In a ruling on a Motion for Partial Summary Judgment filed September 20, 2012, the District Court hearing the Bayer R&D tax credit case denied the government’s Motion for Partial Summary Judgment. The government was seeking partial summary judgment arguing that since Bayer has not submitted any details to match up their R&D expenses (QREs) with business components, then under the ‘substantial variance’ rule, these QREs should be dismissed in that Bayer’s QREs vary from what was originally submitted because insufficient evidence has been provided to support the business components to which these QREs relate.
The Court in the Bayer R&D case however has denied this motion – Bayer has not varied its claim and has not claimed any additional QREs. At issue is whether Bayer needs to match each expense item with a specific business component to claim the R&D credit. The Court concluded that Bayer has established sufficient evidence of its line of business components in that it has submitted substantial documentation to the IRS on its products, processes, techniques, formulas, software, and inventions (i.e., the business component) even though Bayer has tracked its costs by cost center and has not to date matched up their cost center expenses (QREs) with specific business components. In dismissing this motion, the Court has ruled that Bayer does not have to do such matching up with specific business components at this time, although there is still a more narrowed interrogatory that Bayer apparently is responding to relating to the statistical sample; at some point, if a sample is drawn, there may be additional work on business component identification, but this R&D credit case will continue on.
See also our earlier entry on the February 2012 ruling in the Bayer R&D case where the Court held that the government cannot be compelled to adopt Bayer’s stat sample proposal. That article can be found here: https://warner-robinson.com/blog/bayers-motion-to-adopt-statistical-sampling-in-research-credit-case-denied/