CRA experts were retained by a large US-based company in a tax dispute with the IRS.
CRA’s work focused on independently calculating a Section 199 deduction by isolating revenues and expenses attributable to software developed by the firm. CRA’s methodology combined industry knowledge with an analysis of the firm’s financial data. The analysis involved reviewing hundreds of accounts and cost centers and apportioning revenues and expenditures between qualified and non-qualified activities. Additionally, CRA’s analysis involved characterizing embedded services performed by the company and extracting the implied revenues and expenses.
Embedded service revenues were calculated using a Comparable Profits Methodology, in which, for each embedded service, identified expenditures (based on cost center data) were multiplied by a markup derived from an analysis of financial data from identified comparable benchmark companies.
