t c memo united_states tax_court union carbide corporation and subsidiaries petitioner v commissioner of internal revenue respondent docket no filed date r determined deficiencies in p’s federal_income_tax for and pursuant to a negotiated agreement p was allowed research credits under sec_41 i r c for and in an amended petition p now seeks additional research credits for projects conducted at its manufacturing plants to resolve this action expeditiously p and r agreed to try five of the largest projects underlying p’s research_credit claim held two of the five projects constitute qualified_research under sec_41 i r c held further p has established that it included all activities that were similar to the two qualified_research projects in its calculation of its base_amount under sec_41 i r c held further p has established that it incurred dollar_figure of additional qualified_research expenditures qres for wages paid to specific plant employees for qualified_services performed during the two qualified_research projects the remaining expenditures_for which p claims additional research credits are not qres because they were incurred in the production of goods for sale not in the conduct of qualified_research held further p improperly included production_costs in its base_amount however because p’s error caused p to overestimate its base_amount we find p’s error to be harmless and accept p’s calculation of its additional base_period qres with several adjustments harold j heltzer alex e sadler robert l willmore peter b work and allen d madison for petitioner jill a frisch daniel a rosen lyle b press alex shlivko and jenny d boissonneault for respondent contents findings_of_fact i overview a petitioner b procedural history ii claim projects a the olefins production process b the amoco anticoking project c the spuds project overview of coking the coke reduction program and amoco’s technology the amoco anticoking project overview of the spuds project petitioner’s motion for leave to amend its petition d the sodium borohydride project overview of the acid gas removal system the sodium borohydride project overview of fouling in the c3 column overview of inhibitors e uop ga-155 project f the ucat-j project the uop ga-155 project overview of polyethylene production ucat-j overview of the ucat-j project experimental runs before the credit years experimental runs during the credit years a djm-5265h ucat-j run b djm-1810b ucat-j run sec_2 and c djm-1732h ucat-j run sec_3 and d djm-2419h djm-1810h and djm 2016h ucat-j run sec_4 through e djm-1735h ucat-j runs and and f djl-5264h and djl-5280h ucat-j runs g djh-2580h and djh-2950h ucat-j runs and h djl-5420h and djl-5143h ucat-j runs and i djm-1720h ucat-j run a cost documentation used b costs of the amoco anticoking project iii claimed costs pcds and mass cmai data for ethylene byproducts wage information r d budgets supplies wages c costs of the spuds project d costs of the uop ga-155 project supplies wages supplies wages e costs of the sodium borohydride project f costs of the ucat-j project iv base_period projects a scope of the trial organization of ucc’s manufacturing operations during the base_period acquisitions and dispositions between the claim years and the base_period a acquisitions b disposition sec_3 ucc shell polypropylene business a the cooperative undertaking b spc c petitioner’s base_amount recalculation b base_period projects ucc’s focus on r d during the base_period and credit years the role of r d and engineering at ucc’s manufacturing plant sec_3 petitioner’s identification of plant-based qualified_research activities conducted during the base_period a dr wadia’s assignment b dr wadia’s methodology c dr wadia’s conclusions d petitioner’s concessions i nalco inhibitor antifouling test run ii wastewater activity run iii rohm haas runs run sec_813 and sec_814 e activities that were not identified base_period activities i nox ii john zink co orders iii star pelleting iv naphtha analysis f duration and quantities of product produced i natural and forced draft burner tests run sec_1 through and ii nalco tests run iii vinyl acetate catalyst protection tests run sec_47 and sec_48 and run sec_594 and iv butyl acetate capacity increase test run v mek production test run vi secondary refining system test run vii spanish fermentation ethanol refining test run viii ethanol tertiary recovery test run ix mexican fermentation ethanol refining test run x propionic acid hydrogen peroxide treatment test run xi adiabatic hydrogenation beds rearrangement test run xii butanol refining test run xiii dibk recycle to mixed keytones converters test run v base_period qres a documentation b ms toivonen’s costing methodology identifying the lead pcd identifying the materials tracing the materials determining the unit costs of materials calculating total materials costs calculating the wage costs calculating the total run costs exceptions to ms toivonen’s general costing methodology c ms toivonen’s conclusions d disputed calculation sec_1 acrolein refining system capacity test run propyl dipropasol refining test run isophorone mids conversion test run secondary refining system test run naphtha-sulfur injection test run methylmercaptopropanal mmp refrigeration tests run opinion a petitioner’s expert witnesses i the experts peter spitz gilbert froment richard martin norman brockmeier ms hinojosa dr wadia ms toivonen roy t halle m julianne mcclung gary allen b respondent’s expert witnesses ii whether the claim projects constitute qualified_research a the qualified_research tests the sec_174 test the technological information test the business_component test the process_of_experimentation test activities that are not qualified_research b the claim projects plant-based research the amoco anticoking project a the sec_174 test b the technological information test c the business_component test d process_of_experimentation test e funded research f research after commercial production g data collection and routine testing h substantiation requirement the spuds project a the sec_174 test b the remaining tests the sodium borohydride project a the first three tests b the process_of_experimentation test the uop ga-155 project a the sec_174 test b the remaining tests the ucat-j project a the sec_174 test i uncertainty ii discovering information b the technological information test c the business_component test d the process_of_experimentation test e research after commercial production f substantiation requirement iii base_period activities a whether petitioner must include activities conducted by the entire consolidated_group b acquisitions and dispositions c polypropylene runs d whether petitioner included all activities similar to the claim projects on its list of identified runs petitioner’s sources of information a whether petitioner was required to use focrs to identify base_period activities b whether petitioner was required to consider alternative sources whether petitioner should include additional activities in its base_period calculation a nox b john zink co products c star pelleting line d naphtha analysis e dr wadia’s limitation of duration reliability of dr wadia’s methodology a reliability of dr wadia’s methodology as expert testimony i whether the methodology can be tested ii whether the methodology is known or accepted in the community has been published or has been subjected to peer review iii whether the methodology is subject_to known rate of error b petitioner’s definition of qualified_research c whether dr wadia is biased iv claimed costs v base_period qres a alleged flaws in ms toivonen’s costing methodology b alleged errors in ms toivonen’s calculations c documents ms toivonen relied upon d consistency_requirement in general base case costs wage costs e whether ms toivonen calculated the cost of qualified_research activities vi conclusion memorandum findings_of_fact and opinion goeke judge respondent determined deficiencies in petitioner’s federal_income_tax of dollar_figure and dollar_figure for and respectively in its petition as amended petitioner alleges that it is entitled to additional research credits under sec_411 of approximately dollar_figure and dollar_figure for and respectively claimed credits the claimed credits are based on projects it conducted in various units within six manufacturing plants during and credit years for purposes of resolving this action expeditiously the parties have agreed to try five of the largest project sec_3 underlying petitioner’s affirmative research_credit claims claim projects the issue before the court is whether petitioner is entitled to additional research credits under sec_41 for or resolution of this issue requires us to determine 1unless otherwise indicated all section references are to the internal_revenue_code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure 2in its original petition petitioner claimed as affirmative adjustments additional research credits of dollar_figure and dollar_figure for and respectively after amending its petition petitioner has conceded that an additional project does not satisfy the requirements of sec_41 this concession does not affect our discussion of petitioner’s claims and will be addressed in the parties’ rule_155_computations 3the term projects is used for convenience 4petitioner withdrew a sixth project before trial 5all other issues in this case were resolved by agreement of the parties or our previous opinion in 115_tc_423 whether any of the claim projects constitute qualified_research under sec_41 whether any of the claim projects constitute qualified_research whether petitioner included all activities that were similar to the claim projects in its calculation of its base_amount under sec_41 if any of the claim projects constitute qualified_research under sec_41 whether the claimed costs of supplies and wages attributable to those projects claimed costs are qualified_research expenditures under sec_41 qres and if any of the claimed costs are qres whether petitioner included all similar costs in its base_amount calculation findings_of_fact i overview some of the facts have been stipulated and are so found the stipulated facts and the accompanying exhibits are incorporated herein by this reference a petitioner union carbide corp ucc was the parent_corporation of a group of corporations collectively petitioner that filed consolidated federal_income_tax returns for the years ending date and ucc is a corporation organized and existing under the laws of the state of new york at the time the petition was filed ucc maintained its principal corporate office in danbury connecticut at all relevant times petitioner was a worldwide manufacturer and marketer of basic chemicals and plastics and specialty and intermediate chemicals petitioner conducted its operations at large-scale production facilities throughout the united_states and abroad petitioner’s basic chemicals and plastics c p operations involved the processing of raw hydrocarbon feedstocks-- principally ethane propane and naphtha--into basic building- block chemicals known as olefins ethylene and propylene were the major olefins ucc produced and were key raw materials for petitioner’s olefins-chain c p businesses petitioner used process technologies to convert manufactured and purchased ethylene and polypropylene into first-line derivatives such as polyethylene which is used for high- volume applications such as food containers milk and water bottles grocery and trash bags pipes and tubing polypropylene which is used for similar high-volume applications and ethylene oxide glycol and derivatives which are used for products such as automobile antifreeze polyester resin and film and as raw materials for petitioner’s specialty and intermediates chemicals business petitioner’s specialty and intermediates chemicals operations involved the production of a wide variety of specialty chemical and polymer product lines as well as solvents and chemical intermediates during the credit years petitioner also licensed its key olefins-based process technologies such as the unipol process for manufacturing polyethylene to third parties in the oil_and_gas petrochemical industries during the credit years ucc maintained research_and_development r d technical centers in south charleston west virginia south charleston tarrytown new york bound brook edison and somerset new jersey and cary north carolina ucc carried out process and design engineering at the technical center in south charleston on date ucc merged into a wholly owned subsidiary of dow chemical co dow b procedural history ucc as the common parent of petitioner’s consolidated_group timely filed consolidated federal_income_tax returns for the years at issue on forms u s_corporation income_tax return on its and federal_income_tax returns returns petitioner claimed research credits of dollar_figure and dollar_figure for and respectively original returns research credits ucc elected the reduced_research_credit under sec_280c on its return but not on its return in computing the original returns research credits petitioner included the following amounts as qres for through attributable to ucc ucc’s original returns base_period qres year total ucc’s original returns base_period qres dollar_figure big_number big_number big_number big_number big_number ucc’s original returns base_period qres for through were drawn exclusively from ucc’s r d technical centers ucc’s original returns base_period qres were drawn from ucc’s r d technical centers except for dollar_figure million attributable to ucc’s g-1750 reactor at its seadrift facility in texas seadrift ucc’s annual gross_receipts for the base_period were as follows year total ucc’s annual gross_receipts dollar_figure big_number big_number big_number big_number big_number ucc’s annual gross_receipts for through were as follows year ucc’s annual gross_receipts dollar_figure big_number big_number big_number big_number on date respondent timely mailed a notice_of_deficiency to petitioner determining income_tax deficiencies of dollar_figure and dollar_figure for and respectively the parties negotiated an agreement that resolved most of the issues raised in the notice_of_deficiency respondent allowed petitioner’s original returns research credits as part of the negotiated agreement petitioner alleges in its petition as amended that it is entitled to additional claimed credits of approximately dollar_figure and dollar_figure for and respectively petitioner’s claimed credits are based on projects it conducted in various units within six manufacturing plants during the claim years 6these figures have not been adjusted to reflect the fact that petitioner has conceded that some of the projects do not satisfy the requirements of sec_41 in computing the claimed credits petitioner claimed dollar_figure and dollar_figure as additional qres under sec_41 for and respectively claimed qres the amount of claimed qres for is the full-year amount although petitioner acknowledges that sec_41 does not apply to any amount_paid or incurred after date and before date and petitioner will disregard such amounts in computing the amount of additional research credits to which it is entitled on its original and returns petitioner reported the claimed qres as costs of goods sold the supply items that are in dispute are raw materials used to produce goods for sale for purposes of resolving this action expeditiously the parties have agreed to try five of the largest projects underlying petitioner’s affirmative research_credit claims the five claim projects are referred to as the amoco anticoking 7the parties have not specified how they will proceed as to the remaining credit_year projects the court hopes that this opinion will provide the parties with sufficient guidance to determine whether additional research credits are available for those projects however additional proceedings may be necessary if the parties cannot agree on the final disposition of the remaining projects project the spuds project the sodium borohydride project the uop ga-155 project and the ucat-j project the court held two special trial sessions in connection with the petition claims the first addressed the research_credit eligibility of the claim projects and the second addressed petitioner’s sec_41 base_amount recomputation both parties introduced fact testimony from former ucc employees in some instances current dow employees and opinion testimony from expert witnesses ii claim projects ucc conducted the claim projects at the taft plant taft and the star plant star both of which were in hahnville louisiana ucc conducted its olefins production at taft’s hydrocarbons unit which contained two production subunits designated olefins-1 and olefins-2 during the credit years taft was a manufacturing plant that included facilities for the conversion of raw hydrocarbon feedstocks such as ethane propane and naphtha into basic olefins such as ethylene propylene and butadiene the amoco anticoking spuds sodium borohydride and 8petitioner now concedes that the spuds project is not qualified_research however for reasons discussed below we will make an independent determination as to whether the spuds project constitutes qualified_research 9following dow’s acquisition of ucc in taft and star were integrated into a single petrochemical complex referred to as st charles operations uop ga-155 projects related to the olefins production process and were conducted at taft ucc produced film and molding polyethylene resins using petitioner’s low pressure unipol process technology at star the ucat-j project related to ucc’s production of polyethylene resins and was conducted at star a the olefins production process a highly simplified description of the olefins production process at taft is that hydrocarbon feedstock is pumped from storage into pyrolysis furnaces preheated and diluted with steam and then is broken into lighter hydrocarbons through thermal cracking hydrocarbons are any chemical compounds consisting primarily of carbon and hydrogen hydrocarbons may include to more than carbon atoms and can be gases liquids or solids at normal temperatures depending on the number of carbon atoms in the compound hydrocarbons are found in petroleum coal and natural_gas hydrocarbons are significant sources of fuel and raw materials for the production of basic petrochemicals and derivatives such as plastics rubbers and specialty chemicals cracking is the process whereby hydrocarbon molecules are decomposed and recombined into lighter commercially useful molecules through the breaking of carbon-to-carbon or carbon-to- hydrogen bonds cracking can be accomplished through a thermal or a catalytic process ucc’s olefins production facilities employed a thermal process called steam cracking whereby a gaseous or liquid hydrocarbon feed is diluted with steam and heated in a fire furnace the steam cracking reaction requires temperatures in the range of to degrees fahrenheit and ordinarily occurs for less than half a second before being quenched or cooled rapidly in a heat_exchanger or by direct contact with colder fluid ucc’s heat exchangers are typically referred to by the acronym tle which stands for transfer line exchanger a tle tubesheet is a flat circular sheet approximately feet in diameter that manifolds together many double concentric tubes each with an inner diameter of about inch water and steam flow through the concentric annulus of each double concentric tube and the very high temperature effluent flows through the center tube heat is transferred from the cracked gas or effluent to the water and steam to quench the ethylene furnace reaction products tles use the extremely hot effluent to boil water into high pressure steam that may be used to power large steam turbine drivers in the product recovery section of the plant or for other purposes the steam cracking process requires the construction and maintenance of large capital intensive and complex cracking furnaces to supply the necessary heat most of the furnaces at olefins-1 and were lummus srt srt stands for short residence time furnaces a lummus srt furnace consists of a rectangular firebox with a row of vertical tubular coils or cracking sets located in the center plane between two radiating ceramic refractory walls after the effluent is initially quenched in the furnace’s tle to minimize secondary chemical reactions it is further quenched through direct contact with water and or oil in a quench tower heavier hydrocarbons known as pyrolysis fuel oil are separated from the effluent during the quenching process the cracking quenching and pyrolysis fuel oil separation processes occur in the hot section of ucc’s olefins production units after quenching the effluent enters the recovery section or cold section of the olefins production units the effluent is first compressed in a multistage centrifugal compressor to the pressure required for separation acid gasses such as carbon dioxide and hydrogen sulfide are removed in an acid gas removal unit during the compression process following compression and acid gas removal the effluent is dried chilled and partially condensed it then proceeds through a separations train whereby ethylene propylene butadiene and byproducts are fractionated and recovered in a series of distillation columns and related equipment distillation is performed in a column through the application of heat from a reboiler at the column’s base and the removal of components in a condenser at the column’s top the lighter fraction in the column feed mixture the fraction containing the components of the mixture with the lower boiling points is separated according to the lower boiling points relative to the other chemicals in the mixture and recovered as overhead vapor at the top of the column the heavier fractions in the column feed mixture exit as bottoms through the column’s base olefins-1 and olefins-2 each had several distillation columns including the demethanizer c1 column which separated methane from less volatile components the deethanizer c2 column which separated ethylene and ethane from less volatile components the depropanizer c3 column which separated propylene and propane from less volatile components and the debutanizer c4 column which separated crude butadiene butane and other four-carbon compounds from less volatile components the units also included an ethylene fractionator which separated ethylene from ethane and a propylene fractionator which separated propylene from propane as well as several other columns recovered methane and hydrogen were used primarily as fuel gas ucc typically supplied recovered ethylene propylene and crude butadiene to third parties and or one of ucc’s dedicated olefins derivatives units ucc also recovered and sold certain byproducts of the olefins production process such as acetylene dripolene pygas and fuel oil ethane and propane recovered in the process were recycled through the process to extinction b the amoco anticoking project overview of coking coke is a heavy hard and relatively brittle form of carbon that gradually forms on the interior walls of cracking set coils during the cracking process the cracking reaction produces two types of coke catalytic and thermal dollar_figure catalytic coking is caused by the reaction between active metal sites on the inner furnace tube walls and hydrocarbon molecules in the cracked furnace gas thermal coking gradually forms as a result of the reaction between catalytic coke and the highly reactive products in the cracked furnace gas time and temperature combine to remove the hydrogen from the hydrocarbon molecules forming thermal coke coke buildup adversely influences furnace performance in a number of ways coke insulates the furnace tubes from the inside impeding effective heat transfer from the furnace walls to the gas within the cracking sets this gradually increases the skin temperature of the coils to the mechanical limit approximately big_number degrees fahrenheit coil coking also closes 10there are other coke formation theories that are not relevant here off the flow cross-section area within the cracking sets and thereby causes the hydrocarbon partial pressure the pressure exerted by the hydrocarbons within the gas mixture to increase higher partial pressure in the coils reduces the desired ethylene yield from the furnace coke also accumulates in the tles located immediately downstream from the radiant section and the accumulation can lead to higher hydrocarbon partial pressures and tle exit temperatures higher pressure in the tles caused by coking also reduces the desired ethylene yield from the furnace because of these effects of coking on furnace operation the cracking sets must be decoked periodically ucc generally decoked the furnaces in taft’s hydrocarbons unit every to days through a process in which air and steam were fed into the cracking sets at elevated temperatures hot decokes after approximately three to four hot decokes ucc brought the furnaces down for an extended cold turnaround in which damaged cracking sets were replaced and coke was manually removed from the tle system hot decokes and cold turnarounds necessarily resulted in maintenance_costs and lost production inhibiting coke formation could result in reduced maintenance longer furnace run times longer equipment life and increased productivity the coke reduction program and amoco’s technology before and during the credit years ucc’s hydrocarbons r d group had in place a coke reduction program aimed at achieving economic and productivity improvements by implementing technologies designed to reduce or eliminate coke in ucc’s ethylene furnaces because of the inefficiencies caused by coke finding ways to reduce or eliminate coke was an important objective of ucc’s hydrocarbons business the goal of the coke reduction program was to reduce the number of decokes per year by percent and increase productivity by to percent per year if successful ucc estimated that this would reduce its decoking costs by dollar_figure million per year and increase revenue by as much as dollar_figure million many coke mitigation technologies have been proposed and developed in laboratories over the years but none have succeeded commercially some failed to mitigate coke or even made it worse ucc screened and commercially tested numerous anticoking technologies in the mid-1980s and later during the credit years there was no known generally accepted commercial coke mitigation technology for pyrolysis furnaces ucc considered at least four technologies during the credit years but tested only technology developed by amoco chemical corp amoco during that period one of ucc’s senior engineering scientists david milks approached amoco regarding its anticoking technology in date dr milks operated out of the south charleston technical center on date amoco’s anticoking technology manager wrote to ucc regarding an amoco-developed furnace anticoking technology that would mitigate coke formation and extend furnace run times between decokings amoco’s technology involved the pretreatment of the interior walls of the cracking sets with a solution of dithiophosphoric acid derivative amoco claimed that the pretreatment bonded to the sites of the tube walls that promote catalytic coke formation and poisoned these sites for several furnace runs to prevent coke buildup amoco told ucc that its anticoking technology had been successfully tested in a pilot plant and two commercial plants and that the treatment had been shown to survive multiple decokes after reading about the science behind the technology dr milks believed that it was theoretically sound but not yet proven both dr milks and amoco were interested in testing the technology on ucc’s facilities several ucc employees formed the amoco anticoking technology test team to evaluate the technology on one of the furnaces at olefins-2 and to provide a recommendation as to whether ucc should license the technology and implement it on all of its furnaces at taft and other ucc plants william hyde an operations improvement engineer at taft was the team leader as the team leader mr hyde prepared a charter for the team evaluated the technology to determine whether it was worth testing and coordinated the testing of the technology amoco’s anticoking technology included the treating chemical and a specialized method of application unlike prior decoking technologies that ucc had tested which involved the continuous injection of an anticoking chemical amoco’s technology was a pretreatment to be applied to a clean furnace before introducing the feed because of the proprietary nature of the technology amoco required the protection of a secrecy agreement before disclosing its process to ucc on or about date ucc entered into an agreement with amoco relating to amoco’s anticoking technology the secrecy agreement the secrecy agreement was the only agreement ucc entered into with amoco regarding amoco’s anticoking technology according to the secrecy agreement ucc’s goal in conducting the amoco anticoking project was to evaluate the technical and economic feasibility of amoco’s process and equipment for inhibiting coking in ucc’s ethylene furnaces ucc also wanted to determine whether it was interested in a licensing arrangement with amoco ucc’s rights in amoco’s technology were limited to these purposes the secrecy agreement obligated ucc to provide amoco with a nonconfidential summary of the amoco anticoking technology’s performance no later than months after testing was completed ucc gained no rights in or licenses to any amoco patent but the secrecy agreement contemplated that the parties could enter into a licensing agreement after the testing was completed the amoco anticoking project at the beginning of the amoco anticoking project ucc was under the impression that the amoco technology was fairly established and beyond early developmental stages but that it would still require some testing before it was proven technology except for the fact that ucc was testing the amoco technology ucc intended to continue its ethylene production process as usual without decreasing production during the amoco anticoking project ucc worked with amoco to draft a test plan that specified the number of test runs runs the run lengths what would be measured and the method of injecting the inhibitor the run lengths would be determined by furnace cycles the amount of time the furnace would run between hot decokes under normal operating conditions the test plan called for the collection of data over four consecutive furnace cycles the testing would begin on furnace in taft’s olefins-2 unit the test plan provided that amoco would apply the inhibitor to four of the six coils in the furnace so that the coke formation could be compared between the treated cracking sets and the untreated cracking sets the test plan provided that treating four of the six coils would ensure that the test results would not be affected by differences between furnaces or operating conditions the test plan called for the collection of various measurements during decokes including furnace coil skin temperature pressure drop across the coils tle inlet pressure carbon monoxide carbon dioxide and phosphine except for phosphine these measurements are affected by coke formation phosphine is a toxic substance that can be produced when phosphorous-containing materials are used as coke inhibitors to prepare for the test mr hyde prepared a facility operational change review focr for the project an focr is a document that is prepared by the operations personnel when a significant operational change is to take place it generally addresses technical quality health waste and safety issues that must be considered before the change is implemented in order to minimize any risks involved jason tregre a taft hydrocarbon r d technology manager participated in the prestartup safety review on furnace as part of the test preparation ucc also manufactured and installed nozzles according to design specifications provided by amoco among the other final test preparations were several discussions with amoco representatives and a walkthrough at taft on date in which amoco and ucc personnel reviewed the pretreatment application procedures on or about date after a hot decoke four of the six cracking sets were treated amoco personnel worked with ucc’s plant operators to apply the treatment using amoco’s equipment amoco provided the treatment free of charge and agreed to pay any overtime for additional time that ucc’s employees would be required to work the treatment was completed on date after the pretreatment was complete ucc’s plant personnel returned the furnace to normal operating conditions ucc paid for the feedstocks and fuel gases used during the project as well as the normal wages of the ucc employees involved in the project the supplies used for the project were the same supplies that ucc used for normal operations and ucc sold the materials produced during the amoco anticoking project in the ordinary course of its business the amoco anticoking project did not disrupt ucc’s normal manufacturing processes or products after the pretreatment was applied ucc’s plant personnel took various measurements including the following some of which were not normally taken and others of which were not normally taken as frequently measurement taken furnace coil skin temperature radiant coil pressure drop tle inlet pressure carbon monoxide carbon dioxide hydrocarbon and steam flows phosphine frequency during test once per day normal frequency once every to days at least once per day continuously not normally measured continuously not specified during the decoke every minutes for the first days hourly thereafter not specified not normally measured not normally measured not specified not normally measured some of these measurements were collected on the olefins-2 unit’s process computer and others were collected manually ucc took measurements for approximately days then performed a hot decoke of furnace in date throughout the project ucc continued to decoke furnace according to the plant’s normal schedule ucc restarted the furnace on or about date without retreating the furnace and continued to take measurements for about days thereafter dr hyde compiled these measurements and sent them to dr milks and dr husebye a researcher in the hydrocarbons r d group at the south charleston technical center dr husebye reformatted the data and analyzed them dr husebye did not typically perform this type of analysis ucc did not share the data it collected with amocodollar_figure dr husebye and dr milks documented the results of the first amoco pretreatment in a report dated date the report covered approximately weeks of furnace 24’s operation the results showed that carbon monoxide in the treated cracking sets was initially reduced indicating successful coke inhibition however after the first hot decoke and restart of furnace there was no statistically significant difference in the amount of carbon monoxide in the treated versus untreated cracking sets dr milks and dr husebye hypothesized that the hot decoke that was performed before the amoco pretreatment was applied might have been incomplete and the pretreatment might not have survived the first hot decoke following the pretreatment the results from the other measurements were either inconclusive or indicated no difference between the treated and untreated cracking sets because the results from the first pretreatment were inconclusive dr milks and dr husebye recommended a second pretreatment with the amoco technology after a thorough cold 11respondent argues that ucc did share data it collected with amoco and there is conflicting testimony on this point however this fact does not control our decision turnaround amoco personnel applied the second pretreatment in date to four of the six cracking sets ucc personnel gathered the same data following the second pretreatment as they had gathered following the first pretreatment and dr husebye analyzed the data while ucc did not retain its analysis of the second pretreatment it did retain archived computer records that included data collected after the second pretreatment that could be used to reconstruct the original analysis following the second pretreatment the initial carbon monoxide levels in the treated cracking sets were again significantly lower than the carbon monoxide levels in the untreated sets however after the hot decokes of furnace in may and date the carbon monoxide levels in the treated and untreated cracking sets were nearly identical the results from the second pretreatment as a whole indicated that the amoco technology did not inhibit coke formation in furnace 24’s treated cracking sets during the runs conducted between april and mid- date on date a furnace operator participating in a cold turnaround of furnace observed that the tle cones connected to the treated cracking sets had significantly greater amounts of coke deposits than the tle cones connected to the untreated cracking sets this was unexpected and ucc believed that the pretreatment may have contributed to the excess coke in the tle cones during the cold turnaround ucc removed tube samples and coke samples from furnace to be tested ucc’s corrosion and machinery engineering department evaluated the samples and documented the results of its analysis in a formal project report this report included the results of several tests performed on the samples analyses of those tests and recommendations for future tests of the amoco technology ucc did not prepare any other formal project reports to specifically document the results of the second pretreatment however ucc reported the results of the two pretreatments in several informal reports and memoranda ucc considered the amoco anticoking project to be finished in date and ucc never again tested the amoco technology in any of its ethylene furnaces ucc later discovered that the problem might have been caused by a mistake on amoco’s part in establishing the feed rate or the quantity of inhibitor to be fed to the furnaces this indicated to ucc that amoco’s technology was more developmental than ucc originally believed it to be ucc never entered into a licensing agreement with amoco to use its technology ucc used the information gathered during the amoco anticoking project primarily to determine that amoco’s technology did not effectively reduce coke formation in its commercial facilities ucc also learned about the operation of thiophosphates the active ingredients in the amoco technology the relationship between sulfur and carbon monoxide levels and the effect of anticoking technology on the ceramic material on tle cones ucc used this information in the course of its business mr hyde spent hours in and hours in working on the amoco anticoking project mr tregre spent hours working on the amoco anticoking project in dollar_figure c the spuds project overview of the spuds project the spuds project involved replacing four-hole spuds with one-hole spuds on furnace in olefins-1 at taft the one-hole spuds were installed on furnace on or about date a burner is a device that provides radiant heat in a pyrolysis furnace through controlled combustion in a pyrolysis furnace combustion is intended to provide a uniform temperature to the fired radiant wall allowing for even heat flux distribution to the cracking set coils 12petitioner does not claim as qres any wages paid to dr milks or dr husebye who operated out of the south charleston technical center their wages would have been included in petitioner’s original returns research credits the furnaces in olefins-1 each had radiant wall burners the burners are mounted through the furnace radiant wall and produced a thin flat circular disk of flame adjacent to the wall the burners were equally spaced in a grid pattern and radiated heat to the process tubes on the centerline of the furnace each burner had a single spud a spud is the orifice or port through which fuel gas flows into the burner it resembles a bolt with one or more holes at the end spuds are installed at the piping terminations of each burner and affect fuel flow and pressure spuds function to equally divide the amount of fuel being injected to each burner so that the heat released from the burners is evenly and predictably distributed throughout all of the burners in the firebox the size and number of spud orifices determine the pressure of the fuel gas just upstream of the orifice and the exit velocity of the fuel gas from the orifice parameters known as flow characteristics flow characteristics of the spuds help determine the burner firing capacity which is the british thermal unit btu per hour heat output generated by a single burner flame stability and fuel efficiency as fuel gas passes through the spud it produces a high velocity gas jet which entrains combustion air and mixes it with the fuel the amount of air that mixes with the fuel is critical to the stability of the flame when it was first built in the 1960s olefins-1 used one- hole spuds until it was moth-balled in the 1980s when it was restarted in olefins-1 switched to four-hole spuds in order to reduce noise the four-hole spuds were prone to plugging and ucc typically cleaned the spuds during furnace shutdowns by poking them with pieces of wire plugging of spuds may also be improved or eliminated by cleaning the fuel gas system removing contaminants in the fuel gas setting up a regular maintenance schedule for removing and cleaning the spuds or increasing the size of the orifice s in the spuds some of these methods may be costly and or labor intensive while replacing multihole spuds with one-hole spuds without changing the total area of the holes was a known method of reducing plugging one-hole spuds cause significantly more noise than multihole spuds and therefore cannot always be used the taft hydrocarbons unit identified fuel efficiency as an area for operational improvement in date the john zink co conducted a combustion survey of taft’s hydrocarbons unit the john zink co is a large ethylene burner manufacturer that manufactured the burner used on furnace burner manufacturers generally use their test furnaces to evaluate new spud designs because testing new spuds in a commercial furnace can be hazardous and the costs are unreasonably high however once a spud design is proven it generally performs better on commercial furnaces than on test furnaces because the higher heat content in a commercial furnace results in more stable flames testing and evaluating a new spud on a test furnace takes about a day or less following the survey the john zink co recommended using one-hole spuds instead of four-hole spuds in the olefins-1 furnaces to reduce plugging ucc had been using one-hole spuds in its olefins-2 furnaces since the late 1970s and noticed that olefins-2 had not experienced any plugging problems however ucc was concerned about changing to one-hole spuds because they might create too much noise olefins-1 and were physically different and noise was more of a concern at olefins-1 than at olefins-2 however noise was not a major concern because the plant personnel already wore hearing protection ucc followed the john zink co ’s recommendation to try