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Guidance for Allowance of the Credit for Increasing Research Activities under I.R.C §41 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730

 September 11, 2017

Frequently Asked Questions (FAQs)

LB&I Control No: LB&I-04-0917-005
Impacted IRM 4.51.2

 

MEMORANDUM FOR ALL LARGE BUSINESS AND INTERNATIONAL EMPLOYEES
FROM: Douglas W. O'Donnell
Commissioner, Large Business & International Division
SUBJECT:

Guidance for Allowance of the Credit for Increasing Research Activities under I.R.C §411 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730.

PART I INTRODUCTION

This Directive provides Large Business & International (“LB&I”) examiners with guidance regarding examination of the credit for increasing research activities under §41 (“Research Credit”) claimed by LB&I taxpayers.  Independently determining the correct amount of Research Credits claimed by LB&I taxpayers imposes a significant burden on those taxpayers and LB&I examiners.  This Directive is intended to provide an efficient manner of determining qualified research expenses (“QREs”) for LB&I taxpayers that meet the requirements of this Directive and to more efficiently manage LB&I’s audit resources.

Pending any future guidance modifying or superseding this Directive, this Directive provides an administrative solution to accept as sufficient evidence of QREs the Adjusted ASC 730 Financial Statement R&D for the Credit Year.  Adjusted ASC 730 Financial Statement R&D is made up of the research and development costs currently expensed on a taxpayer’s Certified Audited Financial Statements pursuant to ASC 730 for U.S. GAAP purposes (“ASC 730 Financial Statement R&D”) and includes certain specified adjustments made to ASC 730 Financial Statement R&D.

This Directive only applies to LB&I taxpayers (i.e. assets equal to or greater than $10,000,000) who follow U.S. GAAP to prepare their Certified Audited Financial Statements which show as a separate line item on the income statement included in their Certified Audited Financial Statements or show separately stated in a note to their Certified Audited Financial Statements the amount of the currently expensed ASC 730 Financial Statement R&D.

This Directive is not an official pronouncement of law, and cannot be used, cited, or relied on as such. In addition, nothing in this Directive should be construed as affecting the operation of any other provision of the Internal Revenue Code, Treasury Regulations or guidance thereunder.


1 Subsequent section references are to the Internal Revenue Code of 1986, as amended and in effect during the tax years at issue and to the Treasury regulations promulgated thereunder, unless otherwise specified.

PART II. ELIGIBLE QREs IN COMPUTING THE RESEARCH CREDIT

A. Background

§41 provides a credit for increasing research activities.  A taxpayer’s research credit is based, in part, on QREs paid or incurred by a taxpayer during the taxable year in carrying on any trade or business of the taxpayer.

B. Issue Tracking:

For each taxable year Taxpayer follows this Directive, use the Project and Tracking codes below.

           Project Code 1511 - LB&I Research and Experimentation Credit IIR
           Tracking Code 6750 - LB&I Directive - Credit for Increasing Research Activities under IRC 41


    C. Examination Guidance:

    If the Taxpayer complies with the certification requirements in Part IV of this Directive, LB&I examiners will not challenge QREs which are the Adjusted ASC 730 Financial Statement R&D costs for the Credit Year.  Adjusted ASC 730 Financial Statement R&D must be computed in accordance with both the method reflected in Appendix C and the Definitions provided in Part III (Appendix E) of this Directive.

    Any additional amounts of QREs claimed by Taxpayer on its Form 6765 for the Credit Year over the Adjusted ASC 730 Financial Statement R&D amount are subject to risk assessment to determine the scope of an examination, if warranted.

    D. Implementation

    This Directive applies only to original returns timely filed (including extensions) on or after the date of this Directive for LB&I taxpayers who choose to follow the terms of this Directive.

    E. Contact

    Questions concerning this Directive should be directed to the General Business Credit Practice Network and related Practice Network training.

