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conducted through the year of credit termination, and businesses need to

know whether the tax credit will be applicable or not.

In that con

nection, we would point out to the Subcommittee that companies now seem

to face major revenue law changes annually, and the uncertainty and

instability caused by constant revisions in the tax requirements is an

impediment to their planning processes. Similarly, the prospect that a

tax credit will terminate forces them to disregard the credit until they

know otherwise.


Although legislation before the Subcommittee does not deal

with IRAD specifically, we feel that the Subcommittee should be aware

that IRS proposes to disqualify from creditability the R&E of many

contractors on the basis of a garbled legislative history rather than

the construction that would flow naturally from the statute.

In our

opinion, although legislation does not appear to be necessary, the

Subcommittee should take such steps as are needed to clarify that IRAD

qualifies for the credit and is not to be considered "funded by any

person (or any governmental entity)."

To explain, IRAD is that part of a taxpayer's R&E program that

is not performed pursuant to a contract, grant, or similar agreement, as

explained in Defense Acquisition Regulation 15-205.35(a) and Cost Account

ing Standard 420.30(a)(6) for affected government contractors.


undertaken at the discretion of the taxpayer, and need not relate to any

current business with any customer. IRAD is taxpayer-initiated and

22-894 0-83--23

taxpayer-managed; can be started, stopped, or changed at the taxpayer's

pleasure; and is in all respects the taxpayer's own obligation.

cost ordinarily is borne by customers through indirect charges to busi

ness transactions that may have no relationship to the IRAD effort.

The Department of Defense (DoD) negotiates advance agreements

for IRAD indirect cost allocations with some contractors because Public

Law 91-441 requires such agreements and prohibits the use of DoD appro

priations for IRAD that is not militarily germane. However, government

does not purchase the IRAD, and the contractor remains substantially at

risk for it. The result of government's intervention is that a ceiling

is placed on the allocation--a procedure that may, in fact, increase the

risk to the contractor by imposing limitations on recovery that may not

exist in dealings with other customers.

The ceiling does not mean that

actual IRAD costs incurred and allocated to contracts will be allowed by

DoD and, perhaps more significantly, the government normally does not

obtain any rights to the IRAD work product.

Although our basic contention is that IRAD should be qualified

under the law, as enacted, we note further that the IRS proposal would

treat similarly situated taxpayers differently where, for example, there

are two identical contracts, one with the government and having a cost

ceiling for IRAD, and one with a commercial customer and not having such

a ceiling.

Assuming that these are cost-plus or incentive-type con

tracts, the first contractor would be denied research credits but the

second would have such credits undiminished.

Similarly, the concept of

"funding" as embracing indirect cost allocations seems erroneous because such a concept, if applicable to all businesses, would disqualify most

research from credit eligibility.

We doubt that Congress would have

enacted a research credit under such circumstances.

In short, we believe that the IRAD proposal of IRS--which is

not called for by the statute itself--is discriminatory and contrary to

the public interest as it would apply to government contractors with

certain kinds of agreements.

For these reasons, we urge that all such

costs qualify without reference to contract type or advance agreements

limiting indirect cost allocations.

Scientific Education
(S. 1194 and s. 1195)

We support s. 1194 and S. 1195 in principle, but do not want

consideration of such measures to delay S. 738, which can be acted on

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with dispatch. In working to improve the bills, we suggest that the

Subcommittee review the definitions of eligible property contributions

to be certain that they cover all types of equipment, the use of which

by the donee would be consistent with the purposes of s. 1194 and S.


Also, further attention should be given to the proposal to alter

the base period for the R&E credit to determine, among other things,

whether additional structural changes should be made beyond those

stated in the bills.

MAPI appreciates having the opportunity to present its views

on these matters, and hopes that the Subcommittee will find them to be



Charles durant


Statement by

Saul K. Fenster


New Jersey Institute of Technology


S 1194, Technology Education Assistance and Development Act of 1983


S 1195, High Technology Research and Educational Development Act of 1983

on behalf of the

American Association of State Colleges and Universities


American Association of Colleges for Teacher Education

American Council on Education

American Educational Research Association
Association of Affiliated College and University Offices
Association of Catholic Colleges and Universities

Association of Urban Universities
Council of Graduate Schools in the United States
National Association for Equal Opportunity in Higher Education
National Association for College and University Business Officers

National Association of Independent Colleges and Universities National Association of State Universities and Land-Grant Colleges

National Society of Professional Engineers

State University of New York

before the

Subcommittee on Taxation and Debt Management

Committee on Finance

United States Senate

May 27, 1983

My name is Saul K. Fenster and I am President of New Jersey Institute of

Technology in Newark, New Jersey, a position I have held for the last five


Prior to assuming the Presidency of New Jersey Institute of Technology

I was Chairman of the Department of Mechanical Engineering, Associate Dean of

Engineering and Provost at Fairleigh Dickinson University. I received a BME

from City University of New York, an MS from Columbia University, and a Ph.D.

from the University of Michigan. I am a member of the American Association for the Advancement of Science, American Society for Mechanical Engineering and American Society for Engineering Education.

I am pleased to have the opportunity to appear before this Subcommittee

today to testify on S. 1194 and S. 1195.

I represent the 355 member institutions of the American Association of

State Colleges and Universities and am currently Vice Chairman of its Committee

on Science and Technology. I am also speaking on behalf of many of the

associations that participated in the drafting of Higher Education's Agenda in

Mathematics, Science and Technology Education. A copy of this document is

attached for your information.

This subcommittee, Senators Danforth and Bentsen, are to be congratulated

for the legislative initiatives contained in S. 1194 and S. 1195. S. 1194 and S. 1195 are important elements in developing a solution to the crisis

conronting our nation in science, mathematics, technology and engineering

education. We regard these proposals as one aspect of the total effort needed

to resolve the urgent problems faced by our nation's educational institutions.

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