switching from four-hole spuds to spuds with one hole with the same total hole area ucc decided to purchase enough spuds for three furnaces which would cost dollar_figure to dollar_figure per furnace ucc believed that this was a relatively inexpensive way to solve the plugging problem ucc intended to test the new spuds on one furnace and if the test was successful then ucc would immediately begin replacing the spuds on two other furnaces to test the new spuds ucc planned to monitor performance data such as the fuel-to-feed ratio btus of fuel per point of feed excess oxygen in the fuel gas the amount of combustibles in the fuel gas and fuel pressure ucc intended to evaluate the fuel efficiency improvements by measuring btus in a process computer measurements that were available regardless of whether a test was being performed the goals of the test were to determine whether the new spuds would stop or reduce plugging increase efficiency and if so by how much and increase noise and if so by how much mr tregre was involved in this planning ucc did in fact take the above test data on furnace for about days mr james gorenflo a furnace technician was involved in testing furnace ucc monitored plugging by checking fuel pressure gauges the results showed that pressure was not increasing which indicated that the new spuds solved the plugging problem ucc also evaluated fuel efficiency by analyzing measurements of fuel gravity and the fuel-to-feed ratio mr tregre was involved in this evaluation the results showed that fuel efficiency improved although not as dramatically as ucc had hoped because the one-hole spuds solved the plugging problem ucc installed one-hole spuds on all of its furnaces at olefins-1 after the 90-day test period was over while ucc hoped that the change would increase fuel efficiency more the fact that the one-hole spuds solved the plugging problem was sufficient justification for changing the spuds mr tregre spent hours in and hours in working on the spuds project mr gorenflo spent hours in working on the spuds project petitioner’s motion for leave to amend its petition on date petitioner filed a motion for leave to amend its petition if filed the amended petition would have withdrawn petitioner’s affirmative claim for additional research credits under sec_41 to the extent it was based on the spuds project adjusted the claimed qres to reflect the withdrawal of the spuds project and applied the correct credit rate for respondent opposed this motion because the court had already held a trial on the claim projects including the spuds project given the substantial cost of litigation respondent argued that he would be prejudiced if the court was prevented from rendering a decision on whether the spuds project satisfied the criteria for qualified_research in addition to the extent that petitioner claimed additional research credits for projects similar to the spuds project that were not litigated in the claim year trial respondent argued that he would be prejudiced by the absence of a decision on whether the spuds project constituted qualified_research following a hearing on this motion on date we denied petitioner’s motion because we found that it would be unfair to allow petitioner to unilaterally alter its agreement with respondent to hold a trial on the five claim projects d the sodium borohydride project overview of the acid gas removal system the sodium borohydride project involved the injection of a sodium borohydride solution into the olefins-2 caustic scrubber the olefins-1 and olefins-2 acid gas removal systems remove carbon dioxide and hydrogen sulfide from cracked furnace gas acid gases are impurities that can cause operational problems in downstream plant equipment acid gas removal is also necessary to meet product specifications the acid gas removal system consists of a regenerative monoethanolamine mea system followed by a caustic scrubber cracked furnace gas is fed into the mea system where it is washed with a countercurrent flow of amine solution that removes the bulk of acid gases as an incidental benefit the mea system removes the impurity acetaldehyde from the cracked furnace gas acetaldehyde is a highly reactive compound created in trace quantities during the thermal cracking of hydrocarbons in the presence of steam it is formed in the furnaces through the interaction of free radicals from steam and ethane or other raw materials acetaldehyde can polymerize and foul plant equipment after being treated by the mea system the cracked furnace gas passes through a two-stage caustic scrubber for removal of residual acid gases the caustic scrubber is sized so that it can reduce acid gases to specification levels even when the mea system is shut down the mea systems in both olefins-1 and olefins-2 had to be periodically shut down and manually cleaned because of the fouling of heat transfer surfaces partially caused by acetaldehyde polymerization fouling is the deposition of heavy organic solids that were dissolved in process fluid when one of the mea systems is down the cracked furnace gas passes through only the caustic scrubber for acid gas removal the caustic scrubber however does not remove acetaldehyde taft’s mea systems ordinarily ran from to months between shutdowns depending on the feedstocks used and furnace cracking conditions cleaning the mea system normally took about days in the early 1990s ucc produced at its taft plant a hydrocarbon product called crude butadiene crude butadiene is highly reactive and is a major contributor to fouling in the olefins process equipment when the mea system was shut down and only the caustic scrubber was used to remove acid gases some acetaldehyde would leave the process with the crude butadiene in shell oil co shell was taft’s primary customer for crude butadiene at the time taft stored crude butadiene in two storage tanks and transported it in barges to shell which operated a plant directly across the mississippi river from taft shell had a product specification limiting the amount of acetaldehyde in taft’s crude butadiene to parts per million ppm because acetaldehyde would foul shell’s processing equipment on one occasion in the summer of ucc manufactured crude butadiene that did not meet shell’s acetaldehyde specification shell refused to accept a barge shipment of that crude butadiene and returned it to taft when the mea system was in service acetaldehyde levels in taft’s crude butadiene were well below ppm however acetaldehyde levels reached between and ppm when the mea system was shut down one method that ucc used to bring off- specification crude butadiene within specification levels was called blending ucc would store off-specification crude butadiene and then blend it with on-specification crude butadiene when the mea system was restarted however when the amount of off-specification crude butadiene exceeded ucc’s available storage capacity ucc would have to attempt to recycle the crude butadiene or find a purchaser who would accept it as it was another problem of blending was that it was difficult to calculate the amount of on- specification product needed to blend with the off-specification product ucc was also considering building a pipeline directly from taft to the shell plant which would reduce or eliminate the need for storage tanks and make blending impractical therefore ucc did not view blending as a permanent solution to the problem of off-specification crude butadiene the sodium borohydride project because of the shortcomings of blending ucc sought a way to remove acetaldehyde from crude butadiene during the periods that the mea system was shut down for maintenance ucc decided that a possible solution was to add sodium borohydride to the caustic scrubber to remove acetaldehyde when the mea system was shut down for maintenance in date ucc considered using sodium borohydride regularly to remove acetaldehyde if using sodium borohydride proved to be effective ucc knew that sodium borohydride was effective in removing aldehydes including acetaldehyde as ucc had been testing sodium borohydride in laboratories for such purposes as early as ucc and its competitors had successfully used sodium borohydride in commercial processes to remove acetaldehyde and other carbonyl compounds from products however ucc did not know how effectively sodium borohydride could remove acetaldehyde in the caustic scrubber liquid sodium borohydride was often used to remove acetaldehyde from other liquids but in the caustic scrubber ucc would need to use liquid sodium borohydride to remove acetaldehyde from a gas the interaction of a liquid with a gas is much more difficult to predict than the interaction of a liquid with other liquids ucc also knew that sodium bisulfate could be used to remove acetaldehyde however ucc would have had to use a higher concentration of sodium bisulfate than sodium borohydride to effectively remove acetaldehyde and sodium bisulfate was more difficult to work with than sodium borohydride on date mr george brandon a senior production specialist at taft initiated an focr for injecting sodium borohydride into the caustic scrubber in olefins-2 according to the focr the purpose of the project was to run a test to determine whether sodium borohydride could be used to remove acetaldehyde when the mea system was shut down an r d report dated date prepared by robert manyik a consultant in the hydrocarbons r d group was attached to the focr in the r d report dr manyik proposed a plant test to add sodium borohydride to the caustic scrubber when the mea system was down in order to remove acetaldehyde to on- specification levels ucc would use a sodium borohydride solution called venpure sold by morton performance chemicals morton the r d report addressed whether such a test was feasible identified potential hazards that could arise during a test and provided the necessary technical information that would be needed to conduct the test the r d report specified the equipment that was available how much sodium borohydride ucc would purchase the rate at which the sodium borohydride would be added and the benefits and drawbacks of diluting the sodium borohydride the focr also included a diagram illustrating how the sodium borohydride would be injected and a memorandum setting out in question and answer format the duration of the test the controls that would be monitored whether the sodium borohydride would be diluted the physical configuration of the injection equipment operation temperatures and pressures for the injection equipment and ucc’s plan to prevent the buildup of salt precipitates one of the departments that reviewed the focr was taft’s environmental pollution department epd the epd endorsed the sodium borohydride project provided that certain conditions were met these conditions were that the epd would sample and monitor the plant’s wastewater for the presence of boron weeks before during and weeks after the test and the use of sodium borohydride would be immediately terminated if the monitoring indicated that the wastewater quality was beginning to deteriorate the epd was concerned that large amounts of boron might enter the wastewater system and disrupt the wastewater treatment another condition that the edp imposed was that the injection rate would not exceed pounds per hour and if the plant was required to increase this rate it would seek approval from the epd at that time approval from ucc’s r d department was also necessary before beginning the project because it involved the introduction of a new chemical to the process ucc wanted to ensure that the change was safe and that there would be no adverse consequences to the plant process from the injection of sodium borohydride the r d department approved the sodium borohydride project on date and the engineering department approved the sodium borohydride project on date ucc believed that a plant test was necessary to determine whether sodium borohydride would effectively remove acetaldehyde in an actual caustic scrubber ucc was uncertain how well the sodium borohydride would mix with the acetaldehyde because of the difficulty in modeling liquid-gas interactions therefore while it was known that sodium borohydride would react with acetaldehyde in a laboratory or pilot plant setting ucc was not sure how well sodium borohydride and acetaldehyde would react in a full-scale plant given the plant’s size gas flow and configuration because cracked furnace gas travels quickly through the caustic scrubber ucc was unsure whether the residence time of the sodium borohydride in the caustic scrubber would give the sodium borohydride sufficient time to react with the acetaldehyde and bring the crude butadiene within specification levels ucc was also unsure of the appropriate rate to inject the sodium borohydride and of the effect the sodium borohydride would have on the boron concentration of the wastewater because of these uncertainties as to how sodium borohydride would interact with acetaldehyde ucc referred to the sodium borohydride project as a test run after injecting the sodium borohydride ucc intended to monitor the acetaldehyde content of crude butadiene extracted from the caustic scrubber the epd also planned to monitor the wastewater for boron content the equipment for the sodium borohydride project was initially installed at olefins-1 on date but the crude butadiene remained within specification levels when the olefins-1 unit’s mea system was shut down for maintenance accordingly ucc moved the equipment to olefins-2 and conducted the test there ucc had a limited amount of sodium borohydride and did not want to waste it on crude butadiene that was already on- specification the sodium borohydride project began in the olefins-2 unit on or about date and ran for approximately weeks during the test ucc injected the sodium borohydride solution into the olefins-2 caustic scrubber to inject the sodium borohydride ucc used a small tote tank owned by morton to hold the solution a small metering pump to inject the solution and tubing to connect the tank and the pump to the process morton recommended an amount for ucc to inject and ucc followed that recommendation initially but then made adjustments as the project progressed ucc did not regularly record the amount of sodium borohydride that was injected during the test taft employees monitored the crude butadiene production from the olefins-2 unit’s c4 column during the sodium borohydride project ucc measured the acetaldehyde content of the crude butadiene every hours ucc normally took these measurements about three times a week to take the measurements plant operators took samples of crude butadiene to taft’s central quality control laboratory for testing in addition mr brandon measured acetaldehyde levels in the cracked furnace gas entering and exiting the caustic scrubber to take these measurements mr brandon used a device called a drager pump and tube system the tubes would indicate how many ppm of acetaldehyde the cracked gas contained mr brandon took these measurements at least daily for the duration of the project mr brandon did not normally take such measurements as planned the epd also monitored the wastewater approximately every hours the epd normally monitored the wastewater weekly unless a special test was being run mr brandon collected and recorded the results of the crude butadiene analyses and drager tube tests and reported the results to terry swindle a taft engineer assisting with the sodium borohydride project mr brandon devoted approximately hours to the sodium borohydride project the epd collected and recorded the results of the wastewater monitoring and reported to mr swindle that the boron was within acceptable limits however the data collected from the sodium borohydride project were not documented in a final project report ucc treated the date r d report prepared by dr manyik as the functional equivalent of a project report even though the report was prepared before the test of sodium borohydride occurred ucc considered the sodium borohydride project to be a success because the sodium borohydride effectively kept the acetaldehyde in the crude butadiene production below the ppm specification level accordingly taft began to use sodium borohydride regularly to reduce acetaldehyde levels when an mea system was shut down several years later ucc discovered that using sodium borohydride to remove acetaldehyde caused unacceptably high levels of ethanol a byproduct of the reaction in the crude butadiene during the credit years ucc believed that ethanol would leave the system with the spent caustic and therefore did not consider whether ethanol would be a problem and did not measure it however the ethanol remained in the crude butadiene and later caused it to fail shell’s new specifications therefore ucc began using a new product to remove acetaldehyde instead of sodium borohydride e uop ga-155 project overview of fouling in the c3 column the uop ga-155 project involved the injection of an inhibitor uop ga-155 into the c3 column line at olefins-1 in an attempt to reduce fouling in the c3 column trays and reboilers fouling is a major problem for petrochemical plants consequences of fouling may include declining performance frequent shutdowns of process equipment loss of operation time and increased maintenance_costs for cleaning or replacement of equipment fouling is a particular problem in distillation column services deposit buildup in distillation columns can reduce capacity and efficiency by blocking the flow path and by impeding the performance of heat exchangers an ethylene unit can experience polymer fouling in the c2 c3 and c4 distillation columns the c3 column typically has the worst fouling problem the main function of the c3 column was to separate the propylene and propane c3 molecules and heavier hydrocarbons the liquid hydrocarbon steam entered the c3 column at the column’s midpoint and fell to the bottom where it was heated by one of the two reboilers mounted on the column’s base the lighter c3 molecules were vaporized and captured at the top of the column while the remaining heavier components exited the bottom of the column and traveled on to the c4 column the c3 column contained approximately trays that held the liquid hydrocarbon stream being processed so that it could be exposed to the vapor generated by the reboiler column fouling is typically greatest within the reboiler and also occurs in the trays one cause of fouling in distillation columns is the polymerization of reactive components in the liquid phase of distillation polymerization is the linking of double bonds to form long chain molecules most of the polymerization is due to the reaction of diolefins and reactive species such as styrenics in the mid-1990s olefins-1 was experiencing high levels of fouling in the c3 columns reboilers and internal trays caused by the formation of polybutadiene polymer a rubbery black substance that adhered to the insides of the column there were two reboilers mounted to the base of the c3 column but only one operated at a time the polybutadiene polymer fouled the tubes in the operating reboiler and restricted the liquid flow when the reboiler fouled to the point that it became inoperable it was taken out of service and cleaned and the clean reboiler was placed_in_service typically it took about weeks to clean a fouled reboiler and cost about dollar_figure in and the ideal run time for a reboiler between cleanings wa sec_2 to months the polybutadiene polymer also accumulated on the trays to the point that the vapors rising from the bottom of the column could not pass through the holes in the tray this fouling created a high differential pressure in the column causing the column to flood with liquid and become inoperable at this point plant employees would have to shut down the column and clean it in and the ideal run time for a c3 column was approximately years but depending on the feedstock cracking and operating conditions the column would not always run that long it would typically take about a month to clean a fouled c3 column and cost about dollar_figure occasionally the entire olefins unit needed to be shut down when a column cleaning occurred overview of inhibitors an inhibitor is a chemical that is added to a chemical plant to reduce fouling and increase the time that a particular piece of equipment will operate before it needs to be cleaned or shut down olefins plants use two types of inhibitors polymerization oxidation inhibitors and dispersants polymerization oxidation inhibitors are added to stabilize certain products that can polymerize or break down when exposed to air dispersants are added to products to keep impurities suspended in the liquid hydrocarbon stream from depositing on plant surfaces and fouling them an effective inhibitor will improve column and reboiler run length times and will not cause any additional problems in the plant ucc used about different inhibitors in its olefins manufacturing processes at any particular time in the early 1990s in and ucc used different inhibitors in its olefins manufacturing units because an inhibitor that works well in one olefins plant may not necessarily work well in another olefins plant because equipment differs from plant to plant an inhibitor might have a different residence time or different contact times in different columns in addition flow rates pressures and temperatures which all affect the operation of an inhibitor differ from plant to plant the vendors from whom ucc purchased inhibitors tested the inhibitors in laboratories to verify that they would in fact inhibit polymerization or oxidation however ucc could not determine how well the inhibitors would work in one of its plants without testing them in the plant ucc generally gathered data when using a new inhibitor and compared that data to baseline data to determine whether the inhibitor worked as expected the purpose of inhibitors is to extend the time equipment can be used before it must be shut down and cleaned therefore one way to know whether an inhibitor is effective is to compare the run time of a compressor reboiler or column operating with the inhibitor against the preinhibitor run time of the same equipment ucc believed that the test of a new inhibitor should last for about as long as the vendor claims the equipment will run with the use of the inhibitor ucc also generally used inhibitor tests to determine the proper dosage while ucc believed it was important to use enough of an inhibitor for it to be effective excessive use of an inhibitor can have adverse effects on the production process or on the plant’s products furthermore because inhibitors are expensive using a higher dosage than is necessary will reduce the economic benefit of using the inhibitor the hydrocarbons r d group was generally involved in decisions to test process inhibitors at ucc’s plants because the tests would involve the introduction of a new chemical into the plant and could have environmental health and safety consequences r d was familiar with the chemistries and processes of the plants and could provide input on whether a new inhibitor might be effective in the plant what dosage levels to use how to set up the test plan and how to measure the results of the inhibitor use the uop ga-155 project dripolene was a byproduct of taft’s olefins production process that flowed out the bottom of the c4 column the final column in the olefins separations train ucc could not ship dripolene unless it was stabilized with a certain amount of polymerization oxidation inhibitor without the inhibitor the dripolene could react with oxygen and present an explosion hazard before undertaking the uop ga-155 project taft’s hydrocarbons unit had been injecting a stabilizer known as uop-5 into the dripolene as it flowed out of the c4 column the active ingredient of uop-5 was phenylenediamine the dripolene from olefins-1 and was blended and stored in the same tank so the olefins-1 dripolene was stabilized by the inhibitor injected into the olefins-2 dripolene because cleaning the reboilers and shutting down the columns was very expensive ucc was always looking for ways to decrease operating costs by reducing fouling mr brandon discussed the problem with members of taft’s hydrocarbons r d group to try to find ways to reduce fouling in the c3 column mr brandon approached uop a supplier to the petrochemical industry to determine whether uop had a product that could be fed directly into the olefins-1 c3 column to both reduce fouling and stabilize the dripolene uop reviewed ucc’s process stream operation equipment and operating conditions on the basis of those observations uop recommended that ucc use uop ga-155 which contains phenylenediamine the active ingredient used in uop-5 as well as a dispersant uop told ucc the approximate percentages of uop-5 and the dispersant contained in uop ga-155 uop maintained that uop ga-155 would operate as an oxidation inhibitor in the c3 column the phenylenediamine would stabilize the dripolene and the dispersant would mitigate fouling in the c3 column uop represented to ucc that uop ga-155 was effective in extending process run length ucc had not previously used uop ga-155 in any of its facilities and was not aware of any other olefins plants in the country that had used uop ga-155 however uop told ucc that some of the ingredients in uop ga-155 were industry-wide standard materials that were being used in olefins plants ucc did not consider other possible inhibitors or chemicals because their cost was excessive because they were bundled with the purchase of services that ucc did not want ucc wanted to test uop ga-155 in its plant because successful laboratory tests do not guarantee that an inhibitor will be effective enough in a full-scale plant to justify its cost while manufacturers often made representations to ucc regarding the inhibitors that they were selling the inhibitors did not always work as represented to test the uop ga-155 ucc planned to inject uop ga-155 into the c3 column feed instead of into the dripolene product as it had done with uop-5 the uop ga-155 would then flow out of the bottom of the c3 column flow into the c4 column feed and flow out of the c4 column and the plant with the dripolene mr brandon initiated an focr numbered focr for moving the equipment that was being used to inject uop-5 into the olefins-2 dripolene product over to olefins-1 in order to inject the inhibitor into the c3 column feed ucc hoped that injecting the inhibitor into the c3 column feed instead of injecting it into the dripolene as it flowed out of the c4 column would inhibit fouling in the depropanizer system mr brandon initiated another focr numbered focr for changing the inhibitor from uop-5 to uop ga-155 and injecting uop ga-155 into the c3 column feed focrs were generally required when introducing new inhibitors because the introduction of a new inhibitor is a process change according to focr the purpose of the change was to reduce fouling in the c3 and c4 columns and their reboilers the focr listed as concerns that needed resolution whether the customers would approve of the change and whether ucc had a pump that had a high enough discharge pressure mr brandon’s supervisor instructed mr brandon to keep the uop ga-155 project on hold until the necessary approvals had been obtained from the hydrocarbons r d group the epd and ucc’s customers ucc informed its customers that uop ga-155 would be injected into taft’s olefins-1 production process and its customers did not object the focrs were finally approved on date while mr brandon hoped that uop ga-155 would increase the c3 column’s run time he was not certain how effective uop ga-155 would be mr brandon was also concerned that uop ga-155 could actually harm ucc’s production process specifically he was concerned that adding a dispersant to the column could cause existing polymers to loosen from the column walls and trays and plug the column if that happened ucc would have to shut down the column and possibly the entire olefins-1 unit in addition mr brandon was concerned about the effect that uop ga-155 might have on taft’s commercial products because the uop ga-155 would flow out with the crude dripolene because uop ga-155 would be a new ingredient in the product it was possible that it could adversely affect the downstream olefins products or cause problems when fed into customers’ production processes the injection of uop ga-155 into the c3 column feed line in olefins-1 began soon after the final approvals were obtained for focr and focr on date the hydrocarbons r d group asked the plant personnel to collect data during the test accordingly mr brandon collected daily all of the pertinent data that were regularly recorded on the process computer system in the olefins-1 control room including differential column pressure feed flows throughput rate steam temperatures and steam flows differential column pressure is the measurement of the different pressures across the column trays from top to bottom when polybutadiene polymer accumulates on the trays the trays plug and the differential pressure increases while ucc did not normally review these measurements daily ucc did monitor reboiler chest pressure when there were problems it was also typical in the industry to measure column differential pressure when equipment is prone to fouling during the test mr brandon also measured and recorded condensate pressure of the reboiler every day neither mr brandon nor any of ucc’s other employees had monitored the condensate pressure daily before the uop ga-155 project an increase in condensate pressure is a primary indicator of reboiler fouling mr brandon and other employees also took samples of dripolene and analyzed the inhibitor levels once per 12-hour shift before the uop ga-155 project ucc’s employees had analyzed the inhibitor levels in the dripolene once a week for quality control mr brandon took measurements for approximately days during the uop ga-155 project mr brandon also kept track of reboiler run lengths both before and during the test period mr brandon spent approximately hours in and hours in working on the uop ga-155 project it would take approximately years to determine whether uop ga-155 substantially extended the run length of the c3 column ucc could determine whether uop ga-155 was reducing fouling in the column by opening the column but that was not practical therefore ucc relied on indicators such as differential column pressure to determine whether uop ga-155 was reducing fouling in the column it would take at least months for ucc to assess whether uop ga-155 would increase the run length of the reboiler because the normal run length of a reboiler without the addition of an inhibitor is about to months ucc believed that a successful inhibitor could extend the run length of a reboiler to about months therefore while mr brandon recorded data only for about days ucc treated the project as beginning on date and lasting for months during this time the olefins-1 unit operated normally except for the addition of the activities described above ucc sold the products produced during the uop ga-155 project in the ordinary course of its business ucc considered the uop ga-155 project to be a success because it reduced fouling and increased the run length of the reboiler to months mr brandon recorded the results of the project and shared them with mr swindle however mr brandon did not prepare a formal project report after the project was completed or save the data for use when fouling of olefins-2 was discovered in or however the results of the project would have been reported in the quarterly reports that the hydrocarbons r d group prepared the results of the uop ga-155 project were also included in a memorandum prepared for a conference call to be held on date the memorandum did not include data from the project but reported the results as follows uop inhibitor project recall that in the beginning of the second half last year the uop-5 inhibitor was replaced with the uop ga-155 inhibitor and it was injected earlier in the system in order to reduce fouling of the c3 column reboilers in ole-1 in january of this year the east kettle reboiler had to be taken out of service due to tube leaks which were not caused by the inhibitor or fouling - it was due to attack from carbonic acid in the steam condensate the newly purchased kettle which was installed last october was then put in service and is still in service we feel that the success of the kettle - six month life - is primarily due to the use of the new inhibitor in addition the new inhibitor is now also being used in ole-2 ucc did not always prepare formal project reports when an inhibitor test such as the uop ga-155 project was performed although it was preferable for a project report to be prepared to summarize the results of an inhibitor test this did not always happen because it was not always a top priority on or about date about a month after the uop ga-155 project began mr brandon began preparing an focr for a project to begin using uop ga-155 in olefins-2 on date mr swindle recommended that uop ga-155 be used at olefins- on or about date after the completion of the uop ga-155 project ucc began injecting uop ga-155 into olefins-2’s c2 column tail the purpose of this change was to reduce fouling in the c2 c3 and c4 columns in olefins-2 and simultaneously stabilize the dripolene however during a plant shutdown in or ucc discovered that the dispersant in uop ga-155 caused severe fouling in the olefins-2 f the ucat-j project overview of polyethylene production the ucat-j project involved a series of runs using a new polyethylene pe catalyst referred to as ucat-j conducted at star pe is a plastic made by reacting ethylene with other materials to form polymers or molecular chains of ethylene the pe production process generally involves a reaction between a polymerization-initiating catalyst as relevant here m-1 or ucat-j13 a cocatalyst a monomer usually ethylene a comonomer hexene or butene triethylaluminum teal and hydrogen once polymerization begins monomer molecules diffuse to the growing polymer chains and resin is formed following polymerization the resin is discharged into a separate vessel known as a product purge bin purging removes the residual 13the ucat-j and m-1 catalysts are described in greater detail below hydrocarbons in the resin and deactivates the catalyst and cocatalyst the resin is then fed into a pelletizer which converts the resin into pellets the pelleted pe resin is the finished product ucc typically shipped pelleted pe in hopper cars which each hold about big_number pounds of pe resin to customers who used it to make items such as grocery and trash bags packaging thin-walled containers and industrial liners star was dedicated to the commercial production of linear low-density film and molding resins lldpe and medium density mdpe and high density hdpe molding resins using ucc’s low- pressure unipol process technology unipol is the trade_name for a low-pressure gas phase fluidized bed process that ucc developed and licensed to third parties star’s low pressure unit lp-3 operated two unipol reactors reactor which was used primarily for hdpe molding resins and reactor which was used primarily for lldpe film resins although used for different purposes the two reactors were physically and technologically identical reactor and reactor operated continuously hours a day except for limited downtime maintenance transitions and unforeseen problems such as electrical outages in the early 1990s ucc began to plan the design of another unipol manufacturing_facility low pressure unit lp-6 lp-6 was designed to produce pe using ucat-j as the catalyst but ucc decided to install two different sets of catalyst feeders so that m-1 could be used at the plant if ucc could not commercialize ucat-j by the time lp-6 was complete ucc believed that it was likely that it would be able to use ucat-j at lp-6 once it was constructed but also knew that beginning the design of lp-6 before ucat-j was ready for commercial production was a risk ucc did not want to wait until ucat-j was commercialized before building lp-6 because it takes years to design and build a manufacturing_facility and ucc wanted lp-6 to be completed close to the time that ucat-j was commercialized lp-6 began producing pe in june of using ucat-j a unipol reactor is referred to as a fluidized bed because the circulating gas flow in the reactor causes the solid granular resin to fluidize the catalyst is fed directly into the side of the fluidized bed through an injection system a cocatalyst is also fed into the bottom of the unipol reactor to activate the catalyst and promote catalyst activity reactor operability refers to a wide range of potential reactor operating issues including catalyst stability reproducibility whether the reactor consistently produces the same responses reactor control production rate control product discharge and downstream equipment operation reactor operability is affected by a number of factors such as the history of the reactor since it was last cleaned ie how often it has been exposed to oxygen and moisture the mix of products run on the reactor the purity of the feed streams and the catalysts and cocatalysts used on the reaction system a significant unipol operability issue is the formation of sheets and agglomerates caused by static in the reactor sheets and agglomerates are often referred to as continuity problems because they interrupt the continuous operation of the reactors sheets are formed when resin continues to react in a stagnant zone a zone with poor fluidization next to the walls of the reactor without fluidization to remove the heat of reaction the resin fuses together and forms sheet-like blocks ranging from paper thin to several inches in thickness and several feet in length agglomerates are formed when granular resin fuses together forming solid or tightly adhered chunks ranging from popcorn sized to several feet in diameter these chunks can be caused by sheets folding or rolling in the fluidizing bed poor catalyst distribution localized poor heat transfer or areas of poor fluidization on the reactor distributor plate sheets and agglomerates interfere with fluidization and plug the product purge bin valve requiring ucc to shut down and clean the reactors another operability issue is the formation of small dust- like particles called fines fines can create static which can lead to sheeting cause continuity problems in the reactor and foul the cycle gas system the occurrence of operability problems might require a reactor to be killed a reactor kill or co kill is typically accomplished by the injection of carbon monoxide into the reaction cycle gas to either reduce the rate of reaction a minikill or stop all reaction as quickly as possible pe material meeting all applicable product specifications is referred to as aim-grade pe material that does not meet all applicable product specifications is referred to as off-grade the production of off-grade material was not unusual and ucc sold both aim-grade and off-grade resin to third parties but at different prices specific product properties of pe resins include the average particle size aps density for solid molded resin bulk density for loose resin powder film appearance rating far hexane extractables relating to the stickiness of the resin melt flow index melt flow ratio mfr and resin morphology the specific properties of the pe products made in a unipol reactor are determined by a variety of factors including the catalyst used and reactor operating conditions the key reactor operating conditions that determine the properties of the pe resin are reactor temperature ethylene partial pressure hydrogen-to-ethylene ratio comonomer ratio teal cocatalyst ratio al ti and residence time star’s reactors made a variety of pe base resins ucc identified base resins using a three-letter prefix followed by a four-number code and either an h or a b the prefix of all base resins begins with a d followed by a j if ucat-j is used as the catalyst or a g if m-1 is used as the catalyst followed by an h m or l depending on the melt index range the four-number code identifies the density and melt index designation the final h or b identifies the comonomer as hexene or butene respectively a transition is the period when reactor conditions are changed from one product’s specifications to a new product’s specifications a transition typically takes three to four bed turnovers to complete and each bed turnover lasts about hours a bed turnover is the average amount of time material stays in the reactor before flowing out of the product stream the resin made during transitions is either intermediate-grade material that can be recycled into aim-grade resin or off-grade material sold for scrap uses such as picnic tables and barrels once a reactor is transitioned into a new product it takes a number of additional bed turnovers to line out the reactor lining out the reactor involves increasing the production rate back to the normal level after slowing down for the transition and returning operation conditions back to their normal steady state after a transition from m-1 to ucat-j it takes at least hours to line out the reactor ucat-j in a chemical reaction a catalyst is a substance that increases the rate of the reaction or causes the reaction to occur under different conditions than otherwise possible polymerization cannot occur in a unipol reactor without a catalyst the catalyst provides the site on which the polymer chain grows a pe catalyst precursor refers to the catalyst state before the incorporation of aluminum alkyl catalyst modifying agents from star’s startup in through the beginning of the ucat-j runs at star in reactor and reactor at the lp-3 unit operated exclusively on a catalyst called m-1 ucc continued to use m-1 at star during the credit years during normal production runs occurring between ucat-j runs despite its extensive experience using m-1 ucc occasionally experienced operability and continuity problems with m-1 particularly sheeting ucc developed ucat-j as a superior catalyst alternative to m-1 the primary advantage of ucat-j is that ucat-j is over four times more active than m-1 meaning that the same amount of catalyst makes over four times as much pe resin as can be made with m-1 this in turn significantly reduces both capital outlays for catalyst manufacturing facilities and the cost of catalysts used in manufacturing pe ucat-j also requires less hydrogen and teal than m-1 thereby reducing manufacturing costs further and improves some properties of pe resin such as far however ucc used about the same amount of ethylene hexene and butene regardless of whether it used m-1 or ucat-j although ucc had not commercialized ucat-j during the credit years ucc knew of these advantages during the credit years and described them to its licensees in anticipation of ucat-j’s commercialization m-1 and ucat-j are both ziegler-natta catalysts a general category of pe catalysts made from a transition metal such as titanium and requiring a cocatalyst to initiate polymerization both catalysts are based on a chemical solution of magnesium chloride titanium trichloride and tetrahydrofuran