    PART III.  DEFINITIONS

    Appendix E contains the Definitions that apply solely for the purposes of this Directive.

    PART IV. CERTIFICATION STATEMENT

    Taxpayers may have voluntarily attached the completed and signed Certification Statement Claiming Adjusted ASC 730 Financial Statement R&D as QREs ("Certification Statement") (Appendix A) and Appendices B, C, & D (below) to their Federal income tax return to demonstrate their eligibility under the provisions of this Directive. If these documents were not voluntarily attached to the return, the audit team at the beginning of the examination of the Research Credit will verify whether the Taxpayer followed or plans to follow the Directive. For Taxpayers choosing to follow the Directive, the exam team will then request Taxpayer to provide the completed disclosure statements (Appendices A – D) below.

               Appendix A – Certification Statement Claiming Adjusted ASC 730 Financial Statement R&D as QREs
               Appendix B – Reconciliation of Form 6765 QREs to Adjusted ASC 730 Financial Statement
               R&D.  (Reconciliation should include a breakdown of costs as detailed in Appendix B).
               Appendix C – Computation of Adjusted ASC 730 Financial Statement R&D
               Appendix D - Adjusted ASC 730 Financial Statement R&D Wage Detail

      The Certification Statement must be signed by an individual who is authorized to execute the Taxpayer’s Federal income tax return for each taxable year under audit, and must certify, under penalty of perjury that, for the applicable taxable year, the Adjusted ASC 730 Financial Statement R&D has been computed in accordance with the definitions and methodology set forth in this Directive and that all information provided by Taxpayer in accordance with this Directive, to the best of the authorized individual’s knowledge and belief, is true, correct, and complete.  For a consolidated Federal income tax return, the common parent is the sole agent for the group and will sign the Certification Statement on behalf of the consolidated group.

      In addition, Taxpayer must retain and make available upon request the underlying books and records (“documentation”) that support the amounts claimed on Appendices C and D, inclusive.  If Taxpayer fails to properly retain and timely submit the requested documentation, then the applicable Director of Field Operations or his/her delegate may determine that this Directive does not apply to Taxpayer. 

      Documentation to be retained and to be made available upon request relating to Appendices C and D would include, but is not limited to:

                 a. Certified Audited Financial Statement for the Credit Year including auditor’s
                     certifying opinion;
                 b. Taxpayer’s Chart of Accounts;
                 c. List of U.S. ASC 730 Financial Statement Cost Centers that make up the ASC 730
                     Financial Statement R&D amount shown in Step 1 of Appendix C.
                 d. All ASC 730 R&D GL Accounts with account balance details that make up the ASC
                     730 Financial Statement R&D amount shown in Step 1 of Appendix C.
                 e. List of ASC 730 R&D GL Accounts with account balances that make up the
                     adjustments in Steps 2 through 4 of Appendix C. 
                 f. Taxpayer’s organization chart showing employees and levels of management for the
                    Credit Year.
                 g. Executed contracts pursuant to which Taxpayer is performing ASC 730 research
                     in order to comply with the terms of the contract.
                 h. Executed contracts pursuant to which persons other than employees of Taxpayer are
                     performing ASC 730 research on behalf of Taxpayer.  This would include
                     sufficient information to show what research was performed outside the U.S.
                 i. List of employees with their respective W-2 Wage amounts claimed as additions
                    to U.S. ASC 730 Financial Statement R&D in Step 4 of Appendix C, which list would also
                    identify for the applicable taxable year each employee’s job title and reporting level and the cost
                    center where each of those employees worked.
       



        Appendix A – Certification Statement Claiming Adjusted ASC 730 Financial Statement R&D as QREs.

        Certification Statement

         

        Taxpayer Name:



        Taxpayer EIN:



        Taxable Year Ending:



        Relevant Period(s) of Applicable Certified Audited Financial Statement(s):



        CERTIFICATION

        By signing this Certification Statement, Taxpayer agrees to readily provide (upon request of the IRS) all relevant data and records to establish to the satisfaction of the IRS that the statements made in this certification statement are true, correct and complete.
         
