Dynetics, Inc. v. United States
| Decision Date | 31 May 2015 |
| Docket Number | No. 12-576T,12-576T |
| Parties | DYNETICS, INC. and SUBSIDIARIES, Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Cross-Motions for Partial Summary Judgment; RCFC 56(a); I.R.C. § 41; Treasury Regulation §1.41-4A; Funded Research Exception
David M. Wooldridge, Birmingham, Ala., for plaintiff.
Jason Bergmann, Trial Counsel, with whom were Caroline D. Ciraolo, Principal Deputy Assistant Attorney General; David I. Pincus, Chief, Court of Federal Claims Section, Mary M. Abate, Assistant Chief, Court of Federal Claims Section , Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant.
This is a tax refund case. Dynetics, Inc. (Dynetics or plaintiff) is an engineering company headquartered in Huntsville, Alabama. Plaintiff filed amended tax returns for three tax periods seeking a refund based on certain research tax credits to which it claims entitlement under § 41 of the Internal Revenue Code (I.R.C.), which governs "Credit for increasing research activities." I.R.C. § 41. Defendant, the Internal Revenue Service (IRS or defendant), disallowed plaintiff's refund claims.
On September 7, 2012, plaintiff timely filed its complaint in this court. While plaintiff's complaint is based on tax refunds it claims for work performed on more than100 contracts, the parties have asked this court to evaluate plaintiff's claims on only 7 of those contracts, which the parties refer to as sample contracts.
While a taxpayer must establish a number of elements to qualify for a research tax credit under § 41, at this point in the case, the parties seek the court's assistance with resolving their dispute on only one such element. Under § 41, a taxpayer may not claim a research tax credit if that research was "funded by any grant, contract, or otherwise by another person (or governmental entity)." I.R.C. § 41(d)(4)(H).
Presently before the court are the parties' fully briefed cross-motions for partial summary judgment on the funded research question, brought under Rule 56(a) of the Rules of the United States Court of Federal Claims (RCFC). The parties ask this court to determine whether the research performed by Dynetics under each of the seven sample contracts was "funded" under the governing Internal Revenue Code and Treasury regulations.
After consideration of the parties' briefing and evidentiary support, the court GRANTS defendant's motion for partial summary judgment on the funded research question, and DENIES plaintiff's cross-motion for partial summary judgment on the funded research question.
Defendant filed a motion for partial summary judgment on the funded research question. Def.'s Mot., Aug. 7, 2014, ECF No. 35-1. Plaintiff filed its cross-motion for partial summary judgment on the funded-research question. Pl.'s Mot., Aug. 20, 2014, ECF No. 37-1. Defendant filed its response. Def.'s Resp., Sept. 26, 2014, ECF No. 40. Plaintiff filed a reply. Pl.'s Reply, Oct. 22, 2014, ECF No. 41.
Defendant also filed various exhibits in support of its motion. Exs. 1.1 to 69, ECF Nos. 30-2 to 32.9. Plaintiff likewise supported its motion with both affidavits and exhibits. Exs. A to P, ECF No. 37-2.
In reviewing the parties' briefing, there were several questions on which the court felt it would benefit from additional explanation. Accordingly, on January 28, 2015, the court issued an order posing a number of questions to the parties, and requesting comment. Order Supp. Br., ECF No. 42.
On February 19, 2015, each party filed a supplemental brief in support of its motion for partial summary judgment. Pl.'s Supp. Br., ECF No. 45; Def.'s Supp. Br., ECF No. 46. On February 26, 2015, each party filed a reply. Pl.'s Reply to Def.'s Supp. Br., ECF No. 47; Def.'s Reply to Pl.'s Supp. Br., ECF No. 48.
The court is grateful to both parties for their supplemental briefing, which has been helpful in resolving their cross-motions.
Each of the sample contracts is known by an alpha-numeric code assigned by Dynetics for internal contract management purposes. Like the parties, the court refers to each contract by this code.
Dynetics was awarded the AF007 contract (contract no. F08630-03-C-0034) by the United States Air Force Research Laboratory, pursuant to which it was "to develop and test 14 tailkits capable of carrying 21,600 pound of ammunition for deployment at a specified target." Ex. 12; Pl.'s Mot. 38. The AF007 contract was a cost-plus-fixed-fee contract. Id. at DYN 953.