although the proportions of these materials in m-1 and ucat-j are different most significantly ucat-j has a higher titanium loading and magnesium-to-titanium ratio than m-1 both of which give ucat-j superior activity both m-1 and ucat-j use titanium to provide the catalyst active site and teal as the co-catalyst to create m-1 a chemical solution is added to small particles of treated silica which absorb the solution most of the tetrahydrofuran is then evaporated to produce a free-flowing solid which is the m-1 precursor the m-1 precursor is then reduced with aluminum alkyls diethylaluminum chloride deac and tri-n-hexylaluminum tnhal to produce the m-1 catalyst catalyst reduction refers to the treatment of the catalyst precursor with aluminum alkyl modifying agents to moderate catalyst activity and ensure acceptable product properties such as bulk density and particle size the aluminum alkyl reduction agents used for both m-1 and ucat-j were deac and tnhal in its final form m-1 is a dry powder resembling sand ucat-j is spray dried instead of being silica based the chemical solution is transformed into a fine droplet spray in a spray dryer as these droplets pass through a drying chamber the tetrahydrofuran evaporates leaving only the solid catalyst the catalyst is then added to mineral oil to create a slurry a mixture of liquid and insoluble solids of ucat-j precursor the ucat-j precursor is then reduced with aluminum alkyls although star made its own m-1 catalyst precursor ucc made ucat-j precursor at a separate catalyst manufacturing_facility in south charleston and shipped it to star because of the different methods by which they are made m-1 and ucat-j have different catalyst morphology a term used to describe the size shape and surface texture of a catalyst particle m-1 catalyst particles have a substantially larger aps than those of ucat-j m-1 particles are typically rounder and smoother than ucat-j particles ucat-j’s morphology creates some problems that were not present with m-1 particularly increased fines and resin flowablity problems these problems created operating uncertainties that had not been resolved by the beginning of ucat-j and m-1 also respond differently to other chemicals present during polymerization respond differently to reactor conditions and create differences in pe product properties m-1 precursor is reduced in the catalyst manufacturing unit before the catalyst is delivered for use in the reactor ucat-j precursor in contrast requires in-line catalyst reduction meaning that the deac and tnhal modifying agents are injected into the catalyst stream immediately before it is fed into the unipol reactor before the first ucat-j run at star which occurred in date ucc installed new equipment at star to allow the in-line reduction of ucat-j precursor the in-line precursor modification system was a new unit operation installed specifically for use with ucat-j in this system ucat-j precursor was placed into a slurry feed tank agitated to maintain good dispersion and pumped at a controlled rate deac and tnhal were pumped into the catalyst stream at a specific ratio to the catalyst feed following the injection of the aluminum alkyls the precursor flowed into a static mixer to ensure adequate contacting and then into a residence time pot to provide time for the in-line modification to occur the ucat-j in-line reduction system presented several operating uncertainties not present with m-1 when the system was first used it created catalyst consistency problem that were due in part to the absence of static mixers and in part to the fact that the original design contacted the ucat-j precursor with deac first and then with tnhal as was customary with m-1 ucc later discovered that consistency improved when the order was reversed ucc also had difficulty controlling flow rates keeping control consistent and accurate and injecting ucat-j because a slurry does not disburse as easily as a dry catalyst like m-1 these uncertainties were not resolved by overview of the ucat-j project the ucat-j commercialization program involved the development of ucat-j to the point where it could be commercialized ucc’s unipol licensing business wanted to commercialize ucat-j in order to derive revenues from selling ucat-j to existing unipol licensees be able to tout the superior qualifies of ucat-j to prospective unipol licensees avoid the capital costs associated with constructing plants to manufacture the less-productive m-1 catalyst and reduce star’s manufacturing costs as a result of ucat-j’s superior productivity the ucat-j commercialization program took place at star from to references to the ucat-j project are only to those runs that occurred during the credit years once ucc made the decision to commercialize ucat-j members from process r d product r d and catalyst r d formed an interdisciplinary ucat-j technology task force the members met monthly or bimonthly usually in person to review the status of the commercialization effort and develop strategies for overcoming problems with ucat-j implementation during through ucc’s process r d group conducted what it called experimental runs of ucat-j on a small-scale unipol reactor at a pilot plant at the south charleston technical center ucc defined an experimental run as a run of a product that ucc deemed noncommercialdollar_figure during the credit years ucc’s manufacturing business required that a commercial facility conduct at least two but preferably three objective-meeting experimental runs of new pe products including products made with a new catalyst for the products to be considered commercial the successful completion of two to three objective- meeting runs would demonstrate the operability of a new technology to the satisfaction of the unipol r d and manufacturing organizations a customer’s qualification of a pe resin depended on an independent inquiry related to the 14we use the term experimental run for convenience and consistency with ucc’s terminology suitability of the product produced and did not establish that the product could be produced consistently enough to be considered commercial ucc was not required to advise customers that they were receiving base resins produced with ucat-j unless a specific contractual term required such a disclosure the south charleston pilot plant’s unipol reactors were used strictly for r d purposes and one reactor was dedicated to ucat- j ucc ran ucat-j on the pilot plant reactor to evaluate catalyst performance estimate optimal operating conditions for the commercial reactors and make pe resin for evaluation by the product r d group in bound brook after experimenting with new technologies on the pilot plant ucc generally experimented with the technologies on its mid-size unipol reactors at seadrift before experimenting with the technology on the larger reactors at star however ucc took some ucat-j products from the pilot plant directly to star or did not test them on smaller reactors at all successful commercialization of ucat-j required ucc to conduct experimental runs at ucc’s commercial plants to evaluate whether ucat-j could be used with reactor operability and resin properties at least equivalent to and hopefully better than those achieved using m-1 while ucc was often able to achieve at least the same level of reactor operability and continuity using ucat-j as it had achieved with m-1 at pilot plants commercial- scale plant tests were also necessary because there were significant differences between the pilot plants and commercial reactors for example the bed volume of star’s commercial reactors was about times the size of the bed volume of the pilot plant reactor because of this difference ucc’s pilot plant and commercial reactors use different methods of fluidization these differences affect the amount of sheeting and static in a reactor accordingly a successful run at the pilot plant did not indicate that sheeting and static would not cause significant problems when a similar run was conducted at a commercial plant the first commercial-scale run using ucat-j was conducted on ucc’s smallest commercial-scale reactor the g-1750 reactor at seadrift in ucc continued the ucat-j commercialization program at star until ucc did not consider ucat-j fully commercial before the program was completed because ucc did not know with certainty how ucat-j would affect reactor operability and continuity how it would affect product quality and how much off-grade material it would produce whether there would be problems feeding the catalyst into the reactor and how it would respond to co kills ucc was also concerned about reactor feed stability fines creation production rate control resin properties sheeting and agglomeration such reactor operability and continuity issues could develop at any time during an experimental run so process r d representatives remained on site for the duration of the runs even after the reactor had been successfully transitioned into ucat-j process r d preferred longer experimental runs because they afforded more opportunities to evaluate reactor operability and continuity ucat-j experimental runs were initiated by the completion of an experimental run request by the appropriate business manager r d group leader inventory planning and control ipac manager and plant department head ipac controlled the scheduling of the experimental runs and the duration of each run when scheduling the runs ipac considered existing customer orders and the risks posed by experimental runs so that the experimental runs would fit ucc’s commercial requirements once an experimental run request was completed and the experimental run was scheduled representatives from process r d in south charleston would prepare a strategic run plan with input from the ucat-j technology task force the principal purpose of a strategic run plan was to communicate to all interested parties the run objectives key operating parameters analytical requirements and run coverage after receiving the strategic run plan a star engineer would prepare a tactical run plan the purpose of the tactical run plan was to give detailed run instructions to the plant operators responsible for reactor operation strategic run plans and tactical run plans were not prepared for routine commercial production runs the operations improvement group would also complete a new product introduction commercialization procedure checklist showing whether all required_documentation was in place the function of process r d representatives during experimental runs was to evaluate what was happening in the reactor identify problems create hypotheses for how to solve those issues or improve the process and test those hypotheses by conducting experiments process r d representatives conducted experiments by adjusting operating ratios modifying catalyst properties and introducing new reactor control technologies process r d generally did not address minor problems that could be solved by troubleshooting which were addressed by the production group at the plant during the ucat-j project process r d regularly collected various measurements of reactor operability and continuity and product properties while many of these measurements were collected during nonexperimental runs process r d representatives collected some data that were not normally collected and took other measurements more frequently than they normally would for example process r d measured residual aluminum and titanium to monitor for teal starvation during the ucat-j project but did not normally take these measurements teal starvation occurs when there is an inadequate amount of teal cocatalyst in the reactor this lowers hydrogen and comonomer response and catalyst productivity which cause a loss of control_over the reactor and product properties process r d also measured hexane extractables more frequently than normal during the ucat-j project the process r d representatives recorded their observations in r d notebooks at least every other day process r d sent an e-mail update to the members of the ucat-j technology task force and ucc’s management this was not done for normal commercial production runs process r d representatives were also called upon to address significant production problems with products made using the m-1 catalyst during the credit years representatives from catalyst r d and product r d both based in bound brook were available as needed samples of pe resins made during ucat-j experimental runs were shipped to the product r d group for testing to ensure that the resin was equivalent to or better than that made with m-1 any remaining aim-grade resin made during the experimental runs was sold to ucc’s customers product r d did not provide coverage or test resin samples for routine commercial production runs with m-1 the run team comprising representatives from process r d and star’s management and operations staff met before each run to discuss the run objectives and transition into ucat-j the run team also met regularly during the course of the ucat-j runs to assess the status of the run objectives and develop strategies for resolving any operating problems that had surfaced at the end of each run the run team met to discuss the extent to which the run objectives had been met the run team presented these findings at meetings of the ucat-j technology task force in addition process r d representatives prepared a run notebook for each run containing the strategic run plan the tactical run plan the r d monthly report description of the run the presentation to the ucat-j technology task force e-mails and other communications regarding the run and lab data process r d also described the ucat-j runs in monthly reports issued by the process r d group but these reports did not provide technical details concerning the runs process r d did not generally mention normal production runs in these reports experimental runs before the credit years ucc conducted nine ucat-j run campaigns on reactor at star from date to date the ucat-j runs conducted at star in and involved only hexene lldpe film resins made on reactor these were the principal products made at star and unipol licensee plants and tended to have tighter product requirements than molding resins at the end of ucc had conducted no ucat-j runs on reactor or on reactor with either molding or butene film resins about percent of the pe resin ucc made at star in was made with ucat-j by the end of ucc had resolved some uncertainties related to ucat-j such as an issue related to catalyst particle size the plant personnel at star also gained experience operating the plants using ucat-j and were at ease using ucat-j and in transitions furthermore a number of ucat-j runs had produced no off-grade product however the ucat-j runs conducted at star in and suffered from numerous operability problems many were unresolved as of the end of including gas channeling resin becomes stagnant and nitrogen is channeled through the resin instead of mixing with it causing inadequate resin purging teal starvation sticky stretch lldpe resins resins that agglomerated and did not flow properly sheeting and poor control_over product properties such as melt index density and hexane extractables caused by differences in ucat-j and m-1 catalyst morphology ucc was confident that many of these issues could be resolved but was unsure when or how it would be able to resolve them following a ucat-j run campaign on lldpe film resins in date a moratorium was imposed on further experimental runs on film resins to allow r d to work out various problems some related to ucat-j and others that were general plant problems ucc did not believe that ucat-j was ready to be commercialized by the end of experimental runs during the credit years at the beginning of some of the major outstanding issues with ucat-j were obtaining acceptable product properties in fractional melt index film resins resolving butene film bulk density problems determining the cause of and preventing resin stickiness establishing operating parameters for ucat-j film resins developing ucat-j for molding resins and ensuring that ucat-j met operational requirements ucc believed it needed to conduct additional experimental runs to resolve these issues ucc seeks research credits for the expenses_incurred in ucat-j runs ucat-j run sec_1 through conducted at star during the credit years the base resins produced types of resin produced low-density film or high-density molding start and end dates of the runs and pounds of base resin produced according to ucc’s product cost detail reports pcds are included in the chart below run no base resin resin type start date end date aim-grade resin produced pounds off-grade resin produced pounds djm-5265h hdpe molding big_number - djm-1810b lldpe film big_number big_number djm-1732h lldpe film 1big_number big_number djm-2419h lldpe film big_number big_number djm-1810h lldpe film big_number big_number djm-2016h lldpe film big_number - djm-1725h lldpe film 3big_number 4big_number djl-5264h hdpe molding djl-5280h hdpe molding djh-2580h lldpe film djm-1810b lldpe film djh-2950h lldpe film big_number big_number big_number - big_number big_number big_number big_number big_number big_number djl-5420h hdpe molding big_number djl-5143h hdpe molding big_number djm-1732h lldpe film djm-1725h lldpe film djm-1720h lldpe film djl-5280h hdpe molding big_number big_number big_number big_number big_number big_number 1this amount was found on a pcd for djm-1734h ucc could not find a pcd for djm-1732h so it used the pcd for a similar product 2this amount was found on a pcd for djm-1734h ucc could not find a pcd for djm-1732h so it used the pcd for a similar product 3this amount includes base resin produced during both run and another experimental run that took place in date 4this amount includes base resin produced during both run and another experimental run that took place in date 5this amount was found on a pcd for djm-1734h ucc could not find a pcd for djm-1732h so it used the pcd for a similar product 6this amount was found on a pcd for djm-1734h ucc could not find a pcd for djm-1732h so it used the pcd for a similar product 7the resin that petitioner claims ucc produced during run is included in the amount of resin petitioner claims ucc produced during run 8the resin that petitioner claims ucc produced during run is included in the amount of resin petitioner claims ucc produced during run a djm-5265h ucat-j run ucat-j run was the first ucat-j run at star with a molding resin and the first ucat-j run conducted on reactor the base resin djm-5265h was selected to be the first molding resin made with ucat-j at star because it was a basic cornerstone product that star made in large quantities and ucc considered it to be a low-risk product ucc had made aim-grade djm-5265h at the pilot plant using ucat-j and found ucat-j to be equivalent to m-1 with respect to operability and continuity on that scale before ucat-j run two short runs of djm-5265h had been conducted at the unipol facility of a licensee hanwa chemical corp hanwa in korea while the runs at hanwa were generally successful they lasted only a few days and the second run was aborted when the second transition failed these results were of limited value to ucc because hanwa’s reactors were different from star’s reactors hanwa’s reactors were just over half the size of star’s reactors and so were less prone to static furthermore hanwa’s reactors had a purification system for raw materials that was considerably better than ucc’s purification system as a result hanwa’s reactor feed was much cleaner than ucc’s and the catalyst had better productivity the objectives of ucat-j run were to successfully scale up production adjust production to take into account the differences in reactor size of djm-5265h from the south charleston pilot plant to reactor produce aim-grade resin for customer qualification and establish reactor operability and continuity on reactor as to the third objective ucc was not merely confirming that reactor operability and continuity were as expected ucc wanted to evaluate how well reactor worked with ucat-j ucc’s primary concerns before ucat-j run were that the differences between the pilot plant and reactor at star could cause the product to go off grade teal starvation could cause operability and continuity problems difficulties with co kills could occur if any kills were necessary and resin clumpiness could cause operability and continuity problems as with all of the ucat-j runs discussed below although not specifically mentioned below for brevity representatives from process r d and product r d provided coverage for ucat-j run and process r d collected data some of which were not normally collected or was not normally collected as frequently additionally samples of resin were collected during and following the run and were sent to product r d in bound brook for evaluation ucat-j run was aborted after hours because of sheeting caused by the use of m-1 before the transition to ucat-j and the formation of a spongy material that resembled styrofoam ucc analyzed the spongy material and determined that it formed because of the use of ucat-j but because the sheeting was caused by m-1 ucc was unable to determine the extent to which the use of ucat-j contributed to the shutdown ucc also discovered a discrepancy between the ti al ratio calculated by flow rate and the measured ti al ratio that correlated with catalyst feed rate ucc was unable to explain this discrepancy and was concerned about teal starvation ucc also discovered more fines than expected ucat-j run did not last long enough for ucc to draw any conclusions from the run it remained uncertain following the run whether ucat-j could be used on reactor with operability continuity and resin properties equivalent to those achievable with m-1 because of the formation of the spongy material teal starvation concerns and increased fines ucc had serious doubts as to its ability to make further product therefore it did not attempt to make another molding resin run again until according to a pcd for djm-5265h ucc produced big_number pounds of aim-grade base resin for customer evaluation during ucat-j run dollar_figure petitioner claims as qres costs associated with producing big_number pounds of aim-grade base resin during ucat-j run b djm-1810b ucat-j run sec_2 and ucat-j run was the first ucat-j run conducted at star using butene as opposed to hexene as the comonomer ucc wanted its plant operators to gain production experience using butene comonomers in anticipation of the startup of lp-6 there had been successful runs of djm-1810b at seadrift the pilot plant and a licensee’s facility which encouraged ucc to believe that it would be able to use butene as a comonomer at star however process r d had encountered significant difficulties producing butene film resins using ucat-j with acceptable bulk density because of particle morphology differences between ucat-j and m-1 the principal objective for ucat-j run was to successfully scale up ucat-j on the butene film resin from the pilot plant to star a successful scale-up would require that the run demonstrate operability using ucat-j equivalent to that achievable using m-1 reach aim-grade production within a 15as discussed below pcds were produced monthly and annually not for specific projects however no base resin produced with ucat-j was made in more than one run in any given month during the credit years accordingly the pcd for the month in which a ucat-j run occurred would include information only for that particular run specified period produce no significant off-grade material once the transition was complete and produce resin with acceptable bulk density ucc was uncertain before the run whether any of these requirements would be met or whether the scale-up would be successful ucc also hoped to produce to million pounds of aim-grade resin to sell to customers during ucat-j run to achieve acceptable bulk density process r d planned to change the catalyst reduction ratios and increase the amount of isopentane in the reactor during the run process r d regarded both changes as experimental and was uncertain whether they would improve bulk density without adversely affecting reactor productivity additional objectives of ucat-j run were to demonstrate a closed reactor restart with ucat-j following a co kill on m-1 and to demonstrate the ability to kill the reactor while it contained ucat-j ucc had never attempted a closed reactor restart at star with ucat-j ucc had had some experience with co kills using ucat-j but the results had been mixed in particular mini- kills had been much less effective when using ucat-j as compared with m-1 ucc was also concerned about several other risks including teal starvation resin carryover a negative effect of low resin aps which may result from steps taken to improve bulk density and resin clumpiness ucat-j run began well and met some of the objectives including the first successful reactor startup with ucat-j no significant off-grade material produced and unexpectedly high bulk density however ucc experienced operating problems a few days into the run that required the reactor to be shut down and the run aborted the most significant of these problems were unexplained production rate swings and the formation of cue balls of pe resin that were about the size of softballs ucc hypothesized that the cause of the cue balls was poor catalyst dispersion and accordingly it planned to change the injection tube for the next run of djm-1810b to improve catalyst dispersion and determine whether that would solve the problem according to a pcd for djm-1810b ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run ucat-j run was the second run of djm-1810b ucc’s primary objective was to make djm-1810b without the problems experienced in ucat-j run ucat-j run lasted from march to the longest run for a single product during the ucat-j project a long run is usually evidence that the run was successful however the transition to djm-1810b was unusually long and difficult and a significant amount of off-grade resin was produced once ucat-j was introduced into the reactor the resin bulk density unexpectedly dropped significantly causing the product purge bin to plug this resulted in significant off-grade material and required the production rate to be lowered ucc did not anticipate the bulk density problem because ucat-j run produced resin with unexpectedly high bulk density there were also problems with catalyst stability sheeting poor hydrogen control and melt index swings these problems were all specific to ucat-j and were not anticipated before the run because of the bulk density and operability problems ucc decided to return the testing of djm-1810b to seadrift while ucat-j run provided valuable operating data it did not establish that reactor at star could produce ucat-j butene lldpe film resins with operability and continuity equivalent to that achieved using m-1 according to a pcd for djm-1810b ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run c djm-1732h ucat-j run sec_3 and ucat-j run produced djm-1732h a low-density high-melt- index lldpe film resin ucat-j run was the first ucat-j experimental run of an lldpe film resin with a hexene comonomer conducted at star since date ucc experienced so many problems during the date run and the run had such a negative impact on manufacturing that r d wanted to do more work on smaller reactors before attempting the run again at star ucc had conducted runs of djm-1732h at star in january and date for day each but these runs were too short to establish that the process could be used with sufficient operability and continuity the objectives of ucat-j run were to produce sufficient product for customer qualification run reactor at normal star rates with operability and continuity equivalent to or better than m-1 reach aim-grade production within a specified period and produce no significant off-grade material ucc was uncertain whether any of these objectives could be met or whether the run would be successful because low-density high-melt-index lldpe film resin is sticky by design resin flowability was a primary concern before ucat-j run ucc was also concerned about teal starvation resin carryover difficulties with co kills if they were necessary and resin clumpiness resin clumpiness had also been a problem when using m-1 to make djm- 1732h but tended to be worse with ucat-j ucat-j run had several successes ucc was able to use co mini-kills which produced a rapid and significant effect no fines were produced and a hopper car of resin was produced however the run as a whole was considered a failure and several problems occurred there was extensive formation of clumpy resin that plugged the product purge bin there was poor melt index control and there was teal starvation in the reactor process r d evaluated these problems identified their potential causes and developed possible solutions for future runs ucc determined that the next run might be more successful if it lowered the ethylene partial pressure in the reactor to reduce the amount of hexane controlled the cycle gas composition and flow ratio and doubled the teal feed into the reactor for minutes known as giving the reactor a teal shot periodically even if starvation was not expected and more frequently during upset conditions ucat-j run did not establish that ucat-j could be used with operability and continuity equivalent to that achieved using m-1 according to a pcd for djm-1734h not djm-1732h ucc produced big_number pounds of aim-grade and big_number pounds of off- grade djm-1734h in no pcd was available for djm-1723h for petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run however other postrun documentation indicates that ucc produced big_number pounds of aim- grade base resin during ucat-j run in addition to the objectives stated for ucat-j run a goal of ucat-j run the next run of djm-1732h was to implement measures developed by process r d to control resin stickiness and teal levels and to demonstrate acceptable operability and continuity using ucat-j in reactor to control resin stickiness process r d recommended that ethylene partial pressure be lowered below psi which had never been done before at star with ucat-j this change to reactor conditions was considered experimental and had two drawbacks lowering the ethylene partial pressure could lower the productivity of the catalyst which would lower resin aps and increase fines causing fouling and if the reactor transitioned back to m-1 it would be necessary to increase the ethylene partial pressure by a greater amount ucc also planned to give the reactor periodic teal shots to minimize teal starvation which ucc began using in run discussed below however ucc was unsure whether these steps would be successful ucc hoped to produce hopper cars of djm-1732h for customer qualification and consumption other run objectives were to run reactor at normal production rates reach aim-grade production within a specified period and produce no significant off-grade material ucat-j run was generally successful ucc was able to control resin stickiness by lowering the ethylene partial pressure and ucc was able to maintain good catalyst productivity even though it is more difficult to maintain at low ethylene partial pressure overall operability and continuity were good throughout the run however while flowability improved it was still slightly worse than flowability that had been achieved using m-1 furthermore there was some teal starvation due to the teal feed system though less than had occurred during previous runs therefore the information gained was valuable to ucc but process r d still had some concerns a pcd for djm-1734h not djm-1732h shows that ucc produced big_number pounds of aim-grade djm-1734h in no pcd was available for djm-1732h for petitioner claimed as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run d djm-2419h djm-1810h and djm 2016h ucat-j run sec_4 through ucat-j run sec_4 through were all runs of hexene lldpe film resins with the exception of djm-1810h ucat-j run which had been used as an experimental bed resin for various types of reactor testing star had limited experience with the ucat-j resins to be made in these runs ucc designed ucat-j run to make djm-2419h which ucc had previously made at star only during a 1-day run in ucc produced approximately big_number pounds of djm-2419h in and ucc’s customers had accepted djm-2419h made with ucat-j however ucc was still uncertain whether it would be able to produce djm-2419h at star consistently with satisfactory operability ucc designed ucat-j run to make djm-1810h ucc had used djm-1810h as an experimental bed resin and had produced it in runs at star during and ucc experienced significant problems during the earlier runs during the later runs ucc used djm-1810h as an experimental bed for catalyst reduction tests order of reduction tests and similar tests ucc made about hopper cars of djm-1810h in djm-1810h produced with ucat-j had already been accepted by customers however ucc still considered djm-1810h to be an experimental resin at this point primarily because it had flowability problems ucc designed ucat-j run to produce djm-2016h which ucc had never made at star however ucc had produced djm-2016h at other plants during earlier experimental runs and customers had qualified resin produced during those runs ucc expected results similar to those that had been obtained during runs of djm-1810h ucat-j run the overarching goal of these runs was to demonstrate sustained operability of ucat-j with hexene lldpe film resins the specific run objectives listed on the strategic run plan were to produce sufficient product for customer qualification further commercial experience through the extended production run of djm-2419h ucat-j run and djm-1810h ucat-j run among other runs not claimed run reactor at normal star rates with operability equivalent to that achieved using m-1 reach aim-grade production within a specified period and produce no significant off-grade material outside product transitions in response to a recommendation made at the ucat-j technology task force meeting following ucat-j run ucc decided to run reactor at a lower than normal ethylene partial pressure during ucat-j run sec_4 through to improve resin flowability ucc considered this change to be an experiment because it was uncertain whether the change would successfully eliminate flowability problems and there was a risk that the change could significantly reduce catalyst productivity ucc also decided to use production rate control which is an automated system to control the catalyst feed rate and the ethylene partial pressure in the reactor the goal of this system was to maximize production rate by allowing production rate to run closer to the constraints of the reactor system because of the problems with teal starvation in ucat-j run ucc decided to experiment with teal shots during ucat-j run sec_4 through however ucc was concerned that increasing the ti al ratio would also increase hexane extractables in addition to teal starvation ucc identified several other risks related to ucat-j run sec_4 through resin carryover difficulties with co kills if they were necessary and resin clumpiness process r d representatives evaluated the ethylene partial pressure and teal shot experiments during ucat-j run sec_4 through in addition to the support that r d provided to all of the ucat-j runs ucat-j run sec_4 through were generally successful reducing the ethylene partial pressure and using production rate control reduced the stickiness problem and giving the reactor teal shots reduced teal starvation ucc viewed this as a substantial achievement the only significant problem was a decrease in far which occurs when there are gels or foreign matter in the film ucc took samples of the resin to try to determine the potential causes and solutions for the decreased far ucc hypothesized that the decrease in far was caused by the use of wet hexene process r d concluded that it had gained confidence that star could produce djm-1810h ucat-j run and djm-2016h ucat-j run with sufficient operability and continuity however ucc believed that additional experiments were necessary to reach this conclusion with respect to djm-2419h ucat-j run according to a pcd for djm-2419h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run according to a pcd for djm-1810h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run according to a pcd for djm-2016h ucc produced big_number pounds of aim-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade base resin during ucat-j run e djm-1735h ucat-j runs and ucat-j run was an experimental run of djm-1725h another hexene lldpe film resin that is very sticky and had shown poor flowability ucat-j run began and ended on date ucc also produced djm-1725h in date but there were so many problems with clumpy resin melt index control and teal starvation that ucc did not use that resin for customer qualification as in ucat-j run sec_4 through the overarching objective of ucat-j run was to demonstrate sustained operability of ucat-j with hexene lldpe film resins the specific run objectives were to produce sufficient product for customer qualification run reactor at normal star rates with operability equivalent to that achieved with m-1 reach aim-grade production within a specified period and produce no significant off-grade material outside of product transitions ucc implemented the recommendation of the ucat-j technology task force to run reactor at a lower than normal ethylene partial pressure to improve resin flowability ucc also gave the reactor teal shots to reduce teal starvation but was still concerned that increasing the teal ratio would also increase hexane extractables in addition to the support r d provided to all of the ucat-j runs process r d representatives evaluated the ethylene partial pressure and teal shots experiments ucat-j run was generally successful the only significant problem was a decrease in far caused by gels or foreign matter in the film which had also occurred during ucat-j run sec_4 through ucc took samples of the resin to try to determine the potential causes and solutions for the decreased far ucc believed that additional experiments were necessary to gain confidence that it could produce djm-1725h with sufficient operability and continuity according to the summary report of the ucat-j experimental runs conducted at star ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run according to a pcd for djm-1725h ucc produced big_number pounds of aim-grade and zero pounds of off-grade base resin petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin which includes total production for both ucat-j run and the run that took place in date ucc produced djm-1725h again in ucat-j run because ucat-j run did not establish that djm-1725h could be made without continuity problems during longer runs teal starvation remained another significant operating issue in addition to the objectives for ucat-j run the goals of ucat-j run were to implement measures developed by process r d to control resin stickiness and teal levels and to demonstrate acceptable operability and continuity of ucat-j in reactor as in ucat-j run to control resin stickiness process r d recommended that ethylene partial pressure be lowered below psi ucc also planned to use periodic teal shots to minimize teal starvation however ucc was unsure whether these steps would be successful ucat-j run was generally successful ucc controlled resin stickiness by lowering the ethylene partial pressure below psi and ucc was able to maintain good catalyst productivity overall operability and continuity were good throughout the run however while flowability improved it was still slightly worse than the flowability that could be achieved using m-1 furthermore there was some teal starvation due to the teal feed system though less than had occurred during previous runs therefore the information gained was valuable to ucc but process r d still had some concerns according to a pcd for djm-1725h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run f djl-5264h and djl-5280h ucat-j runs and ucat-j runs djl-5264h and djl-5280h were the next experimental runs of hdpe molding resins after ucat-j run which ucc aborted before it could draw any meaningful conclusions following ucat-j run process r d took a year to evaluate ucat-j molding resins in the pilot plant before conducting another experimental run at star ucc determined that ucat-j was equivalent to m-1 with respect to reactor operability and continuity when making djl-5264h and djl-5280h at its pilot plant but ucc was still uncertain whether ucat-j would perform as well at star ucc had not yet determined that it could make djl-5264h or djl-5280h consistently on full-scale commercial reactors before ucat-j runs and the objectives of ucat-j runs and were to produce sufficient product for customer qualification run reactor at normal star rates with operability equivalent to that achieved using m-1 reach aim-grade production within a specified period and produce no significant off-grade material the primary risks ucc identified for ucat-j runs and were teal starvation resin carryover and difficulties with co kills if they were necessary to reduce the risk of teal starvation ucc measured aluminum and titanium during the run and gave the reactor periodic teal shots since teal starvation had not been a problem with m-1 these measurements were not taken during commercial runs using m-1 although resin carryover was listed as a risk on the strategic run plan for ucat-j runs and according to the strategic run plan ucc did not actually expect resin carryover to be a problem ucat-j runs and were generally successful reactor demonstrated acceptable operability and continuity and all other run objectives were met there was some melt index variation resin in some hopper cars had a higher melt index than the resin in others but this was not significant problem some teal starvation also occurred but it did not cause the resin to go off grade and ucc determined that it could most likely fix the problem by implementing a different teal system because ucat-j runs and each lasted only day ucc did not have time to fully evaluate operability and continuity however the information ucc gained was valuable and one or two more successful experimental runs would establish to ucc’s satisfaction that the process was ready for commercialization ucat-j runs and were the next experimental runs of djl-5264h and djl-5280h the operability and continuity of reactor in making these products remained uncertain before these runs as only a few short hdpe molding resin runs had been conducted up to this point with mixed results the primary objectives of ucat-j run were to operate at normal star rates with operability equivalent to that achieved using m-1 and to make a maximum of big_number pounds of off-grade material ucat-j run yielded big_number pounds of off-grade material which indicated poor operability particularly poor control of the resin properties in the reactor there were also problems with the product purge bin poor flowability and poor melt index control however ucat-j