        I certify, under penalties of perjury, that for the taxable year ending ____________, the computation of Adjusted ASC 730 Financial Statement R&D has been computed in accordance with the definitions and methodology set forth in this Directive and that all information provided in accordance with this Directive, to the best of my knowledge and belief, is true, correct, and complete.

         

        Signature:



        Title:



        Date:



        For corporations, the certification must be signed by an individual authorized under I.R.C. section 6062.  This completed and signed Certification Statement must be provided to the LB&I examiner upon request within a time period subject to LB&I IDR processes.

         


        Appendix B - Reconciliation of Form 6765 QREs to Adjusted ASC 730 Financial Statement R&D

        Appendix B - Reconciliation of Form 6765 QREs to Adjusted ASC 730 Financial Statement R&D
            A B C D
        Form 6765 Line Number Description Adjusted ASC 730 Financial Statement R&D QRE Amounts:  

        From Appendix C
        Additional QRE Amounts From ASC 730 accounts not included in Adjusted ASC 730 Financial Statement R&D Additional QRE Amounts Not From ASC 730 accounts Total QRE Amounts claimed on Form 6765
            A B C A + B + C = D
        5 or 24 Wages for qualified services (do not include wages used in figuring the work opportunity credit) xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx
        6 or 25 Cost of supplies xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx
        7 or 26 Rental or lease costs of computers (see Form 6765 instructions) xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx
        8 or 27 Enter the applicable percentage of contract research expenses (see Form 6765 instructions) N/A xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx
          Total xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx xx,xxx,xxx
            Column A total must equal Line 19 in Appendix C      

         


        Appendix C -  Computation of Adjusted ASC 730 Financial Statement R&D

        Line #     Year
        1 ASC 730 Financial Statement R&D Step 1 XXX,XXX,XXX [A]
        2 Subtract: All Amounts Related to Foreign Entities Step 2 (XX,XXX,XXX)
        3 U.S. ASC 730 Financial Statement R&D   XXX,XXX,XXX [B]
        3a The Schedule M-3 amount (see instructions) XXX,XXX,XXX    
        4 Subtractions from U.S. ASC 730 Financial Statement R&D Step 3  
        5 All U.S. ASC 730 Financial Statement R&D GL Accounts or items specifically excluded from Sec. 174 such as (i) Quality Control Testing; (ii) efficiency surveys; (iii) management studies; (iv) consumer surveys; (v) advertising; (vi) the acquisition of another’s Patent, model, production or process; and (vii) research in connection with literary, historical or similar projects. XX,XXX  
        6 All U.S. ASC 730 Financial Statement R&D GL Accounts that are non-Wage, non-Supply and non-Contract Research such as depreciation, amortization, shipping, travel, training, rent, overhead, general and administrative expenses and all other items not eligible for section 41 QREs XX,XXX  
        7 All U.S. ASC 730 Financial Statement R&D costs incurred for all agreements/contracts pursuant to which Taxpayer performed ASC 730 research in order to comply with the terms of the agreements/contracts. These costs are to be subtracted regardless of whether incurred in connection with Funded Research. XX,XXX  
        8 All U.S. ASC 730 Financial Statement R&D costs incurred for all persons other than Taxpayer’s employees who performed ASC 730 research on behalf of Taxpayer. XX,XXX
        9 All U.S. ASC 730 Financial Statement R&D In-house Research performed outside the US. XX,XXX  
        10 All Prototype Overhead expenses, patent costs and severance pay included in U.S. ASC 730 Financial Statement R&D. XX,XXX  
        11 TOTAL SUBTRACTIONS STEP 3   (XXX,XXX) [C]
        11a Subtotal U.S. ASC 730 Financial Statement R&D After Subtractions B - C = D   XXX,XXX,XXX [D]
        12 U.S. ASC 730 Financial Statement R&D Employee Wage Adjustment Step 4  
          W-2 Wages for employee compensation added to U.S. ASC 730 Financial Statement R&D in this Step should NOT include any amounts relating to the above subtractions. Further, the W-2 wages should only relate to Wage costs that are charged to U.S. ASC 730 Financial Statement Cost Centers.    
        13 Subtract U.S. ASC 730 Financial Statement R&D Wage and Wage Related Accounts not already subtracted in the lines, above. (XX,XXX)  
        14 Subtract U.S. ASC 730 Financial Statement R&D Stock-Based Compensation not already subtracted in the lines, above. (XX,XXX)  
          Amounts on lines 15, 16 & 17 are calculated using Appendix D - Adjusted ASC 730 Financial Statement R&D Wage Detail    
        15 Add 95% of W-2 Wages for Qualified Individual Contributors. XXX,XXX,XXX  
        16 Add 95% of W-2 Wages for 1st Level Supervisor Managers. XXX,XXX,XXX  
        17 Add Upper Level Managers’ Limit X,XXX,XXX  
        18 TOTAL STEP 4   XX,XXX [E]
        19 ADJUSTED ASC 730 Financial Statement R&D D + E = F Step 5 XXX,XXX,XXX [F]
          ADJUSTED ASC 730 Financial Statement R&D:
        (Transfer these numbers to Appendix B Form 6765 “Adjusted ASC 730 Financial Stmt. R&D” Column)
        QRE AMOUNTS Step 5 cont.)  
        20 Wages for qualified services (Form 6765 Line 5 or 24)   XXX,XXX,XXX
        21 Cost of supplies (Form 6765 Line 6 or 25)     XX,XXX,XXX
        22 Rental or lease costs of computers (Form 6765 Line 7 or 26)     XX,XXX,XXX
          ADJUSTED ASC 730 Financial Statement R&D QRE AMOUNTS (Form 6765 Line 9 or 28) This amount should equal [F] above   XXX,XXX,XXX
             

