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Expenditures for prototypes sold to customers can now be included in qualified research expenditures. Recently, the US Tax Court helped clarify the definition of supply costs that can be included in the definition of qualified research expenses under IRC Section 41. See our technical paper on the impact of TG Missouri v. Commissioner here.

Supply Costs clarified by Tax Court

TG Missouri Opens Door to Prototype Expenses Sold to Customers

When qualified R&D exists, courts are open to using estimates to determined qualified research expenditures. In Trinity Industries, Inc. v. US, the court allowed testimony and high-level financial information to estimate the expenditures related to qualified research projects. See our technical summary on the impact of Trinity Industries v. US here.

Business components and use of estimated defined in Trinity Industries, Inc. v. US.

Trinity Industries Helps define the Business Component test for Research Credits