SAYKALLY v. COMMISSIONER
Download the complete brief here: T.C. Memo. 2003-152
UNITED STATES TAX COURT
DAVID M. AND TERI L. SAYKALLY, Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
COMPUTER POWER SOFTWARE GROUP, INC., Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 555-00, 1821-00.
Filed May 27, 2003.
P has extensive technical expertise in the computer software industry. P’s wholly owned corporation, C, was engaged in the marketing of software products. P and C entered into an agreement whereby P agreed to have research and development (R&D) done in order to create developed technology. Under the agreement, P would own the developed technology and license it to C in exchange for royalties. P intended that C would market the developed technology to its customers. P deducted his 1995 and 1996 R&D expenditures on Schedules C. R disallowed P’s R&D deductions on the ground that they were not incurred in a trade or business.
Held: At all times, P intended to market the developed technology through C. P did not have the objective intent to use the developed technology in an activity that would constitute his own trade or business and is not entitled to a current deduction for his R&D expenses.
Held, further, Ps did not adequately substantiate other deductions disallowed by R.
Held, further, Ps are not liable for accuracyrelated penalties associated with the deduction of R&D expenses. Ps are liable for accuracy-related penalties with respect to their failure to substantiate other disallowed deductions.
Robert R. Rubin, for petitioners.
Kathryn K. Vetter, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
FINDINGS OF FACT
Research and Development Expenses
Other Schedule C Expenses
Charitable (Double) Deduction
OPINION
A. Section 174–Research and Development Deductions
The Trade or Business Requirement
B. Other Schedule C Expenses
C. Accuracy-Related Penalties