         

        Line # Instructions Appendix C
           
        Step 1    
        1 Report the amount of research and development costs currently expensed pursuant to ASC 730 for U.S. GAAP purposes which amount is shown as a line item on Taxpayer’s income statement included in its Certified Audited Financial Statements or which amount is shown separately stated in a note to its Certified Audited Financial Statements for the same year/period as the tax return.
        Step 2  
        2 Subtract all Book/GAAP ASC 730 R&D amounts for any foreign entities, i.e. non- U.S. entities such as Controlled Foreign Corporations.
        3 This figure should include GAAP R&D ASC 730 expenses for only U.S. entities.
        3a. The figure reported here should be the same amount as reported on: Form 1120, Sch. M-3, Part III, column (a), line 35; Form 1120S, Sch. M-3, Part III, column (a), line 29; or Form 1065, Sch. M-3, Part III, column (a), line 29 (collectively the “Schedule M3 amount”). Provide an explanation, if the Schedule M-3 amount is different than the amount on Line 3.
        Step 3  
        4 Subtractions from U.S. ASC 730 Financial Statement R&D
        5 All U.S. ASC 730 Financial Statement R&D GL Accounts specifically excluded from section 174 such as: (i) Quality Control Testing; (ii) efficiency surveys; (iii) management studies; (iv) consumer surveys; (v) advertising of promotions; (vi) the acquisition of another's patent, model, production or process; or (vii) research in connection with literary, historical, or similar projects.
        6 All U.S. ASC 730 Financial Statement R&D GL Accounts that are non-Wage, non-Supply and non-Contract Research such as depreciation, amortization, shipping, travel, training, rent, overhead, general and administrative expenses and all other items not eligible for section 41 QREs.
        7 All U.S. ASC 730 Financial Statement R&D costs incurred for all agreements/contracts pursuant to which Taxpayer performed ASC 730 research in order to comply with the terms of the agreements/contracts. These costs are to be subtracted regardless of whether incurred in connection with Funded Research.
        8 All U.S. ASC 730 Financial Statement R&D costs incurred for all persons other than Taxpayer’s employees who performed ASC 730 research on behalf of Taxpayer.
        9 All wages and related expenses for U.S. ASC 730 Financial Statement R&D for U.S. employees who leave the U.S. and perform research services outside of the U.S. Also, the wages and stock options associated with these individuals for ASC 730 research performed outside the U.S. should not be included on lines 13 & 14, below. A similar adjustment for non-inclusion of ASC 730 research performed outside the U.S. is also required to be made to taxable W-2 wages captured on lines 15, 16 & 17, below.
        10 The amount of Prototype Overhead, patent costs and severance pay included in U.S. ASC 730 Financial Statement R&D.
        11 Total Lines 5 through 10
        Step 4  
        13 U.S. ASC 730 Financial Statement R&D Wage and Wage Related Accounts not already subtracted in the lines, above.
        14 U.S. ASC 730 Financial Statement R&D Stock-Based Compensation not already subtracted in the lines, above.
        15-17 Complete Appendix D – ASC 730 Financial Statement R&D Wage Detail. These wages represent taxable W-2 wages (Base Wages and Stock Options) for employees whose Wage costs are charged to U.S. ASC 730 Financial Statement Cost Centers.
        Step 5  
        19 This figure represents Adjusted ASC 730 Financial Statement R&D.
        20-22 For lines 20 through 22 breakdown the amount of QREs reported on Line19 to the appropriate lines on the Form 6765. Record these costs in Appendix B – Column headed “Adjusted ASC 730 Financial Statement R&D.”

