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Union Carbide Corporation and Subsidiaries v. Commissioner of Internal Revenue

September 7, 2012

UNION CARBIDE CORPORATION AND SUBSIDIARIES, PETITIONER-APPELLANT,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT-APPELLEE.



Appeal from a judgment of the United States Tax Court (Goeke, J.) denying Union Carbide a credit for supplies used in the conduct of qualified research under 26 U.S.C. § 41.

The opinion of the court was delivered by: Edward R. Korman, District Judge:

11-2552

Union Carbide v. Commissioner of Internal Revenue

Argued: March 29, 2012

Before: STRAUB and POOLER, Circuit Judges, and KORMAN, District Judge.*fn1

AFFIRMED.

Judge Pooler concurs in the judgment and opinion of the Court and files a separate concurrence.

Union Carbide Corporation ("UCC") conducted three research projects at two production plants in Hahnville, Louisiana, during the 1994 and 1995 tax-credit years. The research was conducted on products that were in the process of being manufactured for sale and were in fact sold. Nevertheless, UCC requested a research credit not just for the additional costs of supplies associated with the research. Instead, it requested a research credit for the costs of all the supplies used in the production of the product even though those supplies would have been used regardless of any research performed. Indeed, the crux of UCC's argument is captured in the following colloquy with UCC's able counsel at oral argument:

Q: But if I understand you correctly, you're saying everything that was used to manufacture the [product], even though you were going to do that anyway and you presumably sold the product, you should still get the research credit?

A: Absolutely your honor.

Q: In its entirety? The entire amount spent for the supplies . . . all the supplies you paid for, in your view, are entitled to the credit even though . . . they were used to produce a product which you sold anyway?

A: Yes.

Oral Argument at 11:06:46-11:07:28, Union Carbide Corp. and Subsidiaries v. Comm'r (2d Cir. No. 11-2552). The Tax Court held that UCC was not entitled to research credits for the entire amount spent for the supplies. Instead, as the Commissioner argues, it was entitled to a credit for only ...


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