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Eustace v. Commissioner of Internal Revenue

312 F.3d 905 (2002)

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Eustace v. Commissioner of Internal Revenue

United States Court of Appeals for the Seventh Circuit
312 F.3d 905 (2002)

  • Written by Tammy Boggs, JD

Facts

Applied Systems was an S corporation that sold commercial software used by independent insurance agencies to manage customer information and transactions. In the early 1990s, Applied Systems incurred what it claimed to be research and development (R&D) expenditures to improve and enhance its software package. For example, software developers added a feature so that multiple people could simultaneously work on the same customer file. The development work also led to increased functionality using the same amount of random-access memory. The software-development work was based on widespread industry knowledge and was routine in nature. The investors in Applied Systems (the taxpayers) (plaintiffs) sought to obtain a tax credit under 26 U.S.C. § 41 for the company’s software-development expenditures. The Internal Revenue Service (defendant) and tax court concluded that a tax credit was not available. The taxpayers appealed.

Rule of Law

Issue

Holding and Reasoning (Easterbrook, J.)

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