         


        Appendix D - Adjusted ASC 730 Financial Statement R&D Wage Detail

        The Upper Level Managers’ Limit for employees whose Wage costs are charged to U.S. ASC 730 Financial Statement Cost Centers:

        1. 95% of Qualified Individual Contributors Base W-2 Wages XXX,XXX,XXX   
        2. 95% of Qualified Individual Contributors – W-2 Stock Options XXX,XXX,XXX   
        3. Total W-2 Wages for Qualified Individual Contributors XXX,XXX,XXX  
        4. 95% of 1st Level Supervisor Managers Base W-2 Wages XX,XXX,XXX  
        5. 95% of 1st Level Supervisor Managers – W-2 Stock Options XXX,XXX,XXX   
        6. Total W-2 Wages for 1st Level Supervisor Managers XXX,XXX,XXX  
        7. The Upper Level Managers’ Limit – The lesser of: (a) 10% of the sum of lines 3 and 6, above; or (b) 100% of the W-2 Wage and W-2 Stock Option costs for Upper Level Managers, which are charged to U.S. ASC 730 Financial Statement Cost Centers.  If Taxpayer wants to include more than the Upper Level Managers’ Limit in QREs, 100% of the W-2 Wage and W-2 Stock Option costs for Upper Level Managers is considered to be $-0-.   X,XXX,XXX  

        Instructions

                   1. 95% of the base W-2 Wages for Qualified Individual Contributors which wage costs are charged to U.S
                       ASC 730 Financial Statement Cost Centers.
                   2. 95% of the W-2 Stock Option Wages for Qualified Individual Contributors which wage costs are charged to U.S ASC 730 Financial Statement Cost Centers.
                   3. Total of lines 2 and 3.
                   4. 95% of the base W-2 Wages for 1st Level Supervisor Managers which wage costs are charged to U.S ASC 730 Financial Statement Cost Centers.
                   5. 95% of the W-2 Stock Option Wages for 1st Level Supervisor Managers which wage costs are charged to U.S ASC 730 Financial Statement Cost Centers.
                   6. Total of lines 4.and 5.
                   7. The Upper Level Managers’ Limit is the lesser of: (a) 10% of the sum of lines 3 and 6, above; or (b) 100% of the W-2 Wage and W-2 Stock Option costs for Upper Level Managers, which are charged to U.S. ASC 730 Financial Statement Cost Centers. If Taxpayer wants to include more than the Upper Level Managers’ Limit in QREs, 100% of the W-2 Wage and W-2 Stock Option costs for Upper Level Managers is considered to be $-0- and any amount claimed for Upper Level Managers will be subject to risk analysis and examination.