run was generally successful according to a pcd for djl-5264h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during including both ucat-j runs and postrun documentation indicates that ucc produced big_number pounds of aim- grade base resin during run and big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade resin during ucat-j runs and combined according to a pcd for djl-5280h ucc produced big_number pounds of aim-grade base resin in including both ucat-j runs and postrun documentation indicates that ucc produced big_number pounds and big_number pounds of aim-grade base resin during ucat-j runs and respectively petitioner claims as qres costs associated with producing big_number pounds of aim- grade base resin during ucat-j runs and combined g djh-2580h and djh-2950h ucat-j runs and ucc made djh-2580h ucat-j run in two short runs in and the run in produced about hopper cars of base resin that customers accepted however the and runs of djh-2580h presented significant operability problems djh- 2950h ucat-j run was a difficult product to run and had never been made at star the primary objectives of ucat-j runs and were to produce these resins with acceptable product properties particularly fractional melt index and to demonstrate acceptable reactor operability and continuity ucat-j run ran for days and then transitioned to djh- 2950h ucat-j run significant sheeting problems developed after the transition the reactor was mini-killed and restarted but the sheeting continued and became worse as a result reactor had to be shut down so that the sheets could be physically removed with a suction truck and chainsaws opening the reactor to remove sheets exposes the reactor to oxygen and can cause problems in subsequent runs as a result of the sheeting ucc aborted the runs and reactor was restarted with m-1 because resuming operation with ucat-j was considered to be too risky in the light of ucc’s overall business considerations however some aim-grade resin was produced during the runs and was sold to customers process r d suspected that the sheeting that first developed after the transition to djh-2950h ucat-j run was due to the high molecular weight of the djh-2950h resin and the sheeting that developed after the mini-kill was due to static because of the significant sheeting problems experienced during these runs process r d moved testing of djh-2580h and djh-2950 to seadrift before returning the testing to star ucc imposed a moratorium restricting fractional melt index products from operation at star according to a pcd for djh-2580h ucc produced big_number pound of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run according to a pcd for djh-2950h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run h djl-5420h and djl-5143h ucat-j runs and although ucc had successfully produced high density molding base resins in the pilot plant using ucat-j it had never made djl-5420h ucat-j run or djl-5143h ucat-j run at star before these runs ucc’s objectives for ucat-j runs and were to produce requested quantities of each resin for customer qualification about four hopper cars for each product run reactor at normal star rates with operability equivalent to that achieved using m-1 reach aim-grade production within a specified period and produce no significant off-grade material ucc was concerned about the risks of teal starvation resin carryover and difficulties with co kills if they were necessary ucc planned for both of these runs to be short because of the risk associated with ucat-j several operability issues occurred during the runs particularly minor sheeting during ucat-j run cold bands after the transition to djl-5143h and the formation of spongy agglomerates a cold band is an area where the reactor wall is cold and it indicates that there is enough static to cause resin to stick to the walls and create sheeting the spongy agglomerates that formed were similar to the substances that formed during ucat-j run despite these problems ucc considered the runs to be a success however because these were short runs ucc would need to continue to evaluate the resins to determine whether continuity issues would arise on longer runs according to a pcd for djh-5420h ucc produced big_number pounds of aim-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of base resin during ucat-j run according to a pcd for djl-5143h ucc produced big_number pounds of aim-grade base resin during ucat-j run petitioner claims as qres costs associated with producing big_number pounds of aim-grade base resin during ucat-j run i djm-1720h ucat-j run djm-1720h had never been made at star before ucat-j run two of the goals of this run were to implement measures developed by process r d to control resin stickiness and teal levels first implemented in ucat-j run sec_15 and discussed above and to demonstrate acceptable operability and continuity of ucat-j in reactor with these products the other run objectives identified in pre-run documentation were to produce the requested quantities of resin for customer qualification four hopper cars run reactor at normal production rates reach aim-grade production within a specified period and produce no significant off-grade material attributable to ucat-j djm-1720h is an lldpe resin which tends to be very sticky and had shown poor flowability in previous runs teal starvation remained another significant operating issue as in ucat-j run sec_15 and to control resin stickiness process r d recommended that ethylene partial pressure be lowered below psi ucc still considered this change to reactor conditions to be experimental ucc also planned to give the reactor periodic teal shots to minimize teal starvation ucat-j run was generally successful ucc controlled resin stickiness through ethylene partial pressure and ucc was able to maintain good catalyst productivity overall operability and continuity were good throughout the run however while flowability improved it was still slightly worse than the flowability achieved using m-1 furthermore there was some teal starvation due to the teal feed system though less than during previous runs therefore the information gained was valuable to ucc but process r d still had some concerns following ucat-j runs and ucc planned to implement a new teal feed system for all of star ultimately this alleviated the teal starvation issues according to a pcd for djm-1720h ucc produced big_number pounds of aim-grade and big_number pounds of off-grade base resin during ucat-j run petitioner claims as qres the costs associated with producing big_number pounds of aim-grade and big_number pounds of off-grade base resin iii claimed costs one of petitioner’s expert witnesses wendi hinojosa was responsible for costing the claim projects ms hinojosa was qualified as an expert in the accounting systems and documentation used by ucc in the credit years and the base_period petitioner claims as qres incurred by ucc in connection with the claim projects dollar_figure for and dollar_figure for a cost documentation used pcds and mass the primary cost accounting_records that ms hinojosa used to calculate the cost of the supplies used in the claim projects were pcds and material accounting summary reports mass pcds 16ms hinojosa’s qualifications are set out in the opinion section below and mass were part of ucc’s material accounting system used to track variable costs costs that vary with production such as raw materials catalysts and other materials used in the manufacturing process ucc used the material accounting system during both the credit years and the base_period there were no significant differences in ucc’s material accounting system and related documentation during these two timeframes the pcd was ucc’s official cost accounting record for products that it manufactured pcds contained detailed cost information for every product that ucc manufactured including the materials and quantities used in production pcds were produced monthly and annually not for particular projects the pcd for any given year consisted of approximately big_number pages mass are inventory control reports containing a transaction summary for every material ucc manufactured or purchased each of which was assigned a unique product code material production and consumption information was contained in both pcds and mass however pcds were organized by manufactured product whereas mass were organized in numerical order by product code and listed all transactions for each product code by location cmai data for ethylene byproducts additional products made during the manufacturing process of the primary product were listed as byproducts on pcds ucc’s material accounting system treated the cost of byproducts as a reduction in the cost of the primary product taft’s hydrocarbons unit made several ethylene byproducts such as propylene butadiene dripolene hydrogen methane and acetylene because these byproducts are made from the same starting materials as ethylene it is difficult to separately allocate the supply costs attributable to each byproduct for this reason ms hinojosa used historical and market values of ethylene byproducts as a proxy for their supply costs these market values were provided by chemical market associates inc cmai a leading petrochemical industry consulting and research firm ms hinojosa used the byproduct values provided by cmai to calculate the supply costs incurred in conducting the uop ga-155 project on the olefins-1 unit’s c3 column which produced ethylene byproducts such as propylene butadiene and dripolene as opposed to ethylene which had already been separated off in the c2 column in addition ms hinojosa deducted these byproduct values from taft’s total ethylene production cost from which she calculated the supply costs for the amoco anticoking and sodium borohydride projects this treatment of byproducts avoided double-counting the supply costs incurred in conducting the claim projects wage information ucc’s accounting system tracked budgeted and actual period_costs fixed costs costs that do not fluctuate with production such as labor ucc’s accounting system generated accounting_records known as account levels account levels are the best source of information for calculating wage costs however account levels were not available for the credit years therefore for the claim projects conducted in taft’s hydrocarbons unit the amoco anticoking spuds uop ga-155 and sodium borohydride projects ms hinojosa used the annual salaries found on forms w-2 wage and tax statement for specific employees involved in the projects for the ucat-j project ms hinojosa used star budget reports that provided the total wage cost during the claim years and allocated that cost using the percentage of pe pounds produced during the ucat-j runs relative to star’s total pe production during the same period wages represented percent of the total cost of all of the claim projects r d budgets ms hinojosa did not refer to budgets prepared by ucc during the credit years ucc’s hydrocarbons r d department did not prepare formal budget proposals specific to individual projects but it did prepare an overall r d budget that referenced various projects that would occur during the year the r d budget generally included wages laboratory materials travel and extraordinary expenses plant materials were generally included in the plant budget not the r d budget accordingly r d did not account for feedstock or fuel when estimating how much of its budget would be allocated to projects conducted on commercial plants b costs of the amoco anticoking project supplies ms hinojosa calculated the supply costs of the amoco anticoking spuds and sodium borohydride projects on the basis of the total ethylene manufacturing cost of taft’s hydrocarbons unit in and ms hinojosa identified the materials as material quantities used to manufacture ethylene at taft from the relevant pcds and mass in calculating taft’s total ethylene production cost for and ms hinojosa included only major components of supplies that were supported by available accounting_records specifically ms hinojosa included certain materials purchased from third-party vendors and certain internally produced materials ms hinojosa did not include any general plant utilities such as electricity treated water nitrogen or compressed air in her calculations however ms hinojosa did include the cost of the fuel gases such as natural_gas methane and hydrogen used to fire taft’s ethylene furnaces and the refrigeration used in the cold section of the ethylene production process ms hinojosa included these costs because it was necessary to rapidly reduce the temperature of the raw material stream at various points in the production process in order to maximize the production of ethylene to the extent that these costs are considered utilities ms hinojosa considered them to be extraordinary costs different from general plant utilities because of the energy-intensive nature of the ethylene production process relative to ucc’s other manufacturing units ms hinojosa used the relevant pages from the and mass to calculate ucc’s actual per-unit cost for both materials purchased from third parties and internally produced materials she multiplied these actual unit costs by the quantities used as shown on the relevant pcds and mass to derive the total cost of materials used in manufacturing ethylene at taft ucc was a net ethylene purchaser as it did not produce sufficient amounts of ethylene to meet the raw material requirements of its downstream products ucc made up the difference by purchasing ethylene from third-party suppliers accordingly to determine ucc’s ethylene cost ms hinojosa calculated a pooled ethylene price based on the weighted average of taft’s ethylene production cost derived from pcds and mass and the price that ucc paid for ethylene supplied by third parties as reported in a hydrocarbons business report after calculating the total cost of materials used to manufacture ethylene ms hinojosa subtracted the cost of ethylene coproducts and byproducts to isolate the supply costs attributable specifically to ethylene ms hinojosa obtained the quantities of coproducts and byproducts from the relevant pcds and mass as discussed above the unit costs of the deducted byproducts were based on historical and market_value data provided by cmai using this methodology ms hinojosa determined that taft’s total ethylene production cost was dollar_figure in and dollar_figure in ms hinojosa calculated the supply costs for the amoco anticoking spuds and sodium borohydride projects by allocating taft’s total ethylene production_costs in and according to the duration of the projects and the percentage of the production capacity of taft’s hydrocarbons unit employed in the projects ms hinojosa did not add the cost of any extraordinary supplies that were purchased specifically for the claim projects if ucc increased the supplies it used during the projects or altered its production rate while conducting the projects these facts are not reflected in ms hinojosa’s calculations for the amoco anticoking project ms hinojosa calculated the supply costs by multiplying taft’s average daily ethylene production cost dollar_figure in and dollar_figure in by the project duration days in days in and the fraction of the production capacity of taft’s hydrocarbons unit employed in the project one-seventeenth petitioner claims that the amoco anticoking project lasted from the start of the first pretreatment on date until a furnace cold turnaround in mid-august of petitioner included the materials cost for producing ethylene in all six four treated and two untreated cracking sets to avoid double-counting of supplies used in conducting both the amoco anticoking project and the sodium borohydride project ms hinojosa eliminated the supplies used during the 1-week sodium borohydride project from her supply cost calculation for the amoco anticoking project ms hinojosa calculated ucc’s supply qres for the amoco anticoking project as dollar_figure and dollar_figure for and respectively wages for the projects conducted at taft’s hydrocarbons unit ms hinojosa determined wage rates for the employees who were primarily involved in the projects and multiplied those rates by the number of hours that the employees estimated they had worked on the project for the amoco anticoking project ms hinojosa determined that mr hyde mr tregre and mr gorenflo spent and hours working on the project in and that mr hyde spent hours working on the project in mr hyde’s wage rate was dollar_figure per hour mr tregre’s wage rate was dollar_figure per hour and mr gorenflo’s wage rate was dollar_figure per hour ms hinojosa derived the wage rates from the employees’ annual salaries decreased by estimated overtime and profit-sharing ms hinojosa calculated petitioner’s wage qres for the amoco anticoking project as dollar_figure and dollar_figure for and respectively c costs of the spuds project petitioner’s claimed amount for supplies used during the spuds project was also based on ucc’s total manufacturing costs for which were then prorated between olefins-1 and olefins- according to production capacity petitioner claims as qres one-seventeenth of its production_costs for the days after ucc changed the spuds on furnace ms hinojosa calculated as qres dollar_figure for supplies attributable to the spuds project in ms hinojosa calculated the wage costs for the spuds project using the same methodology she used to calculate wage costs for the amoco anticoking project discussed above ms hinojosa determined that mr tregre spent hours in and hours in on the project and that mr gorenflo spent hours in on the project ms hinojosa calculated as qres dollar_figure and dollar_figure for wages attributable to the spuds project in and respectively however petitioner no longer claims any qres attributable to the spuds project d costs of the uop ga-155 project supplies ucc conducted the uop ga-155 project in the olefins-1 unit’s c3 column downstream of the c2 column where ethylene was separated from the process flow the c3 column processed the ethylene byproducts propylene butadiene and dripolene the supply costs for the uop ga-155 project are based on the cost of the materials running through the c3 column during the test ms hinojosa calculated this cost by multiplying the cmai material values for each of the byproducts by their respective feed rates into the c3 column and the project duration the claimed supply costs include costs for plant feed energy and other costs of manufacturing products in olefins-1 for days from date through date ms hinojosa also included the costs of the uop ga-155 additive which were dollar_figure and dollar_figure for and respectively ms hinojosa calculated ucc’s supply qres for the uop ga-155 project as dollar_figure and dollar_figure for and respectively wages ms hinojosa calculated the wage costs for the uop ga-155 project using the same methodology she used to calculate the wage costs for the amoco anticoking project discussed above ms hinojosa determined that mr brandon spent hours working on the uop ga-155 project during each of the credit years mr brandon’s wage rate was dollar_figure per hour ms hinojosa calculated ucc’s wage qres for the uop ga-155 as dollar_figure for each of the credit years e costs of the sodium borohydride project ms hinojosa calculated the claimed supply costs of the sodium borohydride project using the same methodology she used to calculate the claimed costs for the amoco anticoking project discussed above ms hinojosa calculated the supply costs for the sodium borohydride project by multiplying taft’s average daily ethylene production cost in dollar_figure by the project duration days and the percentage of the production capacity of taft’s hydrocarbons unit employed in the project approximately percent accordingly ms hinojosa calculated ucc’s supply qres for the sodium borohydride project as dollar_figure for the production cost included dollar_figure for the sodium borohydride additive ms hinojosa calculated ucc’s wage qres as dollar_figure for the sodium borohydride project using the methodology she used to calculate wage costs for the amoco anticoking project discussed above ms hinojosa determined that mr brandon spent hours working on the sodium borohydride test in f costs of the ucat-j project supplies for the ucat-j project ms hinojosa used the pcds for the pe base resins made in the ucat-j experimental runs to identify the materials and material quantities used in the runs for ucat-j run sec_3 and ms hinojosa did not have a pcd for the specific product that was made djm-1732h and she accordingly used a pcd for a similar product djm-1734h ms hinojosa did not include any costs classified on the pcds as utilities or the costs of additives incorporated into base resins during postreaction pelleting ms hinojosa then used and mass to calculate the actual per-unit cost of purchased materials used in the ucat-j project because ucc used both purchased and internally produced ethylene to manufacture pe ms hinojosa used a pooled ethylene price ms hinojosa used the and mass to calculate the unit costs of the ucat-j reduction agents deac and tnhal and hydrogen mix used in ucat-j runs for the internally produced ucat-j precursor ms hinojosa used percent of the standard cost shown on the pcds petitioner claims as qres for supplies dollar_figure and dollar_figure for and respectively for the ucat-j project wages the unipol reactors in star’s lp-3 unit operated continuously during the ucat-j credit_year experimental runs with production staff supporting the reactor sec_24 hours per day on 12-hour rotating shifts according to ms hinojosa the amount of time spent by plant operators and other support staff did not vary significantly for experimental ucat-j runs as compared to normal production runs ms hinojosa calculated the wage qres attributable to the ucat-j project by allocating star’s total wages in dollar_figure million and dollar_figure million according to the percentage of star’s total pe production made during the ucat-j experimental runs in percent and dollar_figure percent adjusted for reactor downtimedollar_figure 17ms hinojosa reduced wages for downtime in response to a comment from mr allen one of respondent’s expert witnesses in response to another comment from mr allen ms hinojosa also calculated wages using an allocation based on the duration of the runs instead of production ms hinojosa believes that the impact of this change was insignificant and therefore did not continued petitioner claims as qres for wages dollar_figure and dollar_figure for and respectively for the ucat-j project iv base_period projects the second special trial session focused on petitioner’s revised base_period computations base_period trial dollar_figure petitioner arrived at a revised base_amount by identifying additional activities that it believes constitute qualified_research within the meaning of sec_41 identified runs and calculating the cost of those identified runs a scope of the trial on date petitioner filed a motion for partial summary_judgment seeking to limit the scope of the evidence at the base_period trial to qres incurred by ucc as opposed to petitioner’s entire consolidated_group and shift the burden_of_proof on the base_period issues to respondent by an order dated date the court granted petitioner’s motion in part and denied it in part informing the parties in pertinent part that petitioner would bear the burden of production with respect to its revised base_period computations for purposes of conforming the base_period computations to the methodology petitioner employed to compute continued alter her methodology 18the base_period includes the years beginning after date and before date see sec_41 the claimed credits only evidence of the revised base_period computations for the legal entity for which additional credits are claimed would be necessary in the above-described legal entity computations it would be necessary to produce evidence to revise the base_amount for businesses acquired by the legal entity after date and not disposed of before date and if petitioner could show that any dispositions that occurred before played no role in the computation of qres of the legal entities in the return as filed then petitioner would not have to account for dispositions of those trades_or_businesses in conforming the base_period computations to the methodology used to claim additional credits for the years at issue because petitioner’s claimed credits all relate to alleged qres incurred by ucc as a single legal entity the scope of the base_period portion of the trial was limited to research that ucc conducted including research conducted by any businesses that ucc acquired after date and did not dispose_of before date organization of ucc’s manufacturing operations during the base_period during the base_period ucc operated its c p business segment as well as various other business segments including consumer products carbon products and industrial gases as a result of a divestiture policy that ucc pursued in the late 1980s and early 1990s the c p business segment was the only ucc business segment remaining during the credit years accordingly when petitioner revised ucc’s base_amount for qres incurred at ucc’s manufacturing plants during the base_period petitioner included only qres that were incurred within ucc’s c p business segment during the base_period ucc’s c p business consisted of four divisions that corresponded to product groupings the industrial chemicals division the polyolefins division the solvents and coatings materials division and the specialty chemicals division the industrial chemicals division encompassed separate manufacturing units that collectively produced ethylene and other olefins ethylene oxide ethylene glycol various ethylene oxide derivatives and other products at taft seadrift ucc’s texas city texas plant texas city ucc’s institute west virginia plant institute and ucc’s washougal washington plant washougal the polyolefins division encompassed six manufacturing units that collectively manufactured commodity and specialty pe products at seadrift and star as well as a wire and cable compounding plant in bound brook unipol was a part of the polyolefins division during the base_period and was the largest consumer of r d funding within the division the solvents and coatings materials division encompassed manufacturing units that collectively manufactured glycol ethers acrylates and various other solvents and coatings at ucc’s taft seadrift texas city institute and south charleston plants as well as latex products at several small production facilities across the country the specialty chemicals division encompassed manufacturing units that collectively manufactured a variety of low-volume high-performance specialty chemicals including acrolein derivatives alkyl alkanolamines cellosize and polyox at taft institute and south charleston acquisitions and dispositions between the claim years and the base period19 a acquisitions on date ucc acquired particular assets of rohm haas co rohm haas the acquired assets included chemical formulas and other intellectual_property associated with rohm haas’s worldwide surfactant and alkylphenol business under the trade_name triton triton assets surfactants are a family of organo-silicone molecules including detergents and hard-surface cleansers following the sale of the triton assets all associated technical data and intellectual_property were transferred to ucc 19acquisitions and dispositions that do not affect petitioner’s revised research_credit computations are omitted during the base_period the triton business represented a mature technology rohm and haas had not performed any work to improve or add products to its portfolio in many years during the base_period and until the sale of the triton assets to ucc it was rohm haas’s practice to manage the triton business as a cash cow harvesting substantial amounts of cash from the business while investing only limited resources for research and growth rohm haas treated its sale of the triton assets and its obligations under various agreements made in connection with the sale as a disposition of a major portion of a trade_or_business for purposes of the research_credit computation likewise ucc treated its purchase of the triton assets and its obligations under the various agreements as an acquisition of a major portion of a trade_or_business for purposes of the research_credit computation in ucc acquired the norkool business from quantum chemical corp the norkool products included industrial coolants and antifreeze formulations corrosion inhibitor packages and cooling system cleaners during the base_period one person was assigned to provide r d support for most of the norkool business although additional r d support analyzed norkool’s fluids to ensure that they were properly balanced in addition there were engineers available to provide assistance if necessarydollar_figure in ucc acquired the worldwide polyphobe thickeners business and assets from de soto inc the polyphobe thickeners were used in the formulation of latex paintsdollar_figure b dispositions ucc’s original base_period qres reflected allowable adjustments under sec_41 attributable to dispositions by ucc of the major portion of a trade_or_business or the major portion of a separate_unit of a trade_or_business during the credit years there were no dispositions by ucc of the major portion of a trade_or_business or the major portion of a separate_unit of a trade_or_business for which petitioner must adjust its base_period qres or gross_receipts under sec_41 other than the dispositions reflected in the base_period qres and gross_receipts reported on ucc’s original returns ucc divested itself of its home and automotive agricultural products film packaging engineering polymers and advanced composites worldwide metals and battery products businesses in ucc sold a 50-percent interest in its carbon products 20none of petitioner’s original base_period qres were attributable to the norkool business none of petitioner’s original base_period qres were attributable to the polyphobe thickeners business business in ucc spun off its industrial gases business in before date ucc divested itself of the following additional businesses primary alcohol ethoxylates polycrystalline silicon urethane polyether polyols and propylene glycol silicones and urethane catalysts coatings service phenolic resins and phenoxy resins ucc shell polypropylene business a the cooperative undertaking on date ucc and shell formed a tax_partnership called the cooperative undertaking pursuant to a legal agreement entitled the cooperative undertaking agreement cua ucc and shell each contributed goods and services in return for a percent interest in the cooperative undertaking according to the cua the purpose of the cooperative undertaking was to develop and adapt ucc’s unipol technology to incorporate shell’s catalyst technology and create a combined commercial process for the manufacture of polypropylene combined commercial process the cooperative undertaking planned to license the combined commercial process to third parties shell was also interested in producing polypropylene using the combined commercial process the cua envisioned a three-phase processdollar_figure in phase i ucc and shell would develop acceptable pilot plant operating as discussed below some of the activities envisioned by the cua were not actually performed by the cooperative undertaking conditions and produce acceptable polypropylene resin in phase ii ucc would construct a demonstration plant at seadrift and scale up manufacture of polypropylene resin from the pilot plant to the demonstration plant in addition shell would develop preliminary commercial markets for the sale of cooperatively made polypropylene resin using the combined commercial process in phase iii certain limited licenses between ucc and shell would become effective ucc and shell would operate the demonstration plant to produce cooperative polypropylene resin using the combined commercial process ucc would solicit grant and administer third-party licenses with shell’s assistance and ucc and shell would continue to cooperate to improve the combined commercial process on date phase ii ended and phase iii began under the cua ucc and shell each paid their own costs for r d covered by the cua and retained sole intellectual_property rights for information they developed separately during phases i and ii however ucc and shell would share all net licensing revenue equally during phase iii ucc and shell would jointly own any intellectual_property jointly developed during any phase ucc and shell agreed that the cooperative undertaking was a partnership solely for tax purposes the cooperative undertaking accordingly filed federal and state partnership tax returns with ucc serving as the tax_matters_partner however the cua expressly excluded from the cua tax_partnership all research activities conducted individually by ucc and shell during phases i and ii and all activities conducted by seadrift polypropylene co spc as discussed below spc was to conduct all manufacturing activities using the combined commercial process and the cooperative undertaking would not engage in any manufacturing activities or plant-based experiments b spc on date ucc and shell formed spc as a partnership under the laws of the state of texas ucc and shell each contributed goods and services in return for a 50-percent interest in spc spc filed federal and state partnership tax returns with shell serving as the tax_matters_partner and providing accounting services the purpose of spc was to construct and operate a demonstration manufacturing plant the p-1 unit which would be used to commercialize the combined commercial process developed by the cooperative undertaking demonstrate the combined commercial process to licensees and potential licensees and produce polypropylene only spc not the cooperative undertaking would conduct polypropylene manufacturing operations also on date spc retained and designated ucc as an independent_contractor to design and construct the p-1 unit spc leased existing plant facilities and land from ucc so that ucc could build the p-1 unit within the confines of seadrift under the contract signed with spc the engineering and construction_contract spc paid ucc a fixed price for the design and construction work on the p-1 unit under the engineering and construction_contract ucc would own any intellectual_property that it developed in the course of designing and constructing the plant under the contract petitioner did not include any activities that occurred under the engineering and construction_contract during the base_period in either its original or revised base_period calculations pursuant to another agreement between ucc and spc the operating_agreement dated date spc retained ucc as an independent_contractor to serve as the operator of the p-1 unit in this capacity ucc initially incurred the costs of spc’s polypropylene manufacturing operations including variable costs such as raw materials and period_costs such as plant labor ucc purchased polypropylene and catalysts directly from shell ucc submitted monthly invoices for these costs to spc and pursuant to the operating_agreement spc reimbursed ucc for these costs the operating_agreement provided that any intellectual_property discovered or developed by ucc in the course of performing its duties would be governed by the cua not the operating_agreement or any other spc agreement spc did not maintain a separate set of books_and_records however in its capacity as an independent_contractor ucc maintained spc’s accounting_records and identified spc as a separate business in the mid-1990s ucc sued shell and various other entities claiming inter alia that shell had violated its fiduciary duty with respect to the joint_venture the litigation settled and on date ucc acquired shell’s polypropylene business_assets including shell’s interest in spc as part of the settlement c petitioner’s base_amount recalculation petitioner did not include the cost of any research conducted at p-1 during the base_period in its base_amount because petitioner believes that spc not ucc incurred the costs of that research however petitioner identified runs that occurred at p-1 during the base_period that it would treat as qualified_research in the event that the court finds that ucc not spc incurred the costs of these runs polypropylene runs dollar_figure petitioner determined that the runs that occurred at p-1 during the base_period cost dollar_figure 23the criteria used to identify the research that petitioner believes constitutes qualified_research within the meaning of sec_41 are discussed below b base_period project sec_1 ucc’s focus on r d during the base_period and credit years ucc viewed manufacturing process improvements as important during both the base_period and the credit years ucc’s manufacturing process was continuously evolving throughout these years in particular in the early 1990s william joyce the president of ucc’s polyolefins division implemented a new process improvement program designed to lower costs mr joyce implemented this program as part of a program to increase ucc’s licensing business the role of r d and engineering at ucc’s manufacturing plants during the base_period r d provided plant support to all four c p divisions r d supported the operation and safety of the plants and monitored the quality of the products ucc’s engineering and manufacturing departments also helped to develop ucc’s manufacturing process plant-based experiments were typically carried out through multifunctional teams there was no formal rule during the base_period regarding how many successful runs of a new product must be conducted before the product is deemed to be commercial however in the polyolefins division ucc generally preferred to conduct at least three runs on a new product before deeming it commercial petitioner’s identification of plant-based qualified_research activities conducted during the base_period a dr wadia’s assignment parvez h wadia one of petitioner’s expert witnesses was qualified in the base_period trial as an expert in conducting r d related to the manufacturing of chemicals and plasticsdollar_figure dr wadia’s task was to identify all activities that ucc conducted at its domestic c p manufacturing facilities during the base_period that dr wadia believed constituted qualified_research as defined by petitioner’s counsel the criteria that dr wadia used to select the identified runs are referred to as the qualified_research criteria and the activities that dr wadia believes satisfy the qualified_research criteria are referred to as the identified runs dollar_figure another of petitioner’s expert witnesses sheri l toivonen calculated the costs of the identified runsdollar_figure dr wadia was not familiar with the claim projects before beginning his task at petitioner’s request dr wadia later compared the identified runs with the spuds project however 24dr wadia’s qualifications are set out in the opinion section below 25we make no finding at this time whether the identified runs constituted qualified_research within the meaning of sec_41 26ms toivonen’s qualifications are set out in the opinion section below dr wadia was not asked to opine whether the claim projects satisfy the qualified_research criteria or to identify activities similar to the claim projects that occurred during the base_period dr wadia was assisted by five other professionals from mid- atlantic commercial research a subsidiary of the mid-atlantic technology research innovation center matric collectively matric team27 matric’s largest client is the united_states government the matric team had more than years of experience in the chemicals and plastics industry and years of experience with ucc none of the matric team members testified as fact witnesses during the trial the qualified_research criteria closely tracked the definition of qualified_research under sec_41 and sec_1_41-4 income_tax regsdollar_figure the criteria required dr wadia to consider five key questions does the research activity seek to eliminate an uncertainty concerning the development or improvement of a business_component which can be either a product or a process does the research activity seek technological information does substantially_all of the 27although the company that petitioner retained was a subsidiary of matric the parties generally refer to the team as being from matric we adopt that designation for convenience 28as we explain infra note respondent concedes that petitioner may rely on sec_1_41-4 income_tax regs even though it is effective for years ending on or after date research activity involve elements of a process_of_experimentation does the research activity relate to a qualified purpose is the activity an excluded activity dr wadia was provided with a list of excluded activities that tracked sec_41 to be consistent with petitioner’s selection of the claim projects petitioner asked dr wadia to identify only plant-based experiments that occurred at ucc’s domestic manufacturing facilities b dr wadia’s methodology dr wadia and his team spent approximately big_number hours selecting the identified runs this time was spent reviewing over big_number pages of technical documents conducting electronic searches interviewing current and former dow and ucc employees and visiting of dow’s unit libraries and satellite libraries the technical documents that the matric team reviewed included but were not limited to r d project reports and project memoranda definition of technology reports technology manager’s reports unipol strategic run plans and tactical run plans and latex process and commercial product information dr wadia reviewed a few focrs but most of the focrs that had been produced during the base_period were no longer available dr wadia’s project identification investigation was highly interactive and often complex nonlinear and iterative for each of the identified runs dr wadia defined the activity by providing a run description the manufacturing plant locations and specific manufacturing units the product s made during the activities and their production volumes the raw materials and catalysts used to make the product s the start and end dates of the activities any other relevant scientific information and the documents related to the identified runs dr wadia used a somewhat modified process with respect to ucc’s crystal products business based at washougal which ucc sold to an unrelated third party in dr wadia used a top- down approach to estimate how much ucc spent on plant-based experimentation for this business to make this estimation dr wadia assumed that annual sales for the business ranged from dollar_figure to dollar_figure million per year manufacturing cost as a percent of sales was percent and about to percent of the crystal growth stations for manufacturing products were dedicated to experimental work the plant manager for the washougal crystal products plant confirmed that he believed that these were reasonable estimates c dr wadia’s conclusions dr wadia identified a total of separate