The AMS01 contract (subcontract no. 017-O2K1) was issued to Dynetics by Aviation & Missile Solutions, LLC (AMS) as a subcontract. Ex. 51, at DYN 7568. The prime contract was issued to AMS by the U.S. Army Aviation and Missile Command (AMCOM). Id. at DYN 7569. AMCOM is a specialized research and development command with the Army Research Development and Engineering Command. Pl.'s Mot. 42. AMS is a joint venture between Dynetics and one other company, Camber. Id. at 43. The work performed by Dynetics under the AMS01 contract was performed on task orders issued as fixed-price-level-of-effort. Id. at 45-46; Def.'s Mot. 38. According to Dynetics, work on the AMS01 contract included Pl.'s Mot. 43.
The AR005 contract (contract no. DAAH01-02-C0080) was issued to Dynetics by the U.S. Army Aviation & Missile Command. Ex. 27, at DYN 58336. The AR005 contract included both fixed-price and cost-plus-fixed-fee line items. Id. at DYN 58339-41. As relevant to this motion, defendant objects only to expenses Dynetics claims under the cost-plus-fixed-fee line items. See Def.'s Mot. 27. According to Dynetics, its workon the AR005 contract included developing "calibration shelters for Humvees that were deployed 'in theater'" by the Army. Pl.'s Mot. 50. The purpose of this project was to "make it easier for soldiers to calibrate their equipment in the field rather than evacuating it for calibration." Id.
The BOE12 contract (contract no. 100267) was issued to Dynetics by The Boeing Company. Ex. 40, at DYN 41546. The BOE12 contract was a time-and-materials contract. See id. at DYN 41557-58. According to Dynetics, its work on the BOE12 contract included "assisting in the development of a system to defend the United States against long-range (i.e., intercontinental) ballistic missile attacks." Pl.'s Mot. 59.
The NT001 contract (contract no. MDA908-99-D-0001) was issued to Dynetics by the Defense Intelligence Agency (DIA) Missile & Space Intelligence Center (MSIC). Ex. 34, at DYN 8064. DIA is a combat support agency within the U.S. Department of Defense. The NT001 contract is a cost-plus-fixed-fee contract. Id. at DYN 8067. According to Dynetics, it was assigned tasks "associated with gaining an understanding [of] foreign missile systems and the United States' capability of defending against threats posed by those foreign systems." Pl.'s Mot. 64.
The UAH01 contract (subcontract no. SUB2004-025) was issued to Dynetics by the University of Alabama, Huntsville (the University) as a subcontract. Ex. 18, at DYN 1700. A cooperative agreement was issued to the University by the National Aeronautics and Space Administration (NASA)/Marshall Space Flight Center. Id. at DYN 1701. The UAH01 contract was a cost-plus-fixed-fee level-of-effort contract. Id. at DYN 1700. Under the UAH01 contract, Dynetics performed various tasks in support of the National Space Science & Technology Center. Pl.'s Mot. 70.
The AR009 contract (contract no. DAAH01-02-C-R170) was issued to Dynetics by the U.S. Army Aviation & Missile Command. Ex. 47, at DYN 6933. The AR009 contract was a fixed-price level-of-effort contract. Under the AR009 contract, Dynetics was asked to "design, develop, and test aerodynamic vehicles, including missiles, aviation systems, and targets [, and it] used aerodynamic engineering techniques to develop or design proposed missiles or analyze properties of proposed missiles." Pl.'s Mot. 53 (internal citation omitted).
The United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort. 28 U.S.C. § 1491(a)(1)(2012). This court has jurisdiction, concurrent with the district courts, over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." 28 U.S.C. § 1346(a)(1); see also Intersport Fashions West, Inc. v. United States, 84 Fed. Cl. 454, 456-57 (2008) (). That the court has jurisdiction over plaintiff's claim is undisputed.
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." RCFC 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A genuine dispute is one that "may reasonably be resolved in favor of either party." Liberty Lobby, 477 U.S. at 250. ...
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