        Appendix E - Directive Definitions

        The following definitions apply solely for the purposes of this Directive:

        “Adjusted ASC 730 Financial Statement R&D” means: ASC 730 Financial Statement R&D adjusted pursuant to the methodology shown in Appendix C to this Directive and the definitions contained in this Appendix E.

        “ASC 730”: The FASB Accounting Standards Codification (“ASC”) is the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities.  ASC 730 establishes standards of financial accounting and reporting for research and development costs. It specifies:

        1. those activities that shall be identified as research and development for financial accounting and reporting purposes;

        2. the elements of costs that shall be identified with research and development activities;

        3. the accounting for research and development costs; and

        4. the financial statement disclosures related to research and development costs.

        “ASC 730 Financial Statement R&D” means:  Research and development costs currently expensed pursuant to ASC 730 for U.S. GAAP purposes and the amount expensed is shown as a line item on a taxpayer’s income statement included in its Certified Audited Financial Statements or the amount expensed is shown separately stated in a note to its Certified Audited Financial Statements.

        “ASC 730 R&D GL Accounts” means:  The GL Accounts which make up ASC 730 Financial Statement R&D.

        “Base W-2 Wages” means: “wages” as defined by section 3401(a) not including taxable stock options included in the W-2 Box 1 wages.

        “Certified Audited Financial Statement” means:   A financial statement that is accompanied by the report of an independent (as defined in the American Institute of Certified Public Accountants Professional Standards, Code of Professional Conduct, Rule 101 and its interpretations and rulings) Certified Public Accountant.  A financial statement is “certified audited” for purposes of this Directive if it is:

        1. Certified to be fairly presented (an unqualified or “clean” opinion),

        2. Subject to a qualified opinion that such financial statement is fairly presented subject to a concern about a contingency (a qualified “subject to” opinion) other than a concern relating to ASC 730 reporting,

        3. Subject to a qualified opinion that such financial statement is fairly presented, except for a method of accounting with which the accountant disagrees (a qualified “except for” opinion) where such disagreement does not relate to ASC 730, or

        4. Subject to an adverse opinion not relating to ASC 730, but only if the accountant discloses the amount of the disagreement with the statement.

        Any other statement or report, such as a review statement or a compilation report that is not subject to a full audit is not a certified audited statement.

         “Chart of Accounts” means: A listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger.

        “Contract Research” means: Any expense paid or incurred in carrying on a trade or business to any person other than an employee of Taxpayer for the performance on behalf of Taxpayer of: (i) Qualified research as defined in section 1.41–4 or 1.41–4A, whichever is applicable, or (ii) Services which, if performed by employees of Taxpayer, would constitute qualified services within the meaning of section 41(b)(2)(B).

        “Credit Year” means:  The taxable year for which the Research Credit is being determined.

        “Financial Statement” means:  A financial statement that is prepared in accordance with U.S. GAAP; that is given to creditors for purposes of making lending decisions, given to equity holders for purposes of evaluating their investment in the taxpayer, or provided for other substantial non-tax purposes; and that the taxpayer reasonably anticipates will be directly relied on for the purposes for which it was given or provided.

        “Foreign Entity” means: Any entity which is not a U.S. person.

        “Funded Research” means: Research to the extent it is funded by any grant, contract, or otherwise by another person (including any governmental entity) where amounts payable to Taxpayer are not contingent upon the success of the research and Taxpayer does not retain a substantial right in the research.  See section 1.41-4A(d).

