Union Carbide Co. v. Commissioner of Internal Revenue

Case Updates

NCLC urged the Supreme Court to review a decision by the Second Circuit, which denied a tax credit for research and development and drastically limited what supplies may be claimed under the relevant statute. In this case, the plaintiff company claimed R&D credits based on experiments it conducted to improve certain production processes. Under the tax code, a taxpayer may claim as a credit the cost of any “supplies used in the conduct of qualified research.” I.R.C. § 41(b)(2)(A)(ii). Because it was necessary for the plaintiff company to operate its manufacturing processes for extended periods of time in order to test the improvements, the plaintiff company claimed the cost of all raw materials used in the production process; the Tax Court and Second Circuit rejected this interpretation. NCLC argued in its amicus brief that tax laws should be construed based on their plain language, not according to the taxing authority's litigating position. The Second Circuit's deference to the Commissioner's litigation position puts the belated announcement of an agency with direct pecuniary interest in the litigation above the actual statutory text and relevant regulations in interpreting this section of the tax code. Additionally, the Second Circuit's decision undermines the certainty that is essential for businesses to be able to plan and operate efficiently. NCLC pointed out that businesses, like all taxpayers, need to be able to rely on the plain language of the applicable statutes and regulations in planning their transactions and investments.