District Court Denies R&D Credit Claims For Software Modification

A recent decision by the U.S. District Court for the Northern District of Texas (Unites States v. Davenport, No. 3:09-cv-02455-L) held that costs for modifying a commercially available software package did not qualify for the research and development (R&D) tax credit.

The case addressed members of the Davenport family, who own Burly Corporation. Burly Corporation manufactures metal roofing and standalone metal buildings through its subsidiary, Mueller Supply Company. In 2006, the Davenports filed refund claims for the 2002 and 2003 tax years for the "OneWorld" software project developed to manage, automate and integrate all aspects of Mueller's business, including the automation and integration of manufacturing, design, sales, accounting and shipping. The Mueller OneWorld system was created using the J.D. Edwards OneWorld commercially available enterprise resource planning (ERP) software application suite. Mueller also purchased a license from IBM for an ERP bridge