Populous Holdings, a Kansas City based architectural firm, retained alliantgroup, LP to conduct a Research & Development Tax Credit (R&D Credit) study for tax years 2010 and 2011. After an audit went unagreed, the United States Tax Court in Washington, DC ruled in favor of Populous Holdings, the petitioner, against the Internal Revenue Services (IRS). Attorneys from Zerbe, Miller, Fingeret, Frank and Jadav, PC (ZMF) represented Populous and argued that the IRS wrongfully denied Populous’ claim of R&D Tax Credits for the years of 2010 and 2011. The Tax Court granted summary judgment to Populous and rejected all of the IRS’ arguments after a full review of the undisputed facts.
“We are not surprised by the outcome at all. alliantgroup knew they had this right from the beginning. It was very clear that our client had properly claimed the credits they were entitled to and we knew once the tax court reviewed the facts they would rule in our favor. We’re thrilled that our client can put this behind them,” said Jeremy Fingeret, Counsel for Populous Holdings.
Judge Sides with alliantgroup
Populous provides architectural design services and specializes in stadium design, including the new Stadium for Tottenham Hotspur in London, and the T-Mobile Arena in Las Vegas. The crux of the denial of credits was the IRS’ claim that the company was barred from claiming R&D Credits under Section 41 of the Internal Revenue Code due to a prohibition in the code for “funded research.”
“The IRS has focused on ‘funded research’ as a defense to deny credits for years. The U.S. Tax Court is now weighing in on some of the IRS’ improper arguments to provide much needed guidance and relief for taxpayers. Judge Goeke quickly and succinctly got to the right answer,” said Steve Miller, JD, alliantgroup National Director of Tax and former Acting Commissioner of the IRS.
Judge Goeke opined that “none of the contracts expressly requires research; thus, none of the contracts expressly states that petitioner is being paid for research.”
The court further agreed with Populous that, although the contracts transferred ownership of documents, architectural copyrights, models, renderings and other work product – Populous maintained the right to use technology-related research results. As the contract had no provisions specifically prohibiting Populous from using the related researched technology – it still had sufficient rights to do so.
Client Wins on All Accounts
The court concluded that Populous bore both economic risk and retained substantial rights. As such, the research performed by the company was not “funded” pursuant to IRC §41.
Populous was granted summary judgment on all five (5) of the reviewed contracts and, therefore, retained the R&D Credits they were entitled to have claimed.
Jefferson Read, counsel for Populous, said after the decision, “While we are dismayed that the Service forced our client to initiate action, we are pleased the court ruled in our favor. We’re also happy this was resolved quickly and that our client can get back to doing what they do best – designing innovative sports venues across the country.”
alliantgroup is a management consulting company with a mission to strengthen American businesses through reinvestment in innovation and job growth. We educate businesses, the industry groups that serve them and the accounting firms that advise them on federal and state credits and incentives that are legislated by our government to keep the U.S. competitive in the global landscape. We are proud to have helped over 16,000 businesses claim more than $8 billion in credits and incentives. alliantgroup is headquartered in Houston, Texas with additional offices located in Austin, Boston, Chicago, Indianapolis, New York, Irvine, Sacramento, Washington, D.C.; and Bristol and London in the U.K. For more information, visit alliantgroup and engage with us on LinkedIn, Facebook, Twitter and YouTube.