plant-based activities that he believes satisfy the qualified_research criteriadollar_figure dr wadia originally identified runs in his opening expert report dated date after receiving and reviewing additional information dr wadia identified additional runs that he listed in his supplemental expert report dated date dr wadia also revised the duration and production of run sec_408 and at that time the matric team considered thousands of projects dr wadia rejected some projects at the outset because they occurred outside the base_period were not conducted at a manufacturing_facility or otherwise clearly did not satisfy the qualified_research criteria the matric team then discussed the remaining potential projects and dr wadia decided whether they satisfied the qualified_research criteria the matric team did not retain a list of potential projects that were discussed but not included on the list of identified runs dr wadia was satisfied that the matric team had sufficiently analyzed each project and did not feel that such a list was necessary dr wadia listed the identified runs as run sec_1 through on the exhibits to his initial and supplemental expert reportsdollar_figure dr wadia later produced a table of identified runs that include sec_29these runs are listed as run sec_1 through dr wadia did not identify any runs as run or as discussed above dr wadia has not identified any runs as run or comments on the runs in his expert report dr wadia discusses the specific manufacturing units that conducted the runs and provides additional narrative information regarding many of the runs d petitioner’s concessions as a result of fact witness testimony at trial petitioner with the assistance of dr wadia conceded that additional plant-based research activities conducted during the base_period satisfy the qualified_research criteria run sec_807 through ms toivonen summarized each of the conceded activities provided references to pertinent testimony and documents and provided calculations of the cost of the research activities on the basis of the referenced information and relevant accounting_records the pertinent conceded runs are discussed belowdollar_figure i nalco inhibitor antifouling test run dr wadia did not include the nalco inhibitor antifouling test among the first identified runs but petitioner later conceded that this test satisfies the criteria for qualified_research and added this test as run 31as discussed in the opinion section respondent argues that the fact that dr wadia did not initially include run sec_807 through illustrates a flaw in his methodology while we state no opinion on respondent’s argument at this time we provide pertinent facts regarding the runs that respondent addresses in his argument during the base_period ucc worked with nalco chemical nalco to develop a type of antioxidant or fouling inhibitor to inject into the c2 column which would then enter the c3 column and prevent fouling in that column if successful this would minimize the number of times the reboiler had to be cleaned and extend the number of months the reboiler could operate without being shut down nalco approached ucc with a fouling inhibitor for ucc to test ucc most likely would have prepared an focr for the installation of the pumping facilities to inject the inhibitor and for the addition of a new chemical into the plant ucc tested the nalco inhibitor for to months ucc personnel monitored the steam pressure on the c3 column reboiler and checked the reboiler for fouling during the test the inhibitor extended the length of time the reboiler ran without being cleaned and the steam pressure was reduced as a result of these findings ucc determined that the nalco inhibitor worked as it was intended to work and did not perform additional testing ms toivonen determined that the nalco inhibitor antifouling test cost dollar_figure ii wastewater activity run another activity that dr wadia did not include as an identified run in his original or supplemental report was a plant test performed at taft’s wastewater treatment facility ucc received a tank truck of wastewater from another plant and processed the tank through the wastewater treatment facility at taft a technology highlights memorandum describes the activity as a plant test that would be run in mid-november of the activity would involve dumping half of the tank into the wastewater facility at a rate of gallons per minute and monitoring for odor ucc would rapidly dump the remaining big_number gallons in two stages in the first stage ucc would dump big_number gallons into the acrylics sump if that caused odor problems ucc would dump the remaining big_number gallons into a different sump if the dumping of the first big_number gallons did not cause odor problems ucc would also dump the remaining big_number gallons into the acrylics sump ms toivonen calculated the qres associated with this activity to be dollar_figure iii rohm haas runs run sec_813 and sec_814 dr wadia included two runs associated with the triton assets in his expert witness report as identified runs ms toivonen calculated the cost of these two runs as dollar_figure and dollar_figure respectively petitioner later conceded that two additional runs run sec_813 and sec_814 associated with the triton asset should have been included in its base_amount calculation in her second supplemental expert witness report ms toivonen calculated the costs of these runs as dollar_figure and dollar_figure respectively this concession doubled the number of identified runs associated with the triton assets and increased the costs of the identified runs associated with the triton assets nearly tenfold e activities that were not identified base_period activities respondent argues that dr wadia should have included the following additional activities on the list of identified runs i nox dr wadia did not include as identified runs any activities related to nox nox refers to various compounds of nitrogen and oxygen that can be contained in catalytically cracked refinery gases that are sometimes fed to ethylene units nox can accumulate in the cryogenic sections of commercial ethylene units these cryogenic sections called cold boxes separate very low boiling point materials in the cracked furnace gas as part of the ethylene recovery process nitric oxide no a compound of nox has very low boiling and freezing points therefore nearly all of the no in the ethylene unit cracked gas stream enters the cold box no may be oxidized to no2 in the cold box by the presence of oxygen and no2 can react with additional no to form n2o3 some nox compounds no2 and n2o3 in particular freeze and boil at significantly higher temperatures than no therefore nox compounds can freeze in the cold box and accumulate the accumulation of nox compounds in the cold box can present a significant safety hazard some nox compounds are highly reactive and can combine with other materials in particular butadiene in the cold box to form nox gums nox compounds also react with ammonia to form ammonium nitrate and nitrite nox salts while stable at the very low cold box temperatures nox gums and nox salts can become unstable and explosive when the cold box is warmed nox gums may explode at temperatures well below ambient while nox salts require warmer temperatures to explode even small amounts of explosive gums can be a serious safety hazard ucc was aware of the potential safety hazards of nox accumulation in cold boxes long before the base_period ucc had not had an nox-related explosion before the base_period but it had been aware of nox-related explosions in other cryogenic gas processing units in the chemical industry by it was generally known that thawing a cold box would remove nox that had accumulated in the cold box a controlled thaw involves shutting off the cracked furnace gas feed gradually warming the cold box to ambient temperature and injecting purge gas through the piping to flush out the nox compounds it was also generally known how fast to warm the cold box and to what temperature to warm the cold box to minimize the risk of explosion furthermore it was generally known that after a thaw a cold methanol wash could be used to remove nox gums from the cold box equipment and at what temperature the cold methanol wash should be used during the base_period it was industry practice to thaw cold boxes periodically ucc thawed its cold boxes approximately once per year during the 1980s but had not used a methanol wash until date before the base_period ucc had never quantified the amount of accumulated nox or the rate of nox accumulation in any of its olefins units’ cold boxes by late date operations personnel at texas city had determined that they did not have enough information to define a safe run length for the cold box during several earlier thaws ucc had checked the effluent from the texas city cold box for nox ucc found nox in the effluent on every occasion but never quantified the amount or determined the form or type of nox compounds present in the texas city cold box ucc used a chemical method called the griess-saltzman method to detect the presence of nox ucc also used draeger tubes another analytical technique to measure nox concentrations in the cold box vent gas ucc thought that the nox that was accumulating might be nox gums in date luis batiz an engineer in texas city’s olefins unit sent a letter to the hydrocarbons r d technology manager expressing concern about the potential accumulation of nox compounds in the texas city cold box and requesting assistance in developing a standard philosophy and general procedure that could be implemented in texas city to thaw the cold box the texas city olefins unit was particularly susceptible to nox accumulation because it used refinery gas which was known to contain nox as a raw material at that point the texas city cold box had been operating continuously for about year without a thaw ucc had no way to estimate how much nox had accumulated because ucc had not previously quantified the accumulation of nox mr batiz’s request was assigned to dr henstock a project scientist in ucc’s hydrocarbons r d group in early dr henstock was based at the technical center in south charleston dr henstock researched the issue reviewed the situation at texas city and concluded that the texas city personnel did not have enough information to determine a safe run length or set their own operating guidelines in february of dr henstock informed his supervisors that while the hazards of nox had been known for some time the formation of nox deposits and their removal was still not well understood dr henstock decided to conduct a controlled thaw as soon as was practical and measure the amount of nox that was liberated from the cold box to determine the rate at which it was accumulating ucc intended to use this information to determine how frequently the cold box must be thawed in order to better analyze the amount of nox that came out of the cold box ucc’s south charleston technical center built a prototype of a photoionization analyzer the photoionization analyzer gave readings every to minutes recorded data automatically and could be left unattended ucc believed that this method for analyzing nox was superior to the griess-saltzman method because the griess-saltzman method did not give readings frequently was very time consuming required skill to operate and could not be operated unattended the first texas city thaw began on february and ended on date this was ucc’s first attempt to measure accumulated nox during the thaw an operator noticed a bright blue liquid leaking from a cold box valve which was not expected dr henstock discussed this phenomenon with some of his colleagues in south charleston and they determined that the material was n2o3 which is not the form of nox compound that dr henstock had expected dr henstock then vented the material into the atmosphere while measuring the concentration and total flow rate in order to calculate the total amount dr henstock estimated that about pounds of material had built up in the cold box much of the nox that had entered the system was from purchased refinery gas dr henstock did not determine whether nox gums had formed the rest of the cold box thaw was completed uneventfully and the cold box was returned to normal operation dr henstock documented the date cold box thaw in a project report dated date the project report summarized what occurred during the thaw and documented the results dr henstock was surprised and concerned about the amount of nox that he found accordingly dr henstock recommended that the thaw be repeated in a few months to see how much nox would accumulate in that time dr henstock also recommended that a methanol wash be performed to determine whether nox gums had formed ucc decided to have an external consultant perform laboratory work to understand the hazards of n2o3 recognizing the potential safety implications of the significant quantities of nox found during the date thaw ucc made the results of the thaw available to the olefins industry during the summer of the findings of the date thaw resulted in the formation of the task group on nitrogen oxides in ethylene plans which met four times from date to date the task group issued a report of its findings that identified potential problems regarding nox and made suggestions on how to safely handle equipment likely to contain nox dr henstock also wrote a paper on nox that was presented at an american institute of chemical engineers aiche meeting in the spring of following dr henstock’s recommendations ucc performed another thaw of the texas city cold box in date followed by a methanol wash this was the first methanol wash that ucc had performed at any of its olefins facilities ucc determined that less than pounds of nox had accumulated and that no nox gums had formed dr henstock wrote another project report to document the results of the date thaw because of the small amount of nox accumulation found and the absence of nox gums during this thaw dr henstock regarded the nox issue as a manageable safety hazard at texas city dr henstock postulated that much of the nox passed through the cold box and flowed out in the fuel stream dr henstock recommended that a method should be developed for monitoring the nox balance around the texas city cold box such as the installation of a permanent nox analyzer dr henstock also recommended that future thaws at all locations be monitored closely to determine the amount of nox accumulation in the meantime dr henstock recommended that the texas city cold box be thawed at least every months dr henstock did not believe that methanol washes would be necessary at texas city in the future but he recommended methanol washes at locations where nox and butadiene could both enter the cold box in date ucc performed a thaw and methanol wash of the cold box and one of the two methane columns at seadrift seadrift did not use refinery gas as a raw material therefore ucc assumed that nox accumulation at seadrift was less likely than at texas city however ucc had detected nox at several points within the process which indicated that there might be nox present ucc also believed that nox and butadiene occasionally contacted one another which could potentially cause the formation of nox gums ucc was concerned about an incident at seadrift in which thaw gas flowing out of piping was found to be unexplainably warm during a cold box thaw in ucc had never quantified the accumulation of nox or nox gums or used a methanol wash at seadrift before this thaw during the date thaw at seadrift ucc used the same general procedures it had used at texas city ucc did not find any nox accumulation or nox gums in the cold box dr henstock documented the results of the date thaw in a project report dated date dr henstock concluded that the warm thaw gas outlet pipe incident during the thaw was probably not related to nox dr henstock also developed guidelines for future management of potential nox hazards at seadrift dr henstock determined that future seadrift cold box thaws should be closely monitored for nox in the outflowing warmup gas but that methanol washes would not be required unless evidence of nox gum formation developed ucc followed the plans recommended after the date thaw at texas city and conducted another thaw at texas city in date ucc improved the procedure it had previously used at texas city by using a drain vaporizer when nox levels were very low ucc purged less than pound of nox during the date thaw dr henstock documented the results of the date thaw in a project report dated date dr henstock concluded that the smaller accumulation was probably due to decreases in the level of nox in the refinery gas dr henstock recommended careful monitoring of the refinery gas nox concentrations once the permanent analyzer was installed later in dr henstock also recommended that it was safe to increase the time between thaws to months as long as the low nox concentrations in the feed streams persisted but he suggested reevaluating the time interval between thaws according to the results of the next thaw in date ucc measured nox accumulation during a normal plant shut down and cold box thaw at taft taft’s olefins-2 unit had run continuously for over years at that point ucc had never attempted to quantify the accumulation of nox or nox gums at taft before this thaw taft did not use refinery gas as a raw material but the design of the separations system at taft allowed some butadiene known to form nox gums to enter the cold box ucc analyzed the process streams feeding and leaving the cold box at taft on three different occasions before the date thaw but found no measurable nox during the date thaw ucc monitored the effluent for nox and detected less than a pound of nox ucc did not detect any nox gums or polymers on a visual inspection of the cold box and methane column feed separators dr henstock concluded that future monitoring of the taft cold box by the hydrocarbon r d group would not be necessary however taft personnel would continue to check the cold box streams for nox with draeger tubes at any future shutdowns none of the thaws discussed above involved the changing of any variables before the nox accumulation was measured during each thaw ucc collected data for the purpose of determining how fast nox was accumulating under normal conditions and how long the cold boxes could safely operate without being thawed dr henstock continued to study nox into the 1990s and still considered nox accumulation to be a safety issue at least as late as dollar_figure 32a serious nox gum explosion occurred at the shell olefins plant in berre france in a second industry task group was formed in response to this explosion however these events did not occur during the base_period or the credit years and accordingly we do not address them in detail here a minor nox- related explosion also occurred at texas city in however continued dr wadia did not include any nox-related activities on the list of identified runs because the matric team concluded that they did not involve a process_of_experimentation but merely constituted data collection and monitoring accordingly ms toivonen did not include the cost of any nox-related activities in her expert witness report roy t halle one of respondent’s expert witnesses estimated that the cost of the ethylene that ucc produced at texas city seadrift and taft during the periods leading up to the cold box thaws was about dollar_figure milliondollar_figure ii john zink co orders ucc purchased equipment from the john zink co during the base_period ucc conducted tests on equipment purchased from the john zink co during the base_period that dr wadia did not include on his table of identified runs these tests generally consisted of testing the products to see whether they functioned properly iii star pelleting in ucc installed one of the industry’s largest and most effective pelleting lines at star ucc tested the new equipment continued none of the claim projects relate to this explosion accordingly we need not discuss the event further 33mr halle’s qualifications are set out in the opinion section below to validate that everything functioned as was expected however ucc did not take any steps to further develop the new pelleting line ucc did not have any significant difficulties with the startup of the new pelleting line iv naphtha analysis in ucc’s r d department analyzed virtually every naphtha shipment that arrived at taft to determine the composition of the naphtha naphtha is not a standard chemical and different batches of naphtha could lead to different yields of ethylene and different degrees of coking r d analyzed the naphtha with a gas chromatograph and entered the results into a computer to predict the naphtha’s yields and this information was given to ucc’s economics department to determine which naphtha shipments had the highest value f duration and quantities of product produced the matric team provided ms toivonen with the duration of the identified runs and the amount of products produced during the runs so that ms toivonen could calculate the costs incurred in conducting those runs as discussed in more detail below ms toivonen used duration to calculate the wage costs and the amount of product produced to calculate the material_costs where there was no explicit statement of the duration or the production quantity in the documentary_evidence the matric team determined the amounts using a number of different methods in some cases the documents stated the pounds of material made during the run and the matric team calculated the duration by dividing the material by the operating rate in terms of pounds per hour the matric team determined the production rate from a number of different sources if the operating rate was not known the matric team made estimates by looking at analogous tests or experiments where neither the duration nor the quantity produced was explicitly stated on supporting documentation the matric team looked at similar runs and talked to people who actually conducted the experiments to obtain additional information the matric team then used its technical judgment to determine when a particular experiment began and ended however this was necessary for only a small percentage of the identified runs if the amount of product produced was not explicitly stated on the documentation but the raw materials were mentioned the matric team made estimates on yields or efficiencies based on information in the documents its own knowledge or information from interviewees the matric team used the data on the raw materials and its estimates on yields or efficiencies to calculate the amount of product made and then calculated duration using the amount of product made and the operating capacity or operating rate if the matric team found a strategic run plan but not a run report then it estimated the length of the run the matric team made these estimates on the basis of interviews with people who worked on the projects and data from analogous runs with the same technology the names of the people who assisted the matric team are not documented in the table of identified runs but are included in the interview notes other than with respect to the cable and wire business dr wadia did not check his production estimates against pcds because the annual pcds would show the entire quantity of the product produced in the year not the quantity produced during the duration of the experiments in some cases the matric team reported the duration of an identified run as shorter than the total duration of the activity in those cases the matric team included only the portion of the run that it determined related to experimentation for example if ucc personnel conducted experiments only between the time a run started and the time the unit reached a steady state the matric team included only the time required to reach a steady state in the duration of the identified run if a run was conducted for the purpose of determining whether it would produce a product of acceptable quality the matric team treated the experimental portion of the run as ending when that determination was made however if the researchers continued to experiment after the unit reached a steady state the matric team would also include the time when experimentation occurred in the total duration in a small number of cases it was not clear when the experimental portion began or ended and in those cases the matric team made an estimate based on its knowledge similar runs and information from interviewees the matric team used the total run duration for most of the identified runs conducted in the polyolefins area because of the complexity of that area but it frequently used a partial run duration for identified runs conducted in the industrial chemicals area where the systems are more predictable the matric team noted when it used a partial run duration in the comments section of the table of identified runs the matric team also noted in the comments section of the table of identified runs when it made assumptions about run duration according to the comments section the matric team made assumptions with respect to about identified runs we find that most of these assumptions were reasonable however the parties dispute the duration of the identified runs discussed below i natural and forced draft burner tests run sec_1 through and run sec_1 through involved tests on natural draft burners runs and involved tests on forced draft burners ucc prepared a report for the natural draft burner tests and another report for the forced draft burner tests ucc conducted the tests on natural draft burners to determine the most energy efficient operating parameters for the furnaces ucc collected data for run sec_1 through from january to date ucc conducted run sec_1 through on nine furnaces equipped with natural draft burners furnace sec_1 and ucc conducted an 11-point test on each of nine burners and also conducted additional tests on furnaces and it appears that dr wadia determined that there were runs by including one run for each of the nine furnaces and two additional runs for the second tests conducted on furnaces and however dr wadia did not distinguish between the runs in his expert report the duration of each of the natural draft burner tests was reported in the natural draft burner report a sec_1 to days dr wadia used the midpoint hours as the duration of each of these runs this was a conservative estimate because each of the test points lasted about an hour so the tests most likely occurred over work days not 24-hour days ucc also tested the effects of fuel specified gravity on energy use on furnace ucc ran a 13-point test at three 34as discussed below natural draft burner tests were also conducted on furnaces and but those tests were conducted to collect baseline data for the forced draft burner tests in not as part of the natural draft burner tests that took place in different gravities the extra test points added approximately hours to this test but ucc could still reasonably complete the test within hours the natural draft burner report refers to two separate point tests conducted on furnace during one test ucc collected data over a 23-hour period and during the second ucc collected data over a 25-hour period however the engineer conducting the test would not typically collect data continuously over the entire test period the natural draft burner report also refers to the implementation of a new measurement technique called the bunker- ramo control technique however the technique was already well understood at that point and ucc did not test or experiment with this technique as part of the natural draft burner tests runs and were conducted on forced draft burners on furnaces and in dollar_figure ucc installed the forced draft burners in early or late before installing the new burners ucc collected data from the natural draft burners on furnaces and to compare with data that ucc would collect after installing the new burners we find that the tests on the natural draft burners on furnaces and occurred in late the natural draft burner tests conducted on furnaces 35dr wadia originally determined that runs and occurred in but corrected the date in his supplemental report respondent agrees that these runs occurred in and are not included in run sec_1 through or or elsewhere on the table of identified runs the purpose of runs and was to measure the energy efficiency of the forced draft burners and compare the results with the tests on furnaces and before the new burners were installed ucc conducted two 11-point tests and one 7-point test on furnace during run and three 11-point tests on furnace during run dr wadia determined that the durations of runs and were and hours respectively dr wadia believed this was a reasonable estimate because each point would take at least half an hour the test data collected on furnaces and with both the natural and forced draft burners were reported in the forced draft burner report the forced draft burner report also included data taken to measure nox in order to aid ucc in complying with environmental regulations the data was collected from furnaces and which were fitted with forced draft burners at the time and furnace sec_3 and which were natural draft burners to collect the data ucc put an analyzer on the stack gas portion of the furnaces which detected the amount of nox floating up in the furnace ucc did not make any changes to the furnaces outside the normal operating window the purpose of collecting these data was to verify representations made by the burner vendors regarding nox production dr wadia did not include these data collection activities on the table of identified runs ii nalco tests run dr wadia identified two tests of a coke inhibitor known as nalco as run sec_15 and dollar_figure run was conducted on furnace in taft’s olefins-2 unit in and the overall purpose of the test was to determine the effectiveness of nalco as a coking inhibitor one objective of the test was to gather enough information to determine whether nalco improved operations enough to justify the inhibitor’s cost dr wadia determined that run lasted for days which is the amount of time that the furnace ran after nalco was injected before the furnace was shut down the test run ended prematurely because the furnace was upset ucc predicted that the furnace would run for about to days if no upsets occurred according to the project report the data collected after nalco had been injected were compared to data collected from five base case runs on furnace when no inhibitor had been injected and furnace operated normally a base case refers to the collection of data during normal operations to serve as a reference to compare to data collected during an experiment or 36the parties only dispute the duration of run accordingly references to the nalco test are only to run after an operational change has occurred the five base case runs spanned days from january to date the base case data were the same data normally collected by computer and would have been collected even if ucc did not intend to test nalco on furnace an analysis of the base case data indicated that ucc’s furnaces could run for to days between decokings under normal conditions without an inhibitor instead of to days as previously believed following the test ucc concluded that there was little economic incentive at taft to justify the use of nalco and that savings could be realized by extending the furnace run times without adding an inhibitor dr wadia did not include the base case runs in his expert report because ucc did not change any process variables before the base case runs therefore dr wadia did not believe that they involved a process_of_experimentation ms toivonen in her expert witness report determined that the nalco test cost dollar_figure excluding the cost of the base case runs mr halle one of respondent’s expert witnesses estimated that the base case runs would have cost about dollar_figure million using ms hinojosa’s methodology for costing the amoco anticoking project iii vinyl acetate catalyst protection tests run sec_47 and sec_48 and run sec_594 and sec_596 the vinyl acetate catalyst protection tests run sec_47 and sec_48 involved runs in the vinyl acetate unit the goal of these runs was to protect the expensive catalyst from low levels of iodine which comes in as an impurity with acetic acid in run a small about a quarter of an inch pilot tube was installed in the process stream to divert some of the feedstock to create a slipstream ucc would then test the performance of a silver- containing resin for removing iodine from the acetic acid feed the purpose of the run was to test the physical strength of the resin which was being used as a trap bed for iodine over a period of big_number hours to determine whether minor components in the acetic acid feed would have a deleterious effect on the resin for run dr wadia treated the experiment as having a duration of hours which was the time it took to set up and take down the apparatus and determine whether the material had maintained its physical integrity dr wadia did not count the big_number hours that the tube was in place as part of the test because there was no monitoring during that time furthermore dr wadia treated the product quantity as zero because the amount of feedstock going through the tube was so small compared to what was going through the main process and it would be very difficult to quantify run was very similar to run except that run involved a larger tube and full-scale trap bed made of the same material the purpose of run was similar to that of run except that ucc also wanted to determine whether there would be other issues with scaling up the channeling for run dr wadia treated the duration as hours which was the time it would take to get a good indication of stability the comment section on the table of identified runs does not provide any additional details as to how dr wadia concluded that the duration of the run was hours dr wadia did not include the entire duration of the run because the plant would have continued to operate as normal even if the experiment never happened dr wadia again treated the production quantity as zero because the same materials that were used during run were also being used in a simultaneous plant test of a new catalyst in the unit run and dr wadia did not believe that it was appropriate to double count the materials dr wadia used the same methodology including only the feedstock material flowing through the parts of the process in which the tests were being conducted for run sec_594 and sec_596 which also used a slipstream dr wadia used a duration of and hours for run sec_594 and sec_596 respectively dr wadia determined that big_number and big_number pounds of products were produced during run sec_594 and sec_596 respectively iv butyl acetate capacity increase test run ucc conducted the butyl acetate capacity increase test run to test an increase in butyl acetate production by increasing the number of refining column trays in the esters batch still the trays were installed in date and removed in date dr wadia treated the run as lasting days even though the trays may have been in place for up to months nothing in dr wadia’s expert reports explains how he determined this duration v mek production test run the mek production test run involved the production of methyl ethyl keytone mek at institute from august to date weeks the production campaign responded to a severe market shortage of mek this run was ucc’s first attempt to make mek according to the project report ucc collected data for the first hours of the run dr wadia assumed that the startup and experimentation involved in the project took weeks and accordingly treated the duration a sec_336 hours nothing in dr wadia’s expert reports explains how dr wadia arrived at the conclusion that the startup and experimentation took only weeks vi secondary refining system test run the secondary refining system test run involved a plant test conducted on the secondary refining system for the purpose of optimizing the ethanol refining system the test involved feeding the primary extractive column overheads directly to the lights column to immediately separate acetaldehyde and ether from ethanol the lights column tails were then fed to the secondary extractive column the secondary refining system project lasted weeks however dr wadia assumed a duration of week nothing in dr wadia’s expert reports explains how he arrived at this conclusion vii spanish fermentation ethanol refining test run the spanish fermentation ethanol refining test run involved the refining of spanish fermentation ethanol with a goal of producing proof ethanol dr wadia assumed a 4-day duration although about days of testing were reported nothing in dr wadia’s expert reports explains how he arrived at this conclusion viii ethanol tertiary recovery test run the ethanol tertiary recovery test run was conducted for the purpose of optimizing the separation of propanol and the recovery_of ethanol in the ethanol residue column dr wadia assumed a 4-day duration even though about days of testing were reported nothing in dr wadia’s expert reports explains how he arrived at this conclusion ix mexican fermentation ethanol refining test run the mexican fermentation ethanol refining test run involved the refining of mexican fermentation ethanol with the goal of producing specification ethanol dr wadia assumed a day duration although a 1-week test was reported nothing in dr wadia’s expert reports explains how he arrived at this conclusion x propionic acid hydrogen peroxide treatment test run the propionic acid hydrogen peroxide treatment test run involved the addition of small quantities of hydrogen peroxide to the process for making propionic acid it began on date and lasted days dr wadia assumed a test period of days nothing in dr wadia’s expert reports explains how he arrived at this conclusion xi adiabatic hydrogenation beds rearrangement test run the adiabatic hydrogenation beds rearrangement test run involved rearranging the order of the adiabatic hydrogenation beds used to make butanol in order to improve product quality the order was changed on date and data were collected on date dr wadia determined that the duration of run wa sec_4 days nothing in dr wadia’s expert reports explains how he arrived at this conclusion xii butanol refining test run the butanol refining test run involved adjusting the base temperature on the butanol refining forecolumn a 2-week test was reported but dr wadia determined a 4-day duration nothing in dr wadia’s expert reports explains how he arrived at this conclusion xiii dibk recycle to mixed keytones converters test run the dibk recycle to mixed keytones converters test run was a process enhancement test to suppress the formation of diisobutyl ketone dibk the test was conducted between october and date however dr wadia determined that the portion of the test from november to demonstrated the catalyst performance and trends dr wadia does not explain in his expert reports how he chose november and v base_period qres ms toivonen one of petitioner’s expert witnesses calculated the supply and wage costs ucc incurred in conducting the identified runs including run sec_807 through which petitioner concedes occurred during the base_period and constitute qualified_research under sec_41 ms toivonen is a partner with the public accounting firm of ernst young llp e y in performing her assignment ms toivonen led a team of e y accounting professionals ranging from to people in addition four current or former dow ucc cost accountants including ms hinojosa assisted ms toivonen in the costing process ms hinojosa and her colleagues identified the lead pcds the page of the pcd that is tied to the product produced in a specific run and the mass relating to the products ms toivonen costed ms hinojosa also consulted on other issues as discussed above ms toivonen obtained the production quantities and run durations from the matric team for run sec_1 through in situations where dr wadia’s production quantity exceeded the production quantity reflected on the lead pcd ms toivonen used dr wadia’s production quantity to calculate the cost of the run to be conservative ms toivonen did not independently verify the matric team’s conclusions regarding run duration or production quantity and the matric team did not review ms toivonen’s costing of the identified runs ms toivonen determined the run durations and production quantities for run sec_807 through using ucc’s accounting_records not information provided by dr wadia petitioner’s counsel provided ms toivonen with the accounting_records that related to these runs ms toivonen did not have access to all of the technical documents produced in this case however when ms toivonen felt that she needed additional documents she asked petitioner’s counsel to see whether more information was available ms toivonen did not conduct an independent search for information relating to these runs because the court directed ms toivonen to rely on the factual record that existed at the end of the base_period trial ms toivonen used historical ucc cost accounting_records to calculate the costs of run sec_807 to and ms toivonen used cost information supplied by cmai to calculate the costs of run sec_816 sec_817 and a documentation during the base_period as in the credit years ucc used the material accounting system for production inventory and product costing ms toivonen relied primarily upon pcds and mass to calculate the supply costs of the identified runs which are the same types of documents that ms hinojosa used to calculate the claimed qres for the claim projects ms toivonen also used other records such as reports of ucc’s third-party purchases and documents from ucc’s latex business ms toivonen primarily used account levels and star’s performance history report to calculate wage costs more than percent of the base_period cost calculations were based upon historical ucc accounting_records ms toivonen and her team also used the matric team’s table of identified runs a separate table prepared by the matric team that listed the materials and material quantities used in the latex runs identified by dr wadia historical pricing information from cmai regarding ethylene byproducts and information provided by dow ucc cost accountants and dow technical personnel petitioner was unable to find its r d budgets for or however petitioner provided its r d budgets for b ms toivonen’s costing methodology to develop a methodology to calculate the costs ucc incurred in conducting the identified runs ms toivonen reviewed ms hinojosa’s expert report for the credit years and designed her methodology to be consistent with ms hinojosa’s methodology ms toivonen included the same types of costs and used the same types of records that ms hinojosa used when it was possible ms toivonen’s methodology involved identifying the lead pcds for the runs identifying the materials that required costing tracing the materials through ucc’s accounting_records determining the unit costs of materials calculating the total materials costs calculating the wage costs and calculating the total run