In a new court case, a married couple claimed tax credits for their S corporation’s “qualified research expenses,” but the IRS disallowed the credits and issued a notice of deficiency. The IRS asserted that the taxpayers failed the business component test under Code Sec. 41 because: 1) their construction designs weren’t “new and improved;” 2) the designs weren’t products; 3) the company didn’t build a building then transfer title to the buyer; and 4) the company didn’t use its designs in a “meaningful” way. The U.S. Tax Court disagreed with the IRS. It ruled that the couple’s credits didn’t fail the business component test and denied the IRS’s motion for summary judgment. (TC Memo 2023-57)