According to Deere, its interpretation of the term gross receipts is consistent with the "historic domestic focus" of the research credit on the conduct of a taxpayer's trade or business in the United States. The court rejected this reasoning as well. The historic domestic focus of Congress was to promote expenditures for research conducted in the United States — it was not on whether or not the taxpayer is located, or does business, in the United States. The court rejected the assertion that "the essential consideration" is whether or not the receipt in question forms part of the taxpayer's U.S. trade or business, or is attributable to a trade or business conducted outside the United States.

As a result, each of Deere's novel arguments was soundly rejected, and the company failed to establish any valid reason for excluding the disputed amounts (the gross receipts of the foreign branches) from the calculation under Section 41(c)(1)(B). Accordingly, Deere's claimed research tax credit was denied.

Contributor Robert Willens, founder and principal of Robert Willens LLC, writes a weekly tax column for CFO.com.

Footnote
¹ Calculated under Section 41(c)(1)(B).

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