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Photo-Sonics, Inc. v. Commissioner
Citation:
357 F.2d 656 (1966)Facts
Photo-Sonics, Inc. was engaged in the business of developing and manufacturing high-speed cameras and related equipment. In 1957, the company began developing a new camera system known as the 35mm Pin Register Camera System. The development process involved significant technical challenges and uncertainty regarding whether the desired specifications could be achieved. Photo-Sonics incurred substantial costs during this development process, including engineering labor, materials, and overhead expenses. On its tax return, the company deducted these development costs as research and experimental expenditures under Section 174 of the Internal Revenue Code. The Commissioner of Internal Revenue disallowed the deduction, contending that these costs should be capitalized because they were incurred to develop a specific product rather than for basic research.
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