costs following this process ms toivonen and her team prepared detailed cost calculations for each identified run with certain 37as discussed above some of these activities were performed by ms hinojosa and her colleagues or the matric team in particular ms hinojosa identified the lead pcds and the matric team determined the duration and production quantities for most of the identified runs exceptions discussed below each identified run is supported by a lead pcd for the product or the closest match if the lead pcd was unavailable secondary pcds and mass used to derive the per-unit costs of internally produced materials used in the production of the lead pcd product an e y-generated unit cost calculation worksheet showing the actual unit cost calculation for each material used in the identified run an e y-generated material detail report showing the total cost of the materials used in producing the final product made in the identified run an e y-generated wage detail report showing the wage cost calculation for the identified run and an e y- generated summary report showing the total material and wage costs for the identified run the supporting documentation was substantially_similar for the identified runs conducted in ucc’s latex business although the latex business did not use the same accounting_records as the rest of ucc’s c p business identifying the lead pcd as discussed above ms hinojosa identified the lead pcds for the identified runs a lead pcd provides the materials and material quantities used in manufacturing the final product s in a given year and essentially provides the recipe for making the product lead pcds were not found for all of the products produced in the identified runs if a lead pcd was not found for a specific product ms toivonen used a pcd for a similar product in other cases ms hinojosa identified more than one lead pcd that could have been a match for a run in those cases ms toivonen selected the pcd that was the closest match identifying the materials in a few cases dr wadia identified materials used in a run that were different from the materials listed on the pcd in such cases ms toivonen relied on the pcd because it was ucc’s official cost accounting record as a result ms toivonen either would not cost the material identified by dr wadia or would cost a material listed on the pcd that was different from the material identified by dr wadia ms toivonen did not keep a list of materials that were identified by dr wadia but that were not listed on the pcds she used because she believed that materials would be omitted from ucc’s cost accounting_records only if their costs were immaterial ms toivonen generally did not include utilities when she identified the materials that required costing however ms toivonen did include the costs of the furnace gases and refrigeration used in the ethylene production process because ms hinojosa included those costs when costing the claim projects that involved the ethylene production process tracing the materials to calculate the unit cost of purchased materials ms toivonen divided the total material cost for the year by the quantity received the unit cost for internally produced materials was more complex for internally produced materials the e y team identified the applicable secondary pcds and traced all of the materials listed on the secondary pcds this tracing process was continued until the e y team reached the originating material purchases from third-party vendors internally produced materials frequently required multiple levels of tracing ms toivonen and the e y team developed practical approaches to simplify the tracing process for internally produced materials for example where multiple levels of tracing were required the tracing process was repeated until at least percent of the total material quantity had been reached the actual unit cost calculated from this material quantity was applied to the entire amount for the material used in an identified run in some cases where an internally produced material accounted for less than percent of the total cost shown on a lead pcd ms toivonen used ucc’s annually updated material standard cost these approaches did not materially affect the calculated cost of internally produced materials because the standard cost reasonably approximated ucc’s actual per-unit cost determining the unit costs of materials transfer costs shown on lead pcds represented materials transferred to the manufacturing site from another ucc division or location e y used mass to determine the ucc division or location where the materials were originally purchased or produced other than the addition of freight or other charges the unit cost calculation for transfer costs was the same for purchased and internally produced materials consistent with ms hinojosa’s treatment of byproducts in calculating the costs of the claim projects ms toivonen and her team treated the costs of byproducts as reductions in the unit cost calculations actual per-unit byproduct costs were used where these costs had been previously determined otherwise ms toivonen used historical values from cmai because that was the source of information that ms hinojosa used for her claim project calculations in a few instances where cmai data were not available ms toivonen used ucc’s standard cost where byproducts represented less than percent of the total cost on a lead pcd no reduction was taken because the impact on overall cost was immaterial during the base_period ucc both purchased and internally produced ethylene which was a major raw material for many chemicals and plastics additional calculations were necessary to determine the actual unit cost of ethylene consumed in downstream products consistent with the methodology that ms hinojosa used for the claim projects ms toivonen calculated a gulf coast weighted average pooled price for ethylene using the weighted average cost of ucc’s ethylene purchases and internal production for each base_period year ms toivonen used a different approach to derive the unit costs of materials used in the identified runs from ucc’s latex business the latex business did not use pcds or mass and there were no accounting_records for the base_period for the latex business accordingly ms toivonen derived unit costs of the materials used in the latex runs from available latex business documents from other periods with adjustments for inflation where appropriate for deionized water which is a high-volume low-dollar raw material ms toivonen used the ucc standard cost collectively the latex runs accounted for less than percent of the total cost of the identified runs calculating total materials costs once ms toivonen calculated the unit cost for each of the materials used to make the product produced during a run ms toivonen calculated the total materials cost for the product by multiplying the per-unit costs by the quantities of each material shown on the lead pcd or on the matric team’s latex run batch components table for the latex runs this calculation generated the total production cost for the year for the product manufactured in the run ms toivonen then divided this total production cost for the product by the total quantity of the product produced in the year to generate a per-unit cost of the product manufactured ms toivonen and the e y team then multiplied this per-unit cost by the quantity of product made during the identified run to determine the total material cost for the run as discussed above ms toivonen obtained the production quantities from dr wadia for run sec_1 through calculating the wage costs ms toivonen determined wage costs for each identified run by multiplying the run duration supplied by dr wadia by a calculated hourly wage rate for the ucc manufacturing unit in which the run was conducted ms toivonen derived the hourly wage rates from account levels which reported both budgeted and standard labor cost information for the budget accounts within ucc locations ms toivonen then adjusted the standard labor costs to actual costs by an allocation of the deviation accounts which represent the differences between standard and actual labor costs to calculate the hourly wage rates ms toivonen created wage groups based on common manufacturing areas at ucc plants ms toivonen then calculated wage group dollars based on the actual direct_labor_costs of each wage group as well as the allocable portion of shared laboratory and shift administration labor costs wage group dollars represented an aggregate cost of all employee-related wages and benefits associated with a ucc manufacturing unit ms toivonen calculated wage group dollars per production unit hour by dividing wage group dollars by the wage group’s total production unit hours the above methodology for calculating wages was used for all identified runs except for the latex runs and the runs conducted at star between and because account levels were not available for these runs ms toivonen estimated hourly wage rates on the basis of the best available information ms toivonen determined that the total wage cost for all identified runs was approximately dollar_figure7 million or about dollar_figure percent of the total run costs for the claim projects ms hinojosa determined that wages accounted for only percent of the total project costs furthermore the wage rates for approximately percent of the identified runs were higher than the wage rates used by ms hinojosa the reason for these differences was that ms toivonen’s approach to costing the identified runs was much more comprehensive than that used by ms hinojosa and the records available for the base years were more detailed than those available for the credit years in particular budget reports were not available for the credit years however since ms toivonen did not have data for wages paid at the star plants for through she used the star plant performance history report that was consistent with what ms hinojosa used for the credit years furthermore since ms toivonen did not have accounting_records for the latex business she estimated the wages for that business using information provided by the matric team the matric team also calculated the run costs for the crystal products business because there were no accounting_records available for that facility calculating the total run costs ms toivonen and the e y team then added the total materials cost to the total wage cost for each identified run to calculate the total cost of each identified run exceptions to ms toivonen’s general costing methodology certain identified runs involved extraordinary situations requiring ms toivonen and the e y team to develop and apply special costing rules the first exception was for sequential runs when the manufactured product of an initial run was used as a material in a subsequent run the costs of the manufactured product from the initial run were excluded from the second run calculation to avoid double counting different treatment was also required for runs where third parties contributed materials at no charge in these cases no cost was assigned to the contributed materials the next exception occurred when materials used to produce the manufactured product included some quantity of the same manufactured product that was treated as a work-in-process such as recycled materials in these cases the material quantity was netted against the production quantity as shown on the lead pcd and the cost of the work-in-process material was excluded from the total cost on the pcd ms toivonen calculated the cost of materials used in some ethylene furnace tests differently the matric team did not provide production quantities for some identified runs performed on ethylene furnaces because the ethylene was mass produced in multiple furnaces in those cases ms toivonen calculated an hourly production rate for one furnace and multiplied the rate by the run duration as shown on the matric table of identified runs another exception was necessary when the pcds for certain pe products made at seadrift did not specify a nomenclatured resin but instead identified a generic fluff product to identify the correct lead pcd for runs making these products ms toivonen used run-specific information such as the unit density comonomer catalyst and cocatalyst where there were multiple pcds involving fluff resins with run-specific characteristics ms toivonen calculated a weighted average per-unit cost for the identified run from the pcds ms toivonen made an exception for the oxo-12 lpo vaporizer capacity test run because the lead pcd reflected three manufactured products with two different units of measure in addition one manufactured product had a work-in-process material adjustment calculating a per-unit cost for the relevant manufactured product required the quantity of the relevant product to be isolated on the pcd as a production quantity one of the other manufactured products had to be recategorized as a byproduct and the other had to be netted as a work-in-process material adjustment ms toivonen also made an exception for identified runs where the lead pcd reported significant negative material quantities resulting in a negative per-unit material cost a negative per unit material cost was typically the result of ucc’s reclassification of a material or some other adjustment ms toivonen corrected these quantities based on the forecasted contribution of the material to the standard cost shown on the pcd the next exception was for the crystal products business ucc accounting_records were not available for the crystal products business in washougal which was sold in the late 1990s accordingly ms toivonen and the e y team did not compute the cost of plant-based r d activities for this business the matric team estimated that the cost of the identified runs conducted as part of the crystal products business runs through was dollar_figure per year ms toivonen also used a different methodology for the runs conducted by rohm haas before ucc acquired the triton assets ms toivonen and the e y team determined material and labor costs for the runs using rohm haas documentation and made adjustments based on the consumer_price_index as published by the u s department of labor bureau of labor statistics the last exception was for identified runs where the table of identified runs did not report any production for the run for those runs ms toivonen obtained the materials and quantities consumed from the matric team and then used the general costing methodology discussed above c ms toivonen’s conclusions ms toivonen concluded that in her opinion the total cost of all of the identified runs the initial identified runs and run sec_807 through for each base_period year was as follows cost of identified runs year dollar_figure big_number big_number big_number big_number total big_number d disputed calculations the parties dispute ms toivonen’s calculations of the following runsdollar_figure accordingly we discuss them below 38respondent also questions ms toivonen’s reliance on dr continued acrolein refining system capacity test run dr wadia determined that ucc produced million pounds of product in the acrolein refining system capacity test run however ms toivonen treated the production quantity as big_number pounds ms toivonen determined that the unit cost per pound was dollar_figure588 and accordingly calculated the total run material cost to be dollar_figure had ms toivonen treated the run production quantity a sec_1 million pounds the total run material cost would have been dollar_figure a difference of dollar_figure ms toivonen testified that the discrepancy might be attributable to a unit of measure conversion but she did not explain the discrepancy in her expert report propyl dipropasol refining test run dr wadia listed sodium hydroxide as the catalyst for the propyl dipropasol refining test run on the table of identified runs however the pcd that ms toivonen used to cost the run does not reference sodium hydroxide instead the pcd lists sodium propylate as a raw material accordingly ms toivonen calculated the cost of sodium propylate instead of sodium hydroxide when costing the run continued wadia’s determinations of the durations and production quantity for the runs discussed in sec iv b f above however because we have already discussed the facts relating to those runs we need not address them again here ms toivonen determined that the unit cost of sodium propylate for was dollar_figure607 for the cellosolve solvent test run ms toivonen determined that the unit cost of sodium hydroxide pellets in was dollar_figure75 per pound isophorone mids conversion test run dr wadia listed potassium carbonate as the catalyst for the isophorone mids conversion test run on the table of identified runs because potassium carbonate was not listed on the lead pcd for this run ms toivonen did not include the cost of potassium carbonate when she costed the run according to a project report for the run ucc used gallons of potassium carbonate ms toivonen determined that potassium carbonate cost cents to cents per pound for other identified runs secondary refining system test run dr wadia’s report states that part of the secondary refining system test run included a 2-day test with a caustic addition however ms toivonen did not list any caustic additives as materials used in this run the cost of caustic solutions in other runs ranged from cents to cents per pound naphtha-sulfur injection test run the naphtha-sulfur injection test involved the injection of naphtha into the production process the purpose of the run was to determine whether the normal diethyl sulfide des injection could be replaced with naphtha in the gas feed to the cracking furnaces without causing problems to furnace operations or increasing carbon monoxide levels in costing the naphtha-sulfur injection test ms toivonen did not include the costs of the equipment required to inject the naphtha the equipment cost approximately dollar_figure per furnace ms toivonen did not include the costs of the equipment because she considered those to be capital costs not supplies or wages ms toivonen also did not calculate the cost of naphtha as a separate material for the naphtha-sulfur injection test because the lead pcd did not list naphtha however the cost of the naphtha may have been captured on a secondary pcd which ms toivonen used to calculate the costs of materials listed on lead pcds it is also possible that ms toivonen included the cost of des instead of naphtha although des is not listed on the lead pcd as a material used in the production of ethylene ms toivonen determined that the naphtha-sulfur injection test lasted days the technical report for the test written on date states that the test began on date ms toivonen allowed day for preparation of the report methylmercaptopropanal mmp refrigeration tests run run consisted of two mmp refrigeration capacity tests the first test was designed to evaluate transfer chiller control at negative degrees centigrade instead of negative degrees centigrade as a means to minimize super-cooling which could cause mmp to freeze or hydrates to form the second test was designed to estimate the ambient heat gain of the day tanks and storage tanks as a means to verify assumptions that ucc’s engineering division used in calculations ms toivonen did not include any utility costs in the cost of the mmp refrigeration tests ms toivonen determined that utility costs should not be included in the cost of the run because ms hinojosa generally excluded utility costs unless they were extraordinary ms hinojosa found utility costs to be extraordinary only in the production of ethylene accordingly ms toivonen considered electricity to be an extraordinary cost only when a run involved the production of ethylene in other situations ms toivonen did not calculate the cost of electricity because it was not captured in ucc’s accounting_records accordingly ms toivonen had no basis for determining whether the cost of electricity was extraordinary opinion the research_credit was introduced with the enactment of the economic_recovery_tax_act_of_1981 publaw_97_34 stat dollar_figure congress enacted the research_credit to stimulate a higher rate of capital formation and to increase productivity s rept pincite 1981_2_cb_412 h 39the research_credit was originally included in sec_44f rept pincite 1981_2_cb_352 and to encourage business firms to perform the research necessary to increase the innovative qualities and efficiency of the u s economy s rept pincite 1986_3_cb_1 h rept pincite 1986_3_cb_1 congress found research to be essential to america’s economic progress and competitiveness h conf rept pincite c b however in congress became concerned that taxpayers were interpreting the research_credit too broadly and that some taxpayers claimed the credit for virtually any expenses relating to product development s rept supra pincite- c b vol pincite see also h rept supra pincite c b vol pincite therefore congress amended the research_credit by the tax_reform_act_of_1986 publaw_99_514 sec b 100_stat_2173 to provide a definition of qualified_research the research_credit was intended to apply to incremental research_and_experimental_expenditures in order to overcome the resistence of businesses to bearing the costs that must be incurred to initiate or expand research programs h rept supra pincite c b pincite see also staff of joint comm on taxation general explanation of the economic_recovery_tax_act_of_1981 pincite j comm print the new credit applies only to increases in qualified_research expenditures in order to encourage enlarged research efforts by companies which already may be engaged in some research activities the goal of the research_credit was to encourage research activity that would not otherwise have been undertaken cong rec s13114 s13125 daily ed date senate_finance_committee report on title vi revenue reconciliation act of subtitle a extensions of certain expiring tax provisions sec_41 allows taxpayers a credit against income taxes in an amount equal to percent of the excess if any of the taxpayer’s qres for the year over the base amountdollar_figure to determine the amount of a taxpayer’s qres the taxpayer must determine whether any of its activities constitute qualified_research as defined in sec_41 and then determine which costs attributable to the qualified_research constitute qres under sec_41 qres include in-house_research_expenses and contract_research_expenses sec_41 the base_amount is generally the product of the fixed-base percentage and the average annual gross_receipts of the taxpayer for the years preceding the credit_year sec_41 the fixed-base percentage is normally the lesser_of percent or the sec_41 does not apply in this case sec_41 was added in energy policy act of publaw_109_58 119_stat_594 percentage that the aggregate qres of the taxpayer for the taxable years beginning in the years through the base_period is of the aggregate gross_receipts of the taxpayer for those years sec_41 however the base_amount may not be less than percent of the qres for the credit_year sec_41 the parties do not dispute the amount of ucc’s annual gross_receipts for the years preceding the credit years or for the base_period accordingly we need only determine the amount of ucc’s additional qres for the base_period to be able to recalculate the base_amount a taxpayer must determine its qres to be taken into account in computing its fixed-base percentage on a basis consistent with its determination of qres for the credit_year the consistency_requirement sec_41dollar_figure accordingly the taxpayer must include the same types of activities from the credit_year and the base_period when identifying qualified_research activities and include the same types of costs as qres for the credit_year and the base_period respondent argues that petitioner has failed to prove that any of the claim projects constitute qualified_research within the meaning of sec_41 even if some of the claim project sec_41in the consistency_requirement was redesignated subsec c small_business job protection act of publaw_104_188 sec c 110_stat_1774 in the consistency rule again was redesignated subsec c tax relief and health care act of publaw_109_432 div a sec_104 120_stat_2935 constitute qualified_research respondent also argues that petitioner has not satisfied the consistency_requirement because it has not proved that it included all similar activities in its base_period computations respondent further argues that even if petitioner has satisfied these requirements it has not established that it incurred any additional qres not already taken into account for the credit years because petitioner is claiming production_costs as qres to the extent that petitioner has incurred additional credit_year qres respondent argues that petitioner failed to establish that it used a consistent method to calculate its revised base_period qres respondent also argues that petitioner failed to substantiate its credit_year and base_period activities made unreliable assumptions and estimations to calculate its claimed credits and asks the court to rely on conclusory opinions of its expert we address these arguments in turn i the experts both parties rely on expert opinions to support their arguments we evaluate expert opinions in the light of all of the evidence in the record and we are not bound by the opinion of any expert witness 304_us_282 115_tc_376 affd 283_f3d_1258 11th cir we may reject in whole or in part any expert opinion 110_tc_530 a petitioner’s expert witnesse sec_1 peter spitz petitioner introduced expert testimony by peter spitz regarding the role of plant-based research mr spitz is a chemical engineer who has written two books on the petrochemical industry consulted for petrochemical companies for several decades and testified as an expert witness regarding the role of plant-scale r d for petrochemicals gilbert froment petitioner introduced expert testimony by gilbert froment regarding the amoco anticoking project dr froment is a professor of chemical engineering at texas a m university with about years of experience teaching and consulting in the field of thermal cracking for olefins production he has written at least scientific papers dedicated to issues in olefins production and several of these papers specifically related to coke formation and its consequences dr froment is a member of several professional associations and has designed thermal cracking pilot plants in which he has led studies of coke formation and its consequences richard martin petitioner introduced expert testimony by richard martin regarding the spuds project dr martin has over years of experience developing designing and testing combustion equipment for the refining and petrochemical industries dr martin was previously employed by the john zink co and was involved in the development and testing of the radiant wall burners that are currently installed in the furnaces used in taft’s olefins-2 unit norman brockmeier petitioner introduced expert testimony by norman brockmeier regarding the ucat-j commercialization program conducted at star in general and the ucat-j project that took place during the credit years in particular dr brockmeier is a licensed professional engineer president of oakwood consulting inc and a fellow of the aiche he has more than years of industrial experience his specialty is polyolefin process design and catalysis and he has many publications and design projects in this field ms hinojosa ms hinojosa a former cost accountant for ucc and currently an accountant for dow calculated the costs of the supplies and wages that petitioner claims as qres in conducting the claim projects at trial ms hinojosa was qualified as an expert in the accounting systems and documentation employed by ucc during the credit years and the base_period dr wadia dr wadia was qualified in the base_period trial as an expert in conducting r d related to the manufacturing of chemicals and plastics dr wadia has a doctorate of science and a master’s degree in chemical engineering from the massachusetts institute of technology dr wadia held a variety of technical and senior management positions in business and corporate r d technology licensing and engineering over approximately years with ucc and dow ms toivonen ms toivonen is a certified_public_accountant and partner with e y during the base_period trial ms toivonen was qualified as an expert in accounting ms toivonen’s specialty is forensic accounting a practice that involves the application of accounting auditing and investigative skills to analyze a company’s financial records b respondent’s expert witnesse sec_1 roy t halle respondent introduced expert testimony by roy t halle regarding the amoco anticoking sodium borohydride and uop ga- projects as well as some of the identified runs that occurred during the base_period mr halle has over years of experience in the petrochemical and petroleum industries mostly in the olefins industry for the past years mr halle has worked as an independent consultant on olefins manufacturing process issues mr halle is an affiliate of lecg l l c legc in the area of petroleum and petrochemicals m julianne mcclung respondent introduced expert testimony by m julianne mcclung regarding the spuds project ms mcclung like mr halle is an affiliate of lecg ms mcclung has over years of experience working with the steam-cracking area of an ethylene plant during which she was involved in all areas of maintaining operating and designing a steam-cracking furnace gary allen respondent introduced expert testimony by gary allen regarding the ucat-j project dr allen is an affiliate of the petroleum and chemicals practice of lecg he has over years of experience in the chemicals and plastics industry dr allen led the development and commercialization of several different polymer technologies respondent introduced dr allen as an expert in scaling up chemical and process technologies to commercial operations while dr allen conceded that he has less experience with pe polyolefins and unipol than petitioner’s fact witnesses dr allen has extensive experience scaling up products and processes from laboratories through pilot plants to commercial manufacturers ii whether the claim projects constitute qualified_research a the qualified_research tests to be eligible for a credit under sec_41 a taxpayer must show that it has performed qualified_research during the years at issue sec_41 b to be qualified_research the research must satisfy four tests first expenditures connected with the research must be eligible for treatment as expenses under sec_174 the sec_174 test sec_41 second the research must be undertaken for the purpose of discovering technological information the technological information test42 sec_41 third 42we have previously called this test the discovery test see 110_tc_454 eustace v commissioner tcmemo_2001_66 affd 312_f3d_905 7th cir before the promulgation of sec_1 a ii income_tax regs we held that this test had a discovery component that was to be construed more narrowly than the discovery test of sec_174 and required that the taxpayer discover information that went beyond the current state of knowledge in the relevant field norwest corp subs v commissioner supra pincite eustace v commissioner supra however the current regulations provide that a determination that research is undertaken for the purpose of discovering information that is technological in nature does not require the taxpayer be seeking to obtain information that exceeds expands or refines the common knowledge of skilled professionals in the particular field of science or engineering in which the taxpayer is performing the research while these regulations apply to years ending on or after date sec_1_41-4 income_tax regs respondent has taken the position that he will not challenge return positions that are consistent with these final regulations and therefore that the current regulation should continued the taxpayer must intend that the information to be discovered will be useful in the development of a new or improved business_component of the taxpayer the business_component test sec_41 fourth substantially_all of the research activities must constitute elements of a process_of_experimentation for a purpose relating to a new or improved function performance reliability or quality the process_of_experimentation test sec_41 the department of the treasury treasury and the internal_revenue_service irs promulgated regulations to clarify the definition of qualified_research under sec_41 that are effective for taxable years ending on or after date because the treasury_decision implementing these regulations states that the irs will not challenge return positions that are consistent with these final regulations for taxable years ending before the effective date of this regulation t d 2004_1_cb_406 and respondent conceded that petitioner may rely on the current regulations we will not hold petitioner to a higher standard than the regulations require continued govern the outcome of this case see t d 2004_1_cb_406 accordingly respondent concedes that petitioner satisfies the technological in nature test as long as the information sought to be discovered is in fact technological and we accept this concession in light of the change to the test we find that it is more appropriate to refer to this test as the technological information test the above tests are applied separately to each business_component sec_41 a business_component includes in pertinent part a product or process that the taxpayer either holds for sale lease or license or uses in its trade_or_business sec_41 in the case of a production process sec_41 provides that any plant process machinery or technique for commercial production of a business_component shall be treated as a separate business_component and not as part of the business_component being produced the claim projects all relate to ucc’s processes for commercial production of ethylene pe or related products accordingly each of the claim projects includes two business components the production process and the product being produced petitioner argues that for each claim project it is one of ucc’s processes not the product produced that is the relevant business_component therefore in order to analyze the discrete business components at issue for each project we must separate the activities that relate to the improvement of the production process from the activities that relate to the product being produced sec_1_41-4 income_tax regs the fact that activities that relate to the product being produced do not satisfy the qualified_research tests of sec_41 will have no impact on whether the activities that relate to the improvement of the production process satisfy those tests if a business_component as a whole fails the qualified_research tests we may apply the shrinking-back_rule which allows us to apply the qualified_research tests to subsets of the business_component if doing so will allow the subset to satisfy those tests sec_1_41-4 income_tax regs the shrinking- back rule provides that if the qualified_research tests are not satisfied at the level of the discrete business_component they are then applied to the most significant subset of elements of the business_component the shrinking-back continues until either a subset of the business_component satisfies the tests or the most basic element of the business_component is reached and fails to satisfy the tests the shrinking-back_rule applies only if the overall business_component does not satisfy the qualified_research tests set out in sec_41 and is not itself a reason to exclude activities from credit eligibility id the sec_174 test the sec_174 test requires that expenditures connected with the research activities must be eligible for treatment as expenses under sec_174 sec_174 provides alternative methods_of_accounting for research or experimental expenditures that taxpayers would otherwise capitalize sec_1_174-1 income_tax regs the regulations define research or experimental expenditures as expenditures incurred in connection with the taxpayer’s trade_or_business which represent research_and_development costs in the experimental or laboratory sense sec_1_174-2 income_tax regsdollar_figure the parties do not dispute that costs of the claim projects were incurred in connection with ucc’s trade_or_business as relevant here an activity is research_and_development in the experimental or laboratory sense if the information available to the taxpayer does not establish the capability or method for developing or improving a product or process or the appropriate design of a product or process ie an uncertainty exists and the activity is intended to discover information that would eliminate this uncertainty sec_1_174-2 and income_tax regs because the taxpayer need only be uncertain as to the capability or method or the appropriate design of the improvement an uncertainty may exist even if the taxpayer knows that it is technically possible to achieve a goal but is uncertain of the method or appropriate design to use to reach that goal sec_1_174-2 income_tax regs emphasis added whether an 43while the current version of these regulations applies to years beginning after date the treasury_decision accompanying the current regulations states because the amendments merely clarify the existing definition of research or experimental expenditures retroactive application of the amendments is unnecessary return positions consistent with the amendments will be consistent with the existing regulations and will be recognized as such by the irs t d 1994_2_cb_30 respondent concedes that petitioner may rely on the current version of the regulations to determine whether the claim projects carried out in constitute qualified_research uncertainty exists is an objective test that depends on the information available to the taxpayer see 41_tc_582 affd 357_f2d_209 5th cir these guidelines apply to the nature of the activity examined not the nature of or the level of technological advancement represented by the product or process sec_1_174-2 and income_tax regs however deductions are allowed under sec_174 only to the extent that they are reasonable sec_174 furthermore deductions under sec_174 are limited to expenditures of an investigative nature expended in developing the concept of a model or product as opposed to the construction or manufacture of the product itself mayrath v commissioner supra pincite glassley v commissioner tcmemo_1996_206 kollsman instrument corp v commissioner tcmemo_1986_66 affd 870_f2d_89 2d cir therefore if a project involves both the development of the concept of a new or improved process and the use of the process in production only the activities related to the development of the concept of the process satisfy the sec_174 test the regulations under sec_174 exclude expenditures_for certain activities including as relevant here the ordinary testing or inspection of materials products or processes for quality control quality control testing sec_1_174-2 and income_tax regs quality control testing includes testing or inspecting to determine whether particular units of materials products or processes conform to specified parameters sec_1_174-2 and income_tax regs however quality control testing does not include testing to determine whether the design of the product or process is appropriate sec_1_174-2 and income_tax regs because sec_174 refers to research_and_experimental_expenditures not research and experimental activities we interpret sec_41 as requiring only that qualified_research activities constitute research_and_development within the meaning of sec_174 however as discussed below to determine which costs of those activities constitute qres under sec_41 the reference to sec_174 in sec_41 requires us to consider whether those costs may be treated as expenses under sec_174 see 110_tc_454 the technological information test the technological information test requires that the research be undertaken for the purpose of discovering information that is technological in nature sec_41 information is technological in nature if it fundamentally relies on principles of the physical or biological sciences engineering or computer science h conf rept vol ii at ii-71 through ii-72 1986_3_cb_1 therefore discovery of information related to the social sciences arts or humanities would not satisfy this test norwest corp subs v commissioner supra pincite the business_component test the business_component test requires that the taxpayer intend that the information to be discovered be useful in the development of a new or improved business_component of the taxpayer sec_41 to be useful within the meaning of this test the research need only provide some level of functional improvement to the taxpayer norwest corp subs v commissioner supra pincite the process_of_experimentation test the process_of_experimentation test has three elements substantially_all of the research activities must constitute elements of a process_of_experimentation for a qualified purpose sec_41 the substantially_all element means that percent or more of the taxpayer’s research activities for each business_component measured on a cost or other consistently applied reasonable basis must constitute a process_of_experimentation for a qualified purpose norwest corp subs v commissioner supra pincite sec_1_41-4 income_tax regs a taxpayer does not fail this requirement even if the remaining percent or less of its research activities with respect to the business_component do not constitute elements of a process_of_experimentation for a purpose described in sec_41 as long as the remaining research activities satisfy the requirements of sec_41 the sec_174 test and are not otherwise excluded under sec_41 sec_1 a income_tax regs if a business_component fails the process_of_experimentation test because of the substantially_all requirement the taxpayer may apply the shrinking-back_rule discussed above until an element that satisfies the test is reached norwest corp subs v commissioner supra pincite a process_of_experimentation is a process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result or the appropriate design of that result is uncertain as of the beginning of the taxpayer’s research activities sec_1 a i income_tax regs the uncertainty element of this test is essentially the same uncertainty as is required by the sec_174 test and the test may be satisfied even if the taxpayer is certain of either the capability or method of achieving the desired goal if the appropriate design of the desired result is uncertain at the outset sec_1_41-4 sec_44 sec_1_174-2 income_tax regs provides that uncertainty exists if the information available to the taxpayer does not establish the capability or method for developing or improving the product or the appropriate design of the product income_tax regs cf norwest corp subs v commissioner supra at dollar_figure however this test also imposes a more structured method of discovering information than sec_174 requires and may not include all actions a taxpayer takes to resolve uncertainty see norwest corp subs v commissioner supra pincite see also 312_f3d_905 7th cir affg tcmemo_2001_66 the process_of_experimentation test was added