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R&D credit by sector
“[N]otwithstanding the ability of the
SBA to pursue repayment in the case
Shares of $12.57 billion in current-year Sec. 41 research and development credits
of misuse of funds, Taxpayer X retained
claimed by active C corporations,* tax year 2014.
the PPP loan proceeds in 2020 under
a claim of right,” the CCA said. The
doctrine applies even where a taxpayer
obtains the amount illegally, the CCA
ing (59%)
anufac
M
tur
stated, citing James, 366 U.S. 213 (1961). ■ Manufacturing (59%)
■ CCA 202237010 ■ Information (17%)
nf
I
tion (17%)
ma
or
essional
P
tific
,
■ Professional, scientific,
of
r
, scien
— Paul Bonner is the JofA’s tax editor.
vic
es (10%)
and technical services (10%)
and t
echnical ser
■ Wholesale and retail trade (8%)
holesale and r
W
ade (8%)
etail tr
inanc
■ Finance and insurance (2%)
anc
e (2%)
e and insur
F
O
■ Other (4%)
ther (4%)
* Other than real estate investment trusts and regulated investment companies.
Source: IRS Tax Statistics, Corporation Research Credit, Table 1.
Facts: Alejandro and Cristina Rojas Alejandro and his new spouse petitioned
‘Family support’ were married in 1995. They separated the Tax Court.
payments not deductible in 2010, with a divorce entered by a Issues: The IRS accepted that the
as alimony California state court in 2012. As part of payments met the definition of alimony
or separate maintenance payments under
the judgment, the court attached a stipu-
The divorce instrument included lation that neither spouse was obligated former Sec. 71(b)(1). However, the
a child-related contingency, the to provide child or spousal support. Service contended that a deduction for
Tax Court holds. However, the judgment required Alejan- the payments was unavailable because
dro to pay Cristina $4,500 per month in the divorce instrument under which they
By John McKinley, CPA, CGMA, J.D., “family support” until both their minor were paid contained a child-related con-
LL.M., and Matthew Geiszler, Ph.D. children became emancipated or she tingency under former Sec. 71(c)(2)(A),
remarried. If Cristina did remarry, the specifically, the children’s emancipation.
The Tax Court held that payments a payments would be reduced to $2,500 For any divorce instrument that took
taxpayer made to a former spouse were until their children became emancipated. effect on or before Dec. 31, 2018, spousal
child support and not spousal support, In 2013, Alejandro filed a request support paid to a former spouse is
since the divorce instrument under for an order with the court seeking includible in the recipient spouse’s gross
which they were made contained a a modification of his child support income (former Sec. 71(a)) and allowed
child-related contingency under former payments. Cristina argued that there was as a deduction to the payee spouse if it
Sec. 71(c)(2)(A). As a result, the Tax “no current child support order in place,” is included in the gross income of the
Court agreed with the IRS that the which the court agreed with. recipient spouse (former Sec. 215(b)). If
IMAGE BY STUDIOSTOCKART/GETTY IMAGES case was executed prior to Jan. 1, 2019; to Cristina of $5,824, totaling $69,888. spouse (former Sec. 71(c)(1)). Also,
the payment constitutes child support,
In 2016, the tax year in question, Ale-
payments were nondeductible.
Note: The divorce instrument in this
jandro made equal monthly payments
no deduction is available to the payee
therefore, the provisions of former Secs.
any amount specified in the divorce
Alejandro and his new spouse filed
71 and 215 applied. For any divorce
instrument that relates to the happen-
a joint individual tax return for 2016
claiming a deduction of $69,880 for the
decree taking effect after Dec. 31, 2018,
ing of a contingency with respect to a
child will be deemed child support or
these provisions have been repealed by
payments as alimony. The IRS disal-
Section 11051 of the law known as the
support (former Secs. 71(c)(1) and (2)).
$24,458 deficiency on the return, and
Tax Cuts and Jobs Act, P.L. 115-97.
December 2022 | 37
journalofaccountancy.com lowed the deduction and determined a be reclassified as child, and not spousal,