Burton L. Spellman and Roslyn Spellman v. Commissioner of Internal Revenue

POSNER, Circuit Judge.

Since 1954 a taxpayer has been allowed to deduct from his income, as a current expense, “research or experimental expenditures which are paid or incurred ... during the taxable year in connection with his trade or business.” 26 U.S.C. § 174(a)(1). This exceptional treatment — exceptional because research and development expenditures are capital in nature, since they yield benefits over a period of time rather than when incurred — may reflect the fact that such expenditures create what economists call “external benefits.” These are benefits that the producer cannot…