SECTION 6. OPERATING

GUIDELINES FOR RESEARCH AGREEMENTS

.01 In general . If a research agreement is described in either section 6.02 or 6.03 of this revenue procedure, the research agreement itself does not result in private business use. In applying the operating guidelines under section 6.03 of this revenue procedure to federally sponsored research, the special rules under section 6.04 of this revenue procedure (regarding the effect of the rights of the Federal Government and its agencies under the Bayh-Dole Act) apply.

.02 Corporate-sponsored research . A research agreement relating to property used for basic research supported or sponsored by a sponsor is described in this section 6.02 if any license or other use of resulting technology by the sponsor is permitted only on the same terms as the recipient would permit that use by any unrelated, non-sponsoring party (that is, the sponsor must pay a competitive price for its use), and the price paid for that use must be determined at the time the license or other resulting technology is available for use. Although the recipient need not permit persons other than the sponsor to use any license or other resulting technology, the price paid by the sponsor must be no less than the price that would be paid by any non-sponsoring party for those same rights.

.03 Industry or federally-sponsored re- search agreements . A research agreement relating to property used pursuant to an industry or federally-sponsored research arrangement is described in this section 6.03 if the following requirements are met, taking into account the special rules set forth in section 6.04 of this revenue procedure in the case of federally sponsored research —

(1) A single sponsor agrees, or multiple sponsors agree, to fund governmentally performed basic research;

(2) The qualified user determines the research to be performed and the manner in which it is to be performed (for example, selection of the personnel to perform the research);

(3) Title to any patent or other product incidentally resulting from the basic research lies exclusively with the qualified user; and

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the method of accounting provided in section 4 of this revenue procedure.

.04 Section 167(a) of the Internal Revenue Code provides a depreciation allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business. The depreciation deduction provided by § 167(a) for tangible property placed in service after 1986 generally is determined under § 168. Depreciation allowances under § 168 are determined using either: (1) the general depreciation system (GDS) in § 168(a); or (2) the alternative depreciation system (ADS) in § 168(g). Under either depreciation system, the depreciation deduction is computed by using a prescribed depreciation method, recovery period, and convention. For purposes of either GDS or ADS, the applicable recovery period is determined by reference to class life or by statute.

.05 Rev. Proc. 87–56, 1987–2 C.B. 674, as clarified and modified by Rev. Proc. 88–22, 1988–1 C.B. 785, sets forth the class lives of depreciable tangible property that are necessary to determine the recovery period of that property under § 168. The revenue procedure establishes two broad categories of depreciable assets: (1) asset classes 00.11 through 00.4 that consist of specific assets used in all business activities; and (2) asset classes 01.1 through 80.0 that consist of assets used in specific business activities.

.06 Pursuant to § 167(c), the basis on which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property generally is the adjusted basis provided in § 1011 for the purpose of determining the gain on the sale or other disposition of such property. See also § 1.168(b)–1(a)(3) and (a)(4) of the Income Tax Regulations for the definitions of unadjusted depreciable basis and adjusted depreciable basis, respectively, for purposes of § 168.

.07 Under § 446(b), the Commissioner has broad authority to determine whether a method of accounting clearly reflects income. Section 1.446–1(c)(2)(ii) provides that the Commissioner may authorize a taxpayer to adopt or change to a permissible method of accounting although the method is not specifically permitted if, in the opinion of the Commissioner, that method clearly reflects income.