Fudim v. Commissioner, T.C. Memo. 1994-235


T.C. Memo 1994-235

This tax court memo concerns Efrem V. Fudim (Fudim), who in 1988, the Kansas City Service Center informed petitioner that the amount of research credit they claimed exceeded the amount allowable for that year.  They disallowed $3,222 of the $6,176 research credit and directed the petitioners to explain why they had not erred in their original amount reported.

Basic Facts

Efrem V. Fudim (Fudim) and Margarita L. Fudim (Mrs. Fudim) formed Light Sculpting Co. in 1985 and engaged in research. The rapid modeling procedure utilized ultraviolet lights to fabricate plastic objects and they attempted to perfect this method by trying other models and alternatives. Sculpting Co. obtained two patents on this process that was developed that improved the forming of three dimensional objects.

The petitioners attached a Credit for Increasing Research Activities form as part of their income tax return however they ignored the explanation of the limitation and they erroneously reduced their tax. The respondent sent a second letter detailed what the petitioner owed and the petitioners denied they owed anything.

The petitioner contend that the Tax Court should shift the burden of proof in this case to the respondent because they improperly reopened the case but there is not authority or truth to t his argument. The petitioner also argues that the respondent’s assessment of the disallowed excess portion was erroneous because no notice was given but the law states that the respondent may not access this information until an issuance of a notice of deficiency to the taxpayer has been put through.

Most importantly, research credits must be decided if they are acceptable for the years 1986 -1988. If accepted, only the wages paid related to the qualifying services constitute in-house research expenses.  The Court is satisfied that the petitioner’s subsidiaries spent time engaged in qualified services and that Mrs. Fudim spent at least 80% of her time engaged in qualified services.

Court’s Decision

The Court states that on the basis of these findings, petitioner’s research credits for 1986, 1987 and 1988 and allowable carrybacks must be recomputed accordingly.

Click Here to view the full case: Fudim v. Commissioner, T.C. Memo. 1994-235.

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