible for the credit as there is inherent risk in completing these projects. Dynetics argued that the court consider the course of dealing for the cost-plus and time and materials contracts to show that they are treated like fixed fee contracts.
However, the court stated that the economic risk needed to be demonstrated within the four corners of the contract. Therefore, the court ruled that the cost-plus and time and materials contracts were ineligible for the R&D credit as they were funded.
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