Best Buy Seeks $23.2 Million in IRS Refunds on Disallowed ‘Research Credits’

Best Buy is “entitled” to refunds of $23.2 million in federal tax overpayments, “erroneous” and “illegally” imposed refund penalties and interest for “research credits” under an Accenture outsourcing contract for the 2005-2010 fiscal years that the IRS unfairly disallowed, said the retailer in a Wednesday complaint (in Pacer) filed in the U.S. Court of Federal Claims. Beginning in July 2004, Best Buy outsourced “many of its back-office functions,” including information technology, to Accenture and kept on “only a select group of employees to provide IT direction and oversight,” said the complaint. For five years, Accenture “performed a wide range of IT-related services for Best Buy, including large, advanced internal use software-development projects,” it said. Accenture also did R&D on Best Buy’s behalf “to create significant, company-wide software initiatives” for its internal use that were “highly innovative, involved significant technical and economic risks, and were not commercially available,” it said. Best Buy later hired PwC, which identified credit-qualifying research expenses from the Accenture contract equaling 15-20 percent of Best Buy’s “total spending on internal software development activities,” it said. On PwC’s advice, Best Buy filed amended returns seeking refunds for the research credits it didn’t previously claim, but the IRS rejected most of the credits and assessed the penalties it did under federal rules for discouraging “excessive” refund claims, said the complaint. Even if the courts ultimately disallow the refunds “in full” that Best Buy seeks on the research credits, Best Buy's still entitled to get the penalty money back “because it acted with reasonable cause and in good faith," and did so on PwC’s advice, it said. The Accenture contract and Best Buy's claims for the research credits predate the tenure of Hubert Joly, who arrived as Best Buy CEO in August 2012 (see 1208220040). IRS representatives didn’t comment Friday.