to sec_41 because congress was concerned that taxpayers had been claiming the credit for virtually any expenses relating to product development as opposed to high technology s rept supra pincite c b vol pincite see also h rept supra pincite c b vol pincite the process_of_experimentation test is not necessarily satisfied just because a taxpayer takes steps to improve a business_component the legislative_history explains the term process_of_experimentation means a process involving the evaluation of more than one alternative designed to achieve a result where the means of achieving that result is uncertain at the outset this may involve developing one or more hypotheses testing and analyzing those hypotheses through for example modeling or simulation and refining or discarding the hypotheses as part of a sequential design process to develop the overall component 45as discussed above we shall apply the more generous rule_of the final regulations where it differs from our prior holdings thus for example costs of developing a new or improved business_component are not eligible for the credit if the method of reaching the desired objective the new or improved product characteristics is readily discernible and applicable as of the beginning of the research activities so that true experimentation in the scientific or laboratory sense would not have to be undertaken to develop test and choose among viable alternatives on the other hand costs of experiments undertaken by chemists or physicians in developing and testing a new drug are eligible for the credit because the researchers are engaged in scientific experimentation similarly engineers who design a new computer system or who design improved or new integrated circuits for use in computer or other electronic products are engaged in qualified_research because the design of those items is uncertain at the outset and can only be determined through a process_of_experimentation relating to specific design hypotheses and decisions as described above h conf rept vol ii supra at ii- c b vol pincite this requires the use of the scientific method sense not merely taking steps to resolve uncertainty or to improve a product see black’s law dictionary 8th ed defining the scientific method as an analytical technique by which a hypothesis is formulated and then systematically tested through observation and experimentation to satisfy the process_of_experimentation test the taxpayer should develop a hypothesis as to how a new alternative might be used to develop a business_component test that hypothesis in a scientific manner analyze the results of the test and then either refine the hypothesis or discard it and develop a new hypothesis and repeat the previous steps it is not sufficient that the taxpayer use a method of simple trial and error to validate that a process or product change meets the taxpayer’s needs see id while the commissioner concedes in the regulations that a systematic trial and error methodology can be a process_of_experimentation sec_1_41-4 income_tax regs the term systematic suggests that the project must involve a methodical plan involving a series of trials to test a hypothesis analyze the data refine the hypothesis and retest the hypothesis so that it constitutes experimentation in the scientific sense testing and refining a hypothesis may involve determining the strengths and weakness of the alternative tested whether and how the process could be further refined and improved and whether other alternatives might be better suited for achieving the taxpayer’s goal while the process_of_experimentation need identify only one alternative it generally should be capable of evaluating more than one alternative sec_1_41-4 income_tax regs if only one alternative is tested for that alternative to constitute a process_of_experimentation the taxpayer should conduct a series of experiments with the alternative in order to develop the business_component see h conf rept vol ii supra at ii-72 c b vol pincite in response to commentary that in the industrial or commercial setting the recording of results is not necessarily inherent in a bona_fide process_of_experimentation treasury and the irs acknowledged that the regulations in place during the years at issue did not impose any rules regarding the recording of experiment results t d 2001_1_cb_433 however even if the results are not actually recorded the taxpayer should perform a sufficient analysis of the alternative tested so that the taxpayer could meaningfully compare one alternative to another furthermore sec_1_41-4 income_tax regs requires a taxpayer to retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit the qualified purposes are purposes relating to a new or improved function performance reliability or quality sec_41 by contrast style taste cosmetic or seasonal design factors are not qualified purposes sec_41 activities that are not qualified_research sec_41 lists certain activities that do not constitute qualified_research including as relevant here research after commercial production routine data collection foreign research and funded research research conducted after the beginning of commercial production is not qualified_research sec_41 a business_component is ready for commercial production when it is developed to the point where it meets the basic functional and economic requirements of the taxpayer or is ready for commercial sale or use h conf rept vol ii supra at ii-74 c b vol pincite typical examples of activities conducted after commercial production include preproduction planning for a finished business_component tooling-up for production trial production runs trouble-shooting involving detecting faults in production equipment or processes accumulation of data relating to production processes and debugging product flaws id at ii-74 through ii-75 c b vol pincite the exclusion for research after commercial production applies separately to the activities relating to the development of the product and the activities relating to the development of the process sec_1_41-4 income_tax regs therefore even after a product is ready for commercial sale activities relating to the development of the manufacturing process may constitute qualified_research funded research refers to research to the extent it is funded by any grant contract or otherwise by another person or governmental entity sec_41 b the claim project sec_1 plant-based research all of the claim projects took place at ucc’s manufacturing plants during the production process petitioner argues that as a general matter plant-based research can be qualified_research mr spitz one of petitioner’s expert witnesses testified that petrochemical chemical companies carry out plant- scale r d for many reasons such as developing new process technologies and products enhancing the performance of existing process technologies and products and attempting to resolve operational problems mr spitz believes that it is essential for petrochemical companies to conduct research at commercial plants to obtain meaningful test data in mr spitz’s opinion experiments conducted in laboratories or pilot plants cannot simply be scaled-up to full-sized plants without additional testing because of the differences in size dimensions and fluid dynamics of plant equipment and the inherent unpredictability of chemical reactions and chemical plant operations petitioner argues that making plant-based research eligible for the research_credit comports with congress’ intent to promote business research in order to spur economic growth furthermore petitioner argues that congress could not have intended to foreclose availability of the credit for research that is helpful to a taxpayer’s trade_or_business because the research was conducted in a plant environment and the research resulted in salable products respondent agrees that plant-based research satisfying sec_41 is eligible for the research_credit however respondent argues that all of the claim projects fail the qualified_research tests because the activities involved in the claim projects were primarily production activities not investigative activities related to developing the concept of the process and therefore fail the sec_174 test under mayrath v commissioner t c pincite respondent argues that the claim projects also fail the sec_174 test because they were designed to produce products for sale not to eliminate any uncertainties furthermore respondent argues that all of the claim projects fail the process_of_experimentation test because substantially_all of the activities for which petitioner is claiming qres constituted production activities not elements of a process_of_experimentation respondent also argues that the claim projects involve research after the beginning of commercial production and therefore are excluded under sec_41 petitioner argues that respondent incorrectly identified the end products produced by ucc not the techniques and processes ucc employed to produce those products as the business_component to which the research relates while the products produced during the claim projects already met ucc’s basic functional and economic requirements petitioner argues that the processes were still experimental and had not yet been proven as discussed above under sec_41 plant processes for commercial production are treated as a separate business_component from the product being produced accordingly where a taxpayer seeks research credits for plant processes but not for the products produced we apply the qualified_research tests only to activities related to the development of the process without taking into account the activities related to the production or development of the product sec_1_41-4 income_tax regs while each of the claim projects in its entirety necessarily involves production activities because the goal of each of the claim projects was to improve ucc’s production process we find that for each of the claim projects there are two business components a process business_component and a product business_component the activities that relate primarily to the improvement of ucc’s processes are part of the process business_component and the activities that relate primarily to the production of products are part of the product business_component therefore respondent’s arguments that petitioner’s production activities do not satisfy the sec_174 test or the process_of_experimentation test have no bearing on whether the activities that relate primarily to the development of ucc’s processes satisfy the qualified_research tests the amoco anticoking project petitioner claims that the amoco anticoking project constitutes qualified_research and the specific business_component at issue is the olefins production process as discussed above under sec_41 and sec_1 b income_tax regs we find that only activities that relate to the improvement of ucc’s olefins production process not production activities are part of this business_component a the sec_174 test in the opinion of dr froment one of petitioner’s expert witnesses the amoco anticoking project was designed to eliminate several uncertainties in particular whether the pretreatment would inhibit reduce or increase coke formation extend run lengths between furnace turnarounds and or adversely affect the downstream manufacturing processes or properties of finished olefins products while the amoco technology had shown promise in tests in laboratories and pilot plants petitioner argues that ucc believed that it had not yet been proven and ucc was unsure whether it would work on its commercial-scale ethylene furnaces respondent argues that the amoco anticoking project fails the sec_174 test because petitioner did not show that ucc undertook the project for the purpose of eliminating an uncertainty respondent argues that ucc believed that the amoco technology’s capabilities were already well established because amoco told ucc that its technology had been successfully tested in two commercial plants accordingly respondent believes that ucc was merely testing the amoco technology to validate that it worked as amoco claimed respondent argues that ucc did not realize that amoco’s technology was still developmental until just before it abandoned the project petitioner argues that the technology was promising but far from proven there is some conflicting evidence in the record as to how well established ucc believed amoco’s technology to be at the time it agreed to test the technologydollar_figure however it is clear that neither ucc nor amoco regarded the technology as proven or established to the point where it could be licensed commercially the fact that amoco applied the treatment at no cost to ucc supports petitioner’s argument that the technology was not fully established when ucc decided to undertake the amoco anticoking project the information available did not establish that amoco’s technology was capable of preventing or reducing coking on ucc’s furnaces see sec_1_174-2 income_tax regs sec_174 does not require that the technology be in the very beginning stages of development only that the taxpayer be uncertain as to whether the technology will improve its product or process the record supports petitioner’s argument that ucc was uncertain as to whether the amoco anticoking technology would work in ucc’s facilities therefore we find that at the time of 46dr milks testified that he believed that the amoco technology was experimental and definitely not proven jack marchio the technology manager for hydrocarbons r d at the south charleston technical center testified that he thought the amoco technology was established technology the test ucc was uncertain as to whether coke formation could be reduced in its commercial facility and if so whether amoco’s technology would reduce it respondent also argues that the amoco anticoking project is not qualified_research because it does not satisfy the test of mayrath v commissioner t c pincite respondent argues that most of the claimed costs associated with the amoco anticoking project relate primarily to production activities not the development of the concept of the amoco anticoking technology we agree with respondent that many of the activities involved in the amoco anticoking project did not relate to the development of the concept of using the amoco technology to reduce coke formation but instead constituted production activities such as the basic operation of furnace and all downstream activities these production activities relate primarily to the production of ethylene not the improvement of ucc’s production process accordingly they are part of the product business_component not the process business_component at issue and do not affect our analysis to the extent that petitioner has included production activities as part of the business_component we may apply the shrinking-back_rule and apply the qualified_research tests to the most significant subset of elements of the process that satisfies the qualified_research tests which we find to be the subset of activities that relate primarily to the testing of the amoco technology see sec_1 b income_tax regs we find that the following activities relate primarily to the testing of the amoco technology and are therefore the focus of our inquiry reviewing research of prior testing of the amoco technology preparing a test plan designating reference and experimental cracking sets preparing for the test applying the pretreatment collecting test data analyzing the data forming of a conclusion refining the hypothesis and repeating step sec_4 through for the refined hypothesis collectively amoco anticoking research activities we find that these activities related to the development of the concept of using the amoco anticoking technology and therefore are not excluded under mayrath accordingly the amoco anticoking research activities as defined above satisfy the sec_174 test b the technological information test petitioner argues that the amoco anticoking project satisfies the technological information test because the information it sought to discover was based on organic chemistry chemical engineering and other sciences we agree that the amoco anticoking research activities satisfy this test c the business_component test petitioner argues that the amoco anticoking project satisfies the business_component test because it was designed to improve the performance of its olefins production processes by reducing coke formation we agree that the amoco anticoking research activities as defined in part a satisfy this test d process_of_experimentation test in the opinion of dr froment the amoco anticoking project consisted of a process_of_experimentation in the scientific sense because ucc researched and considered a variety of anticoking technologies developed and implemented a detailed test plan by designating reference versus experimental cracking sets applying the pretreatment and recording test data analyzed the results refined the process after results from the first test were not satisfactory retested the product and drew a conclusion petitioner argues that substantially_all of the activities involved in the amoco anticoking project were part of this process_of_experimentation and that the project was conducted for a qualified purpose--the evaluation of whether the amoco pretreatment would improve the olefins production process by inhibiting coke formation respondent argues that ucc’s activities did not constitute a process_of_experimentation because ucc was merely validating amoco’s claim that the technology worked we find that the amoco anticoking research activities constitute a process_of_experimentation ucc did not merely determine whether the amoco technology inhibited coke formation but instead collected and analyzed data that could be used to compare the technology with alternatives when the first pretreatment proved to be unsuccessful ucc considered that the problem might have been the fact that the pretreatment was applied over coke remaining after a hot decoke ucc refined the process by applying the second pretreatment to the furnace after a cold turnaround after ucc applied the second pretreatment in date it continued to collect and analyze data until date and it used the data analysis to evaluate the technology while ucc did not continue to refine its hypothesis as to the effectiveness of the amoco technology and test it for four consecutive furnace cycles as it had planned satisfaction of the process_of_experimentation test does not require a taxpayer to continue testing a hypothesis that has no possibility of success such a requirement would be contrary to the purpose of sec_41 accordingly we find that ucc used a process_of_experimentation to evaluate the amoco technology and did not merely change its process and decide whether the change satisfied its basic needs petitioner argues that this project was undertaken for a qualified purpose--to evaluate the efficiency of the amoco technology at inhibiting coke formation in order to improve the function reliability and performance of the ethylene production process successful coke inhibition would have resulted in significantly longer furnace runs reduced maintenance longer equipment life and increased ethylene productivity yielding significant cost savings and increased profits we agree that this was a qualified purpose respondent counters that even if the amoco anticoking project exhibits some characteristics of research it fails the substantially_all test see norwest corp subs v commissioner t c pincite respondent argues that substantially_all of the activities for which petitioner is claiming qres do not constitute elements of a process_of_experimentation but instead constitute production activities we agree that the ordinary production activities that would have occurred even if ucc was not conducting an experiment do not constitute elements of a process_of_experimentation however as discussed above with regard to the sec_174 test we find that the qualified_research tests should be applied solely to the amoco anticoking research activities accordingly we consider only whether these activities satisfy the process_of_experimentation test we find that when we limit the project to only the amoco anticoking research activities substantially_all of those activities satisfy the process_of_experimentation test respondent argues that even if the amoco anticoking project satisfies the qualified_research tests it is excluded from the definition of qualified_research because it constitutes funded research research after commercial production or data collection and routine testing e funded research sec_41 provides that research is not qualified_research to the extent funded by any grant contract or otherwise by another person the evidence shows that amoco and ucc each paid their own costs during the amoco anticoking project while amoco covered the cost of applying the pretreatment and was contractually obligated to pay for any overtime worked by ucc employees petitioner did not include any of these costs in its qre calculations respondent argues that under sec_1_41-4a income_tax regs as made applicable by sec_1_41-4 income_tax regs research is treated as fully funded if a taxpayer performing research for another person retains no substantial rights in research under the agreement providing for the research furthermore under sec_1_41-4a income_tax regs a taxpayer does not retain substantial rights in the research if the taxpayer must pay for the right to use the results of the research however petitioner is not seeking credit for research conducted for the benefit of amoco or that amoco would purchase from ucc it would clearly violate congress’s intent in enacting sec_41 if a taxpayer could seek a tax_credit for research that it did not ultimately pay for petitioner is also not seeking credit for the costs that amoco incurred to develop the technology petitioner is seeking credit for research that ucc performed for its own benefit and at its own cost while ucc did not gain any rights to amoco’s technology by conducting the amoco anticoking project ucc retained all rights to its own research petitioner produced credible_evidence at trial that the information that ucc gained during the amoco anticoking project was valuable regardless of whether it licensed amoco’s technology or not accordingly we find that the amoco anticoking research activities do not constitute funded research f research after commercial production respondent argues that the amoco anticoking project is research after commercial production because ucc’s olefins process already met its functional and economic requirements respondent points out that the amoco anticoking project did not disrupt ucc’s normal production process and resulted in a salable product respondent argues that ucc was simply tweaking its existing process petitioner argues that the amoco anticoking project was not merely research after commercial production but was a process_of_experimentation that ucc had to conduct before deciding whether to license amoco’s technology as discussed above it is only the amoco anticoking research activities that we must examine not ucc’s entire olefins process which we agree already met ucc’s basic functional and economic requirements and was used commercially we conclude that the amoco technology was not yet ready for commercial use at the time ucc undertook the amoco anticoking project the fact that amoco’s technology ultimately failed is a clear indication that it did not meet ucc’s needs petitioner further argues that the amoco anticoking project was not a trial production run because it was conducted before the potential process improvement the amoco technology was satisfactorily tested and proven we agree with petitioner that the amoco anticoking research activities were not merely research after commercial production and are not excluded from the definition of qualified_research by sec_41 g data collection and routine testing respondent next argues that the amoco anticoking project is specifically excluded from the definition of qualified_research because it constitutes routine data collection routine or ordinary testing or inspection for quality control respondent argues that after the initial results from the first pretreatment suggested failure the activities occurring during the remaining period were primarily the accumulation of data respondent points out that some of the data that ucc collected were routinely collected in its normal operations and was available to ucc regardless of whether a test were being conducted petitioner counters that during the amoco anticoking project ucc collected some data that it did not normally measure and took other measurements more frequently than it normally took them furthermore petitioner points out that ucc analyzed the collected data which ucc did not normally do while ucc did take some measurements during the normal olefins production process petitioner argues that the purpose of those measurements was to ensure that furnace was operating normally by contrast petitioner argues that during the amoco anticoking project ucc took many more measurements for the purpose of determining whether amoco’s anticoking technology actually reduced the formation of coke and whether the technology could improve ucc’s production process we agree that ucc’s activities went beyond routine data collection and that the amoco anticoking research activities are not excluded from the definition of qualified_research by sec_41 h substantiation requirement respondent finally argues that even if the amoco anticoking project would otherwise satisfy the qualified_research tests petitioner has not substantiated its claim after the 10th week of testing while the activities that occurred from the first pretreatment to the cold turnaround in date were documented in the project report dated date respondent points out that there is no comparable project report to corroborate ucc’s argument that the amoco anticoking project continued with a second pretreatment in date and additional testing until the date cold turnaround respondent argues that petitioner was unable to find any data or analysis of data collected after date therefore respondent argues that petitioner has failed to substantiate any activities after the date project report was written see sec_6001 122_tc_305 tyson foods inc subs v commissioner tcmemo_2007_188 eustace v commissioner tcmemo_2001_66 sec_1_6001-1 income_tax regs petitioner argues that there is sufficient evidence to show that ucc continued to run the test and evaluate data until date petitioner offered four witnesses who corroborated that the second test occurred two of whom confirmed that the test lasted until date furthermore petitioner submitted documentary_evidence that confirms the testimony and shows that some analysis was performed on the data collected from the second test one of respondent’s own expert witnesses mr halle concluded that the amoco anticoking project lasted to months accordingly on the basis of the entire record we conclude that petitioner sufficiently substantiated its claim that the amoco anticoking project included a second test that ran from april to date on the basis of the foregoing we hold that the amoco anticoking research activities were qualified_research the spuds project petitioner originally claimed that the spuds project was qualified_research but now concedes that it does not satisfy the requirements of sec_41 dr wadia testified that in his opinion the spuds project did not constitute research or experimentation in the scientific sense dr wadia believes that the spuds project was a standard mechanical design change followed by routine plant troubleshooting dr wadia also believes that the spuds project presented a low level of uncertainty because ucc had been using one-hole spuds at olefins- for years petitioner originally argued that the relevant business_component was the olefins production process as discussed above under sec_41 and sec_1_41-4 income_tax regs we find that only activities that relate to the improvement of ucc’s olefins production process not production activities are part of this business_component a the sec_174 test in the opinion of dr martin another of petitioner’s expert witnesses the purpose of the spuds project was to eliminate uncertainties concerning improvements that might be achieved in the operation of the olefins-1 furnaces by replacing the four- hole spuds with one-hole spuds dr martin’s opinion is that it would be impossible to determine the impact of the change on all of the various operating conditions in the furnace by calculation or by testing in a small test facility similar to the test facilities operated by burner vendors petitioner originally argued that the specific uncertainties that the spuds project was designed to eliminate were whether the new spud design would reduce plugging carbon monoxide levels and erratic burner flame patterns increase furnace fuel efficiency and or adversely affect furnace operations or downstream processes specifically ucc was concerned that using the one-hole spuds would increase the level of noise from the furnaces above acceptable levels respondent argues that the spuds project fails the sec_174 test because the project was not designed to eliminate any uncertainties ms mcclung one of respondent’s expert witnesses testified that the one-hole spud design maintained the same design flow area as the four-hole spuds and did not necessitate testing to validate performance in ms mcclung’s opinion changing the number of spud holes without changing the total area of the holes would not be expected to significantly affect anything concerning the furnace or burner operation other than to reduce or eliminate the plugging problem furthermore ms mcclung believes that ucc’s experience with one-hole spuds on its olefins-2 furnaces eliminated any uncertainties that may have otherwise existed accordingly respondent argues that ucc was certain that replacing four-hole spuds with one-hole spuds would result at a minimum in the improvement of the plugging problem on the basis of its use of the one-hole spuds at olefins-2 and common sense petitioner’s fact witnesses testified that they hoped that the one-hole spuds would improve the process but they were not certain however the sec_174 test requires that an objective uncertainty exist as to the capability or method for developing or improving a product or process or the appropriate design of a product or process see mayrath v commissioner t c pincite we find that regardless of whether some of ucc’s employees were not certain that the one-hole spuds would improve ucc’s production process at olefins-1 ucc had sufficient information available to it both information gathered from its own experiences using one-hole spuds and information provided by the john zink co to be certain that the one-hole spuds were capable of improving ucc’s production process furthermore ucc was certain that changing the four-hole spuds to one-hole spuds was the appropriate method for reducing plugging ucc knew that changing the spuds would be an effective and relatively inexpensive way to solve the problem finally there was no uncertainty as to the appropriate design of the improvement the john zink co designed the one- hole spud and there is no evidence that ucc ever considered adapting the john zink co ’s design b the remaining tests because the spuds project fails the sec_174 test we need not address whether it satisfies the remaining tests the sodium borohydride project petitioner claims that the sodium borohydride project is qualified_research petitioner identified the olefins production process as the relevant business_component as discussed above under sec_41 and sec_1_41-4 income_tax regs we find that only activities that relate to the improvement of ucc’s olefins production process not production activities are part of this business_component a the first three tests as explained below we find that the sodium borohydride project fails the process_of_experimentation test accordingly we need not discuss whether it satisfies the sec_174 technological information or business_component test b the process_of_experimentation test petitioner argues that the sodium borohydride project satisfies the process_of_experimentation test because substantially_all of the activities involved constitute a process_of_experimentation designed to determine whether ucc could effectively use sodium borohydride to remove acetaldehyde to below ppm while the mea system was out of service petitioner argues that the process involved considering alternatives most notably sodium bisulfate preparing a detailed project memorandum and an focr posing and answering a series of questions about the proposed sodium borohydride injections determining test dosages and injection rates injecting the sodium borohydride sampling the cracked gas stream and crude butadiene product for acetaldehyde sampling the wastewater for boron analyzing the results and evaluating the results and drawing the conclusion that sodium borohydride had successfully removed acetaldehyde to below specification levels furthermore petitioner argues that the process_of_experimentation was for qualified purposes--improved function and performance of taft’s ethylene production process and improved quality of the consumer product respondent argues that the sodium borohydride project did not involve a process_of_experimentation but was merely a method of reducing the acetaldehyde in ucc’s crude butadiene respondent argues that ucc was not evaluating alternatives but was simply validating that injecting sodium borohydride could be used to remove acetaldehyde and troubleshooting any problems that came up respondent argues that while sodium bisulfate could have been used as an alternative to sodium borohydride ucc never seriously considered using sodium bisulfate because it knew that sodium borohydride would work better in respondent’s opinion the occurrence of operating issues or the collection of data does not make a process one of experimentation respondent argues that the sodium borohydride project lacked any analysis of the data collected or evaluation of the process change beyond validating that the change satisfied ucc’s needs we agree with petitioner that the sodium borohydride research activities were designed to resolve uncertainty even if the capability of using sodium borohydride to remove acetaldehyde was generally known ucc was not certain whether sodium borohydride was the appropriate method for removing acetaldehyde from crude butadiene while the mea system was out of service given its high cost and unknown efficiency or ucc’s design for injecting sodium borohydride was appropriate however to constitute a process_of_experimentation the sodium borohydride project research activities must have been designed not only to test whether sodium borohydride satisfied ucc’s needs but to evaluate the use of sodium borohydride through a sequential process_of_experimentation such a process would include not only planning the test implementing the test and collecting data but would also include analyzing of the data collected refining and discarding hypotheses and progressively developing the process there is no evidence to support ucc’s assertion that it actually analyzed the data it collected beyond determining that sodium borohydride reduced acetaldehyde below ppm while petitioner argues that ucc was uncertain about the appropriate dosages or injection rates there is no evidence that ucc experimented with dosages or injection rates or determined the optimal dosage and injection rate ucc was merely validating that injecting sodium borohydride into the caustic scrubber would reduce acetaldehyde to on-specification levels there is also no evidence that the results of the test were sufficiently analyzed so that ucc could compare them with the results of tests of other alternatives ucc’s data collection alone no matter how extensive does not constitute a process_of_experimentation if it is not followed by meaningful analysis while dr manyik prepared an r d report for the sodium borohydride project that ucc considered to be the functional equivalent of a project report dr manyik prepared the r d report before the test of sodium borohydride occurred therefore it could not have included any analyses of the project that were not available before the project began the fact that ucc found dr manyik’s r d report and other prerun reports sufficient to document the sodium borohydride project indicates that ucc did not find it necessary to analyze the results of the project and was not interested in developing or refining its process accordingly we find that the sodium borohydride research activities fail the process_of_experimentation test and were not qualified_research we need not address respondent’s remaining arguments relating to this project the uop ga-155 project petitioner argues that the uop ga-155 project is qualified_research and that the relevant business_component is the olefins production process as discussed above under sec_41 and sec_1_41-4 income_tax regs we find that only activities that relate to the improvement of ucc’s olefins production process not production activities are part of this business_component a the sec_174 test petitioner argues that the uop ga-155 project satisfies the sec_174 test because it was designed to eliminate uncertainties as to whether uop ga-155 would reduce butadiene polymer fouling in the c3 column and reboilers the proper dosage of uop ga-155 to both reduce c3 column fouling and stabilize the dripolene and or whether uop ga-155 would adversely affect taft’s downstream processes and commercial products petitioner argues that these uncertainties could not have been resolved without a plant test because laboratory tests would not translate well to the plant respondent argues that the uop ga-155 project fails the sec_174 test because any uncertainties with respect to injecting uop ga-155 had been resolved before the project began respondent believes that the only question that remained was how much uop ga-155 to use and ucc intended to resolve this issue by obtaining advice from uop not through its own testing respondent argues that there were no issues with respect to the capability or method for developing or improving the process or the appropriate design of the process but that ucc was merely verifying uop’s claims that uop ga-155 would reducing fouling if there were any uncertainties with respect to the uop ga-155 project respondent argues that they would have been reflected in the focr while ucc’s employees testified that they were uncertain whether uop ga-155 would reduce fouling we find that the information available to ucc established that uop ga-155 would be effective the evidence shows that uop not ucc performed the research to determine uop ga-155’s effectiveness the fact that ucc desired to confirm uop’s assertions with its own testing does not create an uncertainty within the meaning of sec_174 the sec_174 test is an objective test and a taxpayer may not turn its back on the available information in order to create uncertainty furthermore there is no evidence that ucc was uncertain as to the appropriate method for reducing fouling ucc had significant experience using inhibitors before beginning the uop ga-155 project and there is no evidence that ucc had any doubt that injecting an inhibitor into the c3 column was the appropriate method to reduce fouling in the c3 column finally ucc had sufficient information available to it to eliminate any uncertainties as to the appropriate design of using uop ga-155 to reduce fouling in the c3 column it was uop that developed uop ga-155 studied ucc’s process and recommended the design that ucc should use to inject uop ga-155 there is no evidence that ucc intended to use the uop ga-155 project to discover information to improve upon or change the design suggested by uop b the remaining tests because the uop ga-155 project fails the sec_174 test we need not address whether it satisfies the remaining qualified_research tests the ucat-j project petitioner claims that the ucat-j project is qualified_research and that the relevant business_component is the pe production process respondent argues that each of the individual ucat-j runs constitutes a separate project we find that the ucat-j runs were separate tests in the same project to develop the use of ucat-j in ucc’s pe production process and should be treated as a single business_component however as discussed above under sec_41 and sec_1 b income_tax regs we find that only activities that relate to the improvement of ucc’s pe production process not production activities are part of this business_component a the sec_174 test in the opinion of dr brockmeier one of petitioner’s expert witnesses the ucat-j project was designed to discover information that would eliminate several uncertainties relating to whether ucc could use ucat-j to produce pe base resins in star’s unipol reactors with reactor operability and continuity and product properties equivalent to or better than those that could be achieved using m-1 for example dr brockmeier believes that ucc was uncertain whether using ucat-j as the catalyst would increase the amount of static in the reactor and cause operability problems static was a greater problem with ucat-j than with m-1 because of the dielectric properties of the ucat-j system in dr brockmeier’s opinion ucc could not discover how to solve this problem at the pilot plants or smaller commercial reactors because static was less of a problem in smaller reactors petitioner argues that other examples of operability issues related to ucat-j were ucc’s ability to control bulk density when producing butene film resins reduce resin stickiness without reducing catalyst productivity and prevent teal starvation petitioner argues that these issues created uncertainties regarding ucc’s capability of using ucat-j to produce base resin and or uncertainties regarding the design for using ucat-j to develop or improve its unipol process technology used at star petitioner argues that the ucat-j project was intended to discover information that would eliminate these uncertainties in the opinion of dr brockmeier the rule_of three followed at star was reasonable and one or even two problem-free experiments does not provide a manufacturer with sufficient assurance that the technology can be used without r d supervision and involvement dr brockmeier also believes that the duration of the ucat-j runs was scientifically reasonable and that ucc was continuing to discover information about ucat-j’s operability after the reactor was lined out and reached a steady state in dr brockmeier’s opinion the ucat-j runs were not merely trial production runs because ucc had not yet eliminated the uncertainties associated with the new technology respondent’s analysis of the ucat-j project relies on the report of one of his expert witnesses dr allen respondent argues that the ucat-j project fails the sec_174 test because ucc was certain that it could produce aim-grade base resin using ucat-j and the ucat-j project was conducted for the purpose of producing products for sale to