Patricia Sweeney commented on the decision by the Second Circuit to affirm the Tax Court's decision in Union Carbide that disallows section 41 research credits for the costs of supplies incurred in connection with qualified research on a production process, because those costs would have been incurred absent the research. Many believe the consequences of the decision are significant, particularly for research connected with a production process as opposed to a new product. "At least in the Second Circuit, you're going to have to prove that you wouldn't have incurred the claimed production expenditures absent the research," Sweeney said, adding that while taxpayers can still get the credit on the incremental costs, the credit "certainly would be worth a whole lot more if the full cost of the production run was eligible."

Chemical manufacturer Union Carbide Corp. (UCC) originally claimed more than $18 million in research credits in 1994 and 1995, which were allowed as part of an agreement with the IRS. UCC later argued that it was entitled to an additional $8 million in research credits in connection with an additional $200 million in qualified research expenses (QREs) that it uncovered for those years. Sweeney agreed with others who said the courts are misinterpreting congressional intent. "It's not really true that the research credit was designed to only give a credit for costs that a taxpayer wouldn't otherwise incur," she said. "The research credit was designed to incentivize research by making the credit available for all costs incurred in eligible research activities, whether or not they would have been incurred if the credit were not available."