        “GL Accounts” means: The master set of general ledger accounts that summarize all transactions occurring within an entity.  The general ledger is comprised of all the individual accounts needed to record the assets, liabilities, equity, revenue, expense, gain, and loss transactions of a business.

        “Person” shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.

        “Prototype” (also Pilot Model) means: any representation or model of a product that is produced to evaluate and resolve uncertainty concerning the product during the development or improvement of the product. The term includes a fully-functional representation or model of the product or a component of the product.  See section 1.174-2(a)(4).

        “Prototype Overhead” means: All costs other than direct labor and direct materials allocated to a Prototype.

        “Qualified Individual Contributors” means: Employees of Taxpayer who do not manage any Taxpayer employees and whose wages are charged to U.S. ASC 730 Financial Statement Cost Centers. “Quality Control Testing” means: Testing or inspection to determine whether particular units of materials or products conform to specified parameters. However, Quality Control Testing does not include testing to determine if the design of the product is appropriate.

        “Rental and Lease Costs of Computers” means:  The amount paid or incurred to another person for the right to use (time-sharing) computers in the conduct of qualified research. The computer must be owned and operated by someone other than Taxpayer, located off Taxpayer's premises, and Taxpayer must not be the primary user of the computer.  See section 1.41-2(b)(4).

        “Supplies” means: Any tangible property other than: (i) land or improvements to land; and (ii) property of a character subject to the allowance for depreciation. See sections 1.41-2(b)(1) & (2).

        “Taxpayer” means: Person electing to follow this Directive.

        “Upper Level Managers” means:  Managers that directly supervise any employee other than Qualified Individual Contributors and whose wages are charged to U.S. ASC 730 Financial Statement Cost Centers.  For example, a manager that directly supervises a 1st Level Supervisor Manager and/or another Upper Level Manager is an Upper Level Manager. Also a manager that supervises another manager and directly supervises Qualified Individual Contributors is an Upper Level Manager.  

         “U.S.” means:  the United States, the Commonwealth of Puerto Rico, or any possession of the United States.

        “U.S. ASC 730 Financial Statement Cost Centers” means: Organizational units (e.g. business units, departments, cost centers) where the costs paid or incurred by those units are charged to U.S. ASC 730 Financial Statement R&D GL Accounts.”

        “U.S. ASC 730 Financial Statement R&D” means: ASC 730 Financial Statement R&D adjusted by removal of all ASC 730 GL Accounts relating to Foreign Entities.

        “U.S. ASC 730 Financial Statement R&D GL Accounts” means: GL Accounts which make up U.S. ASC 730 Financial Statement R&D.

        “U.S. ASC 730 Financial Statement R&D In-House Research” means: U.S. ASC 730 Financial Statement R&D adjusted by removal of Contract Research.

        “U.S. ASC 730 Financial Statement R&D Stock Based Compensation” means: U.S. GAAP stock based compensation included in U.S. ASC 730 Financial Statement R&D.

         “U.S. ASC 730 Financial Statement R&D Wage and Wage Related Accounts” means: U.S. GAAP Wage and Wage related accounts included in U.S. ASC 730 Financial Statement R&D and that are not U.S. ASC 730 Financial Statement R&D Stock Based Compensation.

        “U.S. GAAP” means: U.S. Generally Accepted Accounting Principles, which are updated regularly to reflect the latest accounting methodologies, are the definitive source of accounting guidelines that companies rely on when preparing their financial statements. The standards are established and administered by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB).

         “Wage” means: Compensation paid by Taxpayer to an employee of Taxpayer for services rendered by the employee to Taxpayer.

        “W-2 Wages” means: “wages” as defined by section 3401(a).

        “1st Level Supervisor Managers” means: Managers that directly manage only Qualified Individual Contributors and whose wages are charged to U.S. ASC 730 Financial Statement Cost Centers.