customers not for the purpose of discovering information i uncertainty respondent argues that the ucat-j project fails the sec_174 test because ucc was certain that it could produce aim-grade base resin using ucat-j respondent argues that ucc gained this certainty because it had successfully used ucat-j on the unipol pilot plant as well as at star and seadrift respondent believes his argument is supported by the fact that ucc had enough confidence to begin designing lp-6 which was designed to use ucat-j and to tout the benefits of ucat-j to unipol licensees before it began the ucat-j project respondent argues that the court should consider petitioner’s arguments and testimonial evidence against the documentary_evidence made contemporaneously with the runs in support of his argument respondent cites 333_us_364 where the supreme court stated both on direct and cross-examination counsel were permitted to phrase their questions in extremely leading form so that the import of the witnesses’ testimony was conflicting where such testimony is in conflict with contemporaneous documents we can give it little weight particularly when the crucial issues involve mixed questions of law and fact respondent points to documents dated before the ucat-j project began indicating that ucc had produced aim-grade resin on its smaller reactors without significant operability or continuity problems and that ucat-j performed better than m-1 on the pilot plant respondent also argues that the pre-run documentation does not identify the uncertainties that petitioner claims existed before the runs we agree with respondent that some of the documentary_evidence indicates that ucc was confident that at some point it would be able to produce base resin using ucat-j on a commercial scale and sell ucat-j to licensees furthermore we find that ucc generally found ucat-j to work as well as or better than m-1 in its pilot plants however this not end our inquiry even if ucc was certain that it was capable of using ucat-j commercially the sec_174 test may also be satisfied if the information available to the taxpayer does not establish the appropriate design of the product sec_1_174-2 income_tax regs the documentary_evidence indicates that ucc was confident that it would eventually be able to use ucat-j with satisfactory operability and continuity but it does not indicate that ucc knew how to design its process so that using ucat-j would be an improvement over using m-1 in its full-size commercial reactors and ucc could fully use ucat-j’s superior qualities many of the documents in evidence list the objectives and the risks involved in the runs and petitioner confirmed through testimony that each of the runs was conducted for the purpose of discovering information that would help eliminate uncertainties as to how ucc could improve its pe production process using ucat-j therefore we find that the testimony does not conflict with the documentary_evidence furthermore we find that at the beginning of ucc did not have enough information available to establish how it should design its process so that using ucat-j would be an improvement over using m-1 on a full-scale commercial reactor ucc may have been satisfied with the design of its process using ucat-j in the pilot plant and the smaller reactor at seadrift but ucc could not use the same design on star’s reactor because star’s larger size caused problems that did not occur at the smaller plants such as static and sheeting ucc was still experiencing significant operability and continuity problems at star that negated many of the benefits of using ucat-j the purpose of testing a process on a pilot plant is to eliminate any uncertainties that can be eliminated at the pilot plant level before moving the experiment to a commercial-scale reactor but any uncertainties that arise only on larger reactors cannot be eliminated without testing on a commercial-scale reactor we agree with petitioner that because of the differences between a commercial-scale reactor and a pilot plant reactor there were additional uncertainties relating to the design of the process that could not be eliminated through testing on smaller reactors petitioner’s argument that testing on smaller reactors would not eliminate all uncertainties regarding the design of a commercial- scale pe production process using ucat-j is further supported by the fact that ucc decided to install two different sets of catalyst feeders on its lp-6 plant so that m-1 could be used at the plant if ucc was unable to commercialize ucat-j by the time the plant was completed ii discovering information respondent argues that even if there were uncertainties as to the design of ucc’s process the ucat-j runs were not conducted for the purpose of eliminating those uncertainties in the opinion of dr allen all of the runs of the ucat-j project were conducted for commercial reasons respondent points out that ucc sold most of the resin it produced during the ucat-j runs an objective for most of the runs was to produce resin for customer qualification and many of the runs lasted longer than the time necessary to achieve a steady state in the reactor we agree that some of ucc’s objectives were commercial as we would expect considering that ucc’s ultimate goal was to commercialize the use of ucat-j and the ucat-j project included both process and product business components however we find that the record supports petitioner’s argument that the primary goal of ucc’s activities that related to the process business_component was to discover information to eliminate uncertainties as to the appropriate design of ucc’s pe production process when ucat-j was used as the catalyst ucc’s production activities by contrast are part of the product business_component of the ucat- j project and are outside the scope of our inquiry respondent also points out that ucc wanted its plant operators to gain experience making products with ucat-j in anticipation of the completion of lp-6 while this may have been an additional objective of the ucat-j project we do not believe that it was the primary objective respondent next argues that the even if the ucat-j project otherwise satisfies the sec_174 test it fails the test of 41_tc_582 respondent argues that most of the claimed costs associated with the ucat-j project related to production activities not activities related to the development of the concept of the project we agree that the activities that related primarily to the production of pe base resin were not related to the development of the concept of using ucat-j and may not be treated as expenses under sec_174 see mayrath v commissioner supra pincite however we conclude that these production activities are part of the product business_component not the process business_component at issue to the extent that petitioner has included production activities as part of the business_component we may apply the shrinking-back_rule and apply the qualified_research tests to the most significant subset of elements of the process that satisfies the qualified_research tests which we find to be the subset of activities that relate primarily to the development of the production process using ucat-j see sec_1_41-4 income_tax regs the activities that relate primarily to the development of the production process using ucat-j are part of the process business_component and we find that they satisfy the mayrath test these activities include preparing run documentation including identifying objectives and risks of each run monitoring reactor performance responding to unexpected operating problems conducting experiments during the runs collecting resin and catalyst samples reporting run performance both during and following each run analyzing the results of each run identifying ways to improve subsequent runs and implementing improvements in subsequent runs collectively ucat-j research activities respondent finally argues that the ucat-j project fails the sec_174 test because the duration of many of the runs far exceeded the duration necessary to discover information to resolve uncertainties we disagree and we find that activities that relate primarily to the development of the process as opposed to the production of base resin may satisfy the sec_174 test regardless of when they occurred as long as they were performed for the purpose of discovering information to eliminate the uncertainties discussed above we find that the ucat-j research activities were performed for this purpose b the technological information test petitioner argues that the ucat-j project satisfies the technological information test because it was designed to discover information based upon numerous principles of chemistry and engineering including catalytic chemistry polymerization heat and mass transfer reaction kinetics statistics fluid dynamics and solubility chemical engineering and process engineering we agree that the ucat-j research activities satisfy this test c the business_component test petitioner argues that the ucat-j project satisfies the business_component test because the project was intended to discover information that would be useful for improving ucc’s pe production process we agree that the ucat-j research activities satisfy this test d the process_of_experimentation test petitioner claims that substantially_all of the activities involved in the ucat-j project constitute elements of a process_of_experimentation for a qualified purpose in dr brockmeier’s opinion the ucat-j project involved a constant process of evaluation and experimentation including preparing run documentation that identified the objectives and risks of each run monitoring reactor performance responding to unexpected operating problems conducting experiments during the runs collecting resin and catalyst samples reporting run performance both during and following each run analyzing the results of the runs and developing ways to improve the process during subsequent runs dr brockmeier believes that the run team’s activities-- meeting regularly to discuss objectives identifying obstacles proposing alternative remedies and evaluating reaction system responses to the experimental remedies--indicate that the project was conducted using a process_of_experimentation in the scientific sense dr brockmeier also noted various experiments that ucc conducted during the ucat-j project including adjusting operating ratios and chemicals adjusting ethylene partial pressure modifying catalyst properties introducing new reactor control technologies and giving the reactor teal shots dr brockmeier concluded in his report viewed in its entirety the ucat-j project is a textbook example of the r d-driven process_of_experimentation that is required in order to implement a catalyst change in a large-scale pe production process petitioner also claims that the ucat-j project was performed for a qualified purpose--to improve the function and performance of the pe production process and to improve the quality of the consumer product ucat-j if successfully commercialized offered many process-related advantages over m-1 because it was more active than m-1 and therefore could produce more base resin furthermore if ucat-j worked properly it would improve pe product properties respondent argues that the ucat-j project fails the process_of_experimentation test because respondent believes that ucc had already eliminated all uncertainties related to the use of ucat-j before the credit years and accordingly no experimentation was necessary as discussed above with respect to the sec_174 test we find that ucc had not eliminated all uncertainties relating to the design of its pe production process using ucat-j on a commercial scale before completing the project respondent also argues that petitioner failed to produce any formal project reports that analyzed the results of the ucat-j project while such formal project reports would indicate a process_of_experimentation we are satisfied that ucc sufficiently analyzed the results through discussion and informal documentation petitioner presented credible testimony that process r d collected data during the ucat-j runs process r d representatives and members of the run team analyzed and discussed the results and ucc used these analyses to further refine the pe production process using ucat-j the fact that ucc was able to compare its production process using ucat-j with its production process using m-1 in terms of reactor operability and continuity issues indicates that ucc could use the same process to compare ucat-j with other catalysts we find that the ucat-j research activities constitute a process_of_experimentation unlike the sodium borohydride project the ucat-j project was not a simple change to a process followed by verification that the change would work ucc conducted a series of trials using ucat-j and analyzed the results of each trial to develop and improve its process ucc was testing hypotheses and forming new hypotheses based on each succeeding run in order to solve some of the chemical and physical problems it had experienced using ucat-j throughout the ucat-j project ucc was comparing ucat-j’s performance to m- 1’s performance on a variety of criteria related to reactor operability reactor continuity and product properties while many of the activities that were conducted during the ucat-j project as a whole did not constitute a process_of_experimentation but were ordinary production activities as discussed above we find it appropriate to separate the production activities and the research activities into separate business components for the nonexperimental product and the experimental process respectively therefore the occurrence of nonexperimental production activities does not cause the ucat-j research activities to fail the substantially_all portion of the process_of_experimentation test furthermore we find that the improvement of ucc’s pe production process is a qualified purpose under sec_41 accordingly we find that the ucat-j research activities satisfy the process_of_experimentation test e research after commercial production respondent next argues that the ucat-j project is excluded from the definition of qualified_research because it constituted research after commercial production specifically trial production runs troubleshooting or debugging respondent argues that the ucat-j runs occurred after the preproduction planning and trial production runs had occurred we disagree that the ucat-j research activities constituted research after commercial production while the aim-grade base resin that ucc produced satisfied ucc’s basic functional and economic requirements the business_component at issue is the process business_component not the product business_component ucc’s production process using ucat-j did not satisfy its basic functional and economic requirements during the credit years ucc was not yet licensing the use of ucat-j and was not using ucat-j as its primary catalyst for production ucc was still experimenting to eliminate significant problems that counteracted the benefits of using ucat-j instead of m-1 accordingly we find that the ucat-j research activities are not excluded from the definition of qualified_research under sec_41 f substantiation requirement respondent finally argues that petitioner has not produced sufficient documentary_evidence to corroborate the testimony of its fact witnesses in support of its argument that the ucat-j project was qualified_research see sec_6001 sec_1_6001-1 income_tax regs see also boyd v commissioner t c pincite tyson foods inc subs v commissioner tcmemo_2007_188 eustace v commissioner tcmemo_2001_66 petitioner argues that there is sufficient evidence to show that the ucat-j project occurred and satisfies the qualified_research tests petitioner produced three fact witnesses to discuss the ucat-j project and argues that their testimony is corroborated by sufficient documentary_evidence that provides the objectives risks and results of the runs considering the record in its entirety we find that petitioner substantiated its claim that the ucat-j research activities satisfy the qualified_research tests accordingly these research activities but not ordinary production activities constitute qualified_research iii base_period activities we next address whether petitioner included all activities similar to the activities that we find constitute qualified_research in making its revised base_period computations a taxpayer must determine its qres to be taken into account in computing its fixed-base percentage on a basis consistent with its determination of qres for the credit_year sec_41dollar_figure accordingly the taxpayer must include the same types of activities as qualified_research and include the same types of costs as qres for the credit years and the base_period the legislative_history explains if a taxpayer includes or excludes certain expenditures in determining its qualified_research 47see supra note expenses for the current_year it must provide the same treatment for all such expenditures incurred during any year taken into account in computing the taxpayer’s fixed-base percentage h rept pincite3 a whether petitioner must include activities conducted by the entire consolidated_group in its order dated date the court ordered that for purposes of conforming the base_period computations to the methodology petitioner employed to compute the claimed credits only evidence of the revised base_period computations for the legal entity for which additional credits are claimed would be necessary because petitioner claimed additional credits only for activities conducted by ucc the base_period trial was limited to ucc’s base_period computations in response to petitioner’s motion for partial summary judgement dated date respondent argued48 that petitioner was required to calculate its qres for the base_period for the entire controlled_group on a consistent basis with its qre calculation for the claim projects this would require petitioner to include in its revised research_credit computations the qres incurred not only by ucc but also the other members of petitioner’s controlled_group respondent pointed to sec_41 which provides 48respondent did not repeat these arguments on brief and acknowledges that the court has already decided this issue however respondent reserves his arguments with respect to this issue accordingly we address his arguments here aggregation of expenditures -- a controlled_group_of_corporations --in determining the amount of the credit under this section-- i all members of the same controlled_group_of_corporations shall be treated as a single_taxpayer and ii the credit if any allowable by this section to each such member shall be its proportionate shares of the qualified_research_expenses and basic_research_payments giving rise to the credit however we decided that the consistency rule applies to the determination of qres for each member of the controlled_group while the aggregation rule_of sec_41 refers to the determination of the overall credit the rule for aggregation of expenditures exists to ensure that the new credit will be allowed only for actual increases in research wage expenditures s rept supra pincite c b pincite congress intended for these rules to prevent artificial increases in research expenditures by shifting expenditures among commonly controlled or otherwise related_persons id the rules for aggregation were already in place when the consistency rule was enacted as part of the omnibus budget reconciliation act of publaw_101_239 sec b 103_stat_2323 yet the legislative_history does not provide any guidance as to whether the consistency rule applies at the entity level or the consolidated_group level see h rept supra pincite- h conf rept pincite sec_41 refers to the taxpayer not the controlled_group and there is no indication in the statute or the legislative_history that all members of a consolidated_group must calculate their qres in the same way sec_41 undercuts the logic of the argument that the consistency rule is to be applied to the controlled_group as a whole sec_41 gives the secretary authority to issue regulations to prevent distortions caused by a change in accounting methods used by such taxpayer taxpayers that are part of a commonly controlled_group may have different methods_of_accounting because the statute refers only to a single accounting_method it makes no sense to conclude that the consistency rule applies to the controlled_group as a whole respondent’s attempt to read the consistency rule in the light of sec_41 creates an anomaly respondent argued that petitioner’s interpretation of the consistency rule contradicts unambiguous congressional intent respondent asked us to consider the following example a and b are members of a controlled_group_of_corporations during the base years a but not b incurred a certain type of qre in the credit_year the ab controlled_group shifts this type of qre to b in order to avoid including this item of a’s base_period qre in the group credit computation under the consistency_requirement respondent argued that petitioner’s interpretation of the consistency rule would permit the result in the example in support of his position respondent cited the legislative purpose for the aggregation rules to prevent artificial increases in research wage expenditures by shifting expenditures among commonly controlled or otherwise related_persons see s rept supra pincite c b pincite however the regulations already address respondent’s concern sec_41 and the legislative_history direct the secretary to issue regulations to ensure that artificial shifting of research expenditures will not occur sec_1_41-6 income_tax regs addresses the concern of shifting artificial expenditures among members of a controlled_group by providing that because all members of a group under common_control are treated as a single_taxpayer for purposes of determining the research_credit transfers between members of the group are generally disregardeddollar_figure there is no support in the statute or the legislative_history for the application of the consistency rule at the controlled_group level accordingly because petitioner is now seeking additional research credits for activities conducted only by ucc petitioner properly included base_period qres for only ucc in its fixed-base percentage b acquisitions and dispositions sec_41 provides for adjustments to qres in the event of an acquisition or disposition by the taxpayer if the 49during the credit years this regulation was found under sec_1_41-8 income_tax regs taxpayer acquires a major portion of a trade_or_business then the taxpayer must increase the amount of the qres it incurred before the acquisition by the amount of qres incurred by the acquired trade_or_business during that time sec_41 likewise in the case of a disposition of a major portion of its trade_or_business the taxpayer must decrease the amount of the qres it incurred before the disposition by the amount of qres attributable to the trade_or_business sold sec_41 sec_41 excludes from the definition of qualified_research any research conducted outside the united_states the commonwealth of puerto rico or any possession the united_states accordingly we need not consider any acquisitions or dispositions of businesses that conducted research solely outside the united_states during the base_period ucc’s c p business segment was ucc’s only domestic business segment operating during the base_period that remained a part of the ucc legal entity during the credit years accordingly we need not consider any of the other business segments that were part of ucc during the base perioddollar_figure we find and respondent does not dispute that petitioner has properly accounted for the acquisitions and dispositions that occurred during the relevant periods 50ucc disposed of its consumer products carbon products and industrial gases segments before date c polypropylene runs dr wadia contends that the identified polypropylene runs that occurred at seadrift’s p-1 unit satisfy the qualified_research criteria ms toivonen costed the polypropylene runs at dollar_figure million however petitioner did not include these runs in its base_period calculations because petitioner claims that ucc conducted these runs as an independent_contractor for spc and spc ultimately bore the cost of these runs respondent argues that petitioner should have included the polypropylene runs in its base_period calculations because ucc initially bore the costs of the runs petitioner failed to substantiate that ucc was compensated by spc spc did not maintain separate books_and_records apart from ucc’s books_and_records and ucc was required to bear its own costs of conducting r d under the cua under the operating_agreement between ucc and spc spc agreed to reimburse ucc for any operating_expenses it incurred petitioner presented testimony at trial that spc did in fact reimburse ucc for these expenses and we find the testimony to be credible furthermore while ucc provided accounting services for spc petitioner provided credible_evidence that ucc kept its records separate from those of spc while we agree that the cua provides that ucc would bear the costs of r d it conducted as part of the cooperative undertaking the polypropylene runs were conducted by spc not the cooperative undertaking the polypropylene runs all involved plant-based experimentation and the cooperative undertaking was not involved in any experimentation that occurred during the production process while the agreements between ucc and shell relating to spc provided that any intellectual_property discovered or developed by ucc in the course of performing its duties under those agreements would be governed by the cua not the spc agreements we find that the costs of the polypropylene runs were costs treated as the costs of polypropylene production not the development of intellectual_property and they would not have been governed by the cua accordingly the cua provisions are irrelevantdollar_figure we see no other reason why spc should not be respected as a tax_partnership and we accordingly find that petitioner was correct to exclude the polypropylene runs from its base_period computations d whether petitioner included all activities similar to the claim projects on its list of identified runs respondent argues that the methodology that petitioner used to identify plant-based research for the claim projects is completely different and fundamentally inconsistent with its methodology for identifying plant-based research that occurred 51respondent does not argue that petitioner failed to include additional qres not identified by ms toivonen that ucc incurred as part of the cooperative undertaking it appears that ucc treated these costs as qres on its original return during the base_period we address each of respondent’s arguments in turn petitioner’s sources of information a whether petitioner was required to use focrs to identify base_period activities respondent points out that the claim projects were largely documented by focrs but ucc destroyed its focrs from the base_period before performing its revised base_period calculations accordingly petitioner was unable to review all of the focrs produced during the base_period to see whether they identified additional qualified_research activities respondent argues that because dr wadia could not review the focrs from the base_period petitioner cannot prove that it identified all of the base_period activities that were similar to the claim projects as an example respondent argues that dr wadia missed the nalco inhibitor antifouling test run which petitioner later conceded and costed at dollar_figure million respondent argues that this process change would have been documented by an focr so dr wadia might not have missed this project had the focrs from the base_period been available respondent argues that focrs were the key document indicating manufacturing process changes during both the base_period and the credit years accordingly respondent argues that petitioner needed to analyze and produce its focrs from the base_period in order to meet the consistency_requirement and capture all base_period activities similar to the claim projects neither sec_41 nor sec_1_41-4 income_tax regs imposes any requirement that a taxpayer use the same types of documents to identify qualified_research in the base_period as it used to identify qualified_research in the claim year if the taxpayer can otherwise show that it has satisfied the consistency_requirement while it is true that dr wadia did not include the nalco inhibitor antifouling test in his original list of identified runs we do not view this as evidence that dr wadia missed any projects because he did not review focrs from the base_period we find that the nalco inhibitor antifouling test fails the process_of_experimentation test ucc was not experimenting with the nalco inhibitor or conducting research to better understand inhibitors it was merely testing nalco’s product to see whether it worked as promised while ucc monitored the reboiler after injecting the nalco inhibitor as it did with the uop ga-155 project there is no evidence that ucc analyzed the results of the test or intended to refine its hypothesis and conduct additional tests such verification without more does not constitute a process_of_experimentation accordingly dr wadia’s exclusion of the nalco inhibitor antifouling test from his list of identified runs does not cause us to doubt his reliability furthermore while petitioner did rely heavily on focrs to establish that the claim projects constitute qualified_research we do not find that focrs are as important to identifying qualified_research as respondent advocates focrs were used for any process change regardless of whether the change involved experimentation accordingly even if all of the focrs from the base_period were available to dr wadia we do not believe that this would significantly change dr wadia’s conclusions respondent also argues that petitioner chose an ad hoc methodology to identify base_period activities and relied on documents that were highly variable in completeness and usefulness respondent argues that the absence of any summary documents such as lists of new products introduced during the base_period or r d budgets makes it impossible to confirm that dr wadia captured all of the qualified_research activities that occurred during the base_period furthermore because the documents did not always provide conclusive evidence of the duration or production quantities of the identified runs dr wadia relied upon estimates and assumptions for a large number of runs respondent argues that estimates are legally impermissible sec_1_41-4 income_tax regs does not require that a taxpayer substantiate its research_credit claim with any particular types of documents but requires that the taxpayer retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit we find that the documents that petitioner produced were sufficient to substantiate its claim that the matric team identified all of the scientific research projects that occurred during the base_period and were sufficiently detailed to allow the matric team to make reasonable determinations as to the duration and production quantities of the identified runs b whether petitioner was required to consider alternative sources respondent argues that petitioner should have examined alternative sources to correct defects in its methodology as an example because two of the claim projects the uop ga-155 and sodium borohydride projects involved the injection of additives into the olefins production process respondent argues that petitioner should have sought documents from third parties from whom ucc purchased additives during the base_period to see whether they would show whether ucc experimented with different additives during the base_period respondent argues that the documents produced by the john zink co show that ucc conducted additional plant testing during the base_period that was not addressed by dr wadia’s report petitioner argues that respondent was unable to obtain any significant documents from third-parties from whom ucc purchased additives during the base_period so any attempt that petitioner would have made to obtain the same documents would have been fruitless furthermore petitioner argues that the third-party documents that are available those produced by the john zink co did not identify any experimental activities we agree that sec_41 does not require petitioner to seek documents from third-party sources to determine whether they contain evidence of experimentation furthermore we find that the documents from third-party sources that were available those from the john zink co do not indicate that additional research occurred during the base_period that petitioner failed to consider those documents show that ucc tested the products it purchased but not that it experimented with them considering that we do not find the uop ga-155 project or the sodium borohydride project to be qualified_research we find it unlikely that documents from ucc’s additive vendors or other third parties would be useful in identifying additional qualified_research activities conducted during the base_period whether petitioner should include additional activities in its base_period calculation respondent argues that petitioner failed to capture all of the qualified_research activities that occurred during the base_period specifically the nox project testing on products that ucc purchased from the john zink co testing of the star pelleting line and ucc’s analysis of naphtha on its list of identified runs according to respondent petitioner’s failure to include these projects or tests in its base_period calculations is evidence that petitioner’s identification of qualified_research activities was incomplete respondent also argues that dr wadia improperly omitted portions of the identified runs a nox the nox project does contain some elements of qualified_research to the extent that ucc was attempting to discover information that would allow it to determine whether it was thawing its cold boxes frequently enough to reduce the safety hazard caused by nox accumulation however we find that the nox project does not satisfy the process_of_experimentation test because ucc was not conducting an experiment in the scientific sense but was merely performing maintenance on its cold boxes collecting data and using the collected data to set operating guidelines b john zink co products we also find that ucc did not conduct any qualified_research activities related to purchases from the john zink co as with the spuds project any testing that ucc performed on products purchased from the john zink co was merely quality control testing to ensure that the products worked as promised c star pelleting line similarly while ucc most likely tested the pelleting line it installed at star in there is no indication that ucc performed any experimentation associated with the new pelleting line much less qualified_research any tests that ucc performed were most likely quality control tests to ensure that the pelleting line did in fact work d naphtha analysis we find that ucc’s analysis of naphtha in was routine data collection or routine or ordinary inspection there is no indication that ucc performed any experiments when it was determining the composition of the naphtha it purchased e dr wadia’s limitation of duration respondent also argues that even if dr wadia included all of the projects that constitute qualified_research on his list of identified runs dr wadia’s interpretation of the definition of qualified_research was narrower than the definition petitioner used during the claim years respondent argues that petitioner treated the entire duration of all of the claim projects as qualified_research regardless of whether only part of a run was experimental while dr wadia limited the run durations to the experimental portions of the identified runs for some of the identified runs dr wadia defined qualified_research as including only the portion of a run that he believed was experimental not the entire run accordingly dr wadia treated the duration of many identified runs as including only the portion of the run where experimentation occurred for example if a run was conducted for the purpose of determining whether it would produce a product of acceptable quality dr wadia would treat the duration of the run as lasting only until the point at which that determination was made unless the researchers continued to experiment after the unit reached a steady state in the mek production test run ucc collected data for the first hours of the run but dr wadia included only the first hours in the duration of run similarly for the first vinyl acetate catalyst protection test run sec_47 dr wadia treated the run as lasting only hours even though the resin was in place for big_number hours and one of the goals of the test was to test the strength of the resin over a period of big_number hours dr wadia used partial durations for many other runs as well respondent argues that this approach is inconsistent with petitioner’s treatment of the ucat-j runs because petitioner did not limit the duration of those runs to the time it took the reactor to reach a steady state even if no experimentation occurred after that point respondent argues that dr wadia’s approach is also inconsistent with the uop ga-155 project where ucc collected data for only days but treated the project as lasting months respondent also argues that the duration of the amoco anticoking project would have been much shorter if petitioner limited the duration to the time it should have taken ucc to realize that the amoco technology was not working respondent argues that petitioner did not attempt to divide any of the other claim projects into their experimental and non- experimental parts even assuming respondent is correct we find that our limitation of the claim projects to only the activities that relate to the experimental process business_component is at least as narrow as dr wadia’s approach as discussed with respect to the claim projects under sec_41 where research is conducted to improve a taxpayer’s production process activities that relate to the product being produced are part of a separate nonexperimental product business_component production activities that do not involve experimentation are properly excluded from the definition of qualified_research therefore petitioner’s reliance on dr wadia’s definition of which activities constitute qualified_research does not run afoul of sec_41 accordingly we find that there are no additional activities that are similar to the claim year projects that satisfy sec_41 reliability of dr wadia’s methodology respondent argues that even if the court does not find that petitioner omitted any particular projects from its list of identified runs the court cannot rely on dr wadia’s testimony to prove that it identified all of the qualified_research activities that occurred during the base_period because dr wadia’s methodology is flawed respondent argues that dr wadia’s methodology is unreliable because it does not meet the standards set out in 509_us_579 and 526_us_137 dr wadia’s interpretation of the qualified_research criteria for the base_period differs from the definition that petitioner used to identify the claim projects and dr wadia is biased by matric’s relationship with dow a reliability of dr wadia’s methodology as expert testimony respondent argues that the court should not rely on dr wadia’s opinion because it is unreliable under the standards set out in daubert v merrell dow pharms inc supra pincite and kumho tire co v carmichael supra pincite respondent argues that to evaluate the reliability of dr wadia’s methodology the court should consider the following factors whether the methodology has been or can be tested whether the methodology has been published or subjected to peer review whether the methodology is subject_to potential or known errors and whether the methodology is generally known and accepted within the relevant community daubert v merrell dow pharms inc supra pincite petitioner argues that respondent is merely reasserting the challenges he previously made to the admissibility of dr wadia’s testimony and recasting them as challenges to the reliability of his testimony while we decided before trial that dr wadia’s testimony was admissible under rule a of the federal rules of evidence to the extent that the daubert factors also pertain to the weight that we should give to dr wadia’s testimony we consider them here however the daubert factors are not necessarily pertinent in all cases and their relevance depends upon the nature of ths issue the expert’s particular expertise and the subject of his testimony kumho tire co v carmichael supra pincite dr wadia’s testimony is helpful because of his specialized knowledge of ucc’s production processes and of how research_and_experimentation is conducted from a scientific point of view because of his years of experience working for ucc dr wadia is familiar with the way ucc conducted plant-based experimentation during the base_period while ucc’s production processes rely on many principles of the physical sciences and the court is assisted by dr wadia’s view of research_and_experimentation from a scientist’s perspective dr wadia’s task in identifying activities that satisfy the qualified_research criteria is not itself founded on principles of science see 223_f3d_585 7th cir stating that the principle of daubert is merely that if an expert witness is to offer an opinion based on science it must be real science not junk science and finding that daubert is not applicable when the expert does not purport to be doing science accordingly an analysis of the daubert factors is of limited value i whether the methodology can be tested respondent argues that dr wadia’s methodology cannot be tested because dr wadia’s opinions are merely general conclusory statements respondent argues that dr wadia’s descriptions of the runs are sparse and do not refer to any specific facts to support his conclusions furthermore respondent argues that dr wadia does not set forth any reasons for his conclusion that the projects that he did not list as identified runs did not satisfy the qualified_research criteria respondent contrasts dr wadia’s practices with those of ms toivonen who maintained workpapers that documented her decisions for the purpose of permitting her results to be checked and verified we disagree that dr wadia’s methodology cannot be tested while it would be difficult for another person to duplicate dr wadia’s efforts exactly dr wadia’s method of reviewing documents interviewing people familiar with events that occurred during the base_period and discussing each project with the matric team is a relatively simple methodology that could be repeated by others furthermore because each project that dr wadia included as an identified run is essentially a concession by petitioner we do not find that dr wadia’s failure to explain in greater detail why those projects satisfy the qualified_research criteria detracts from his reliability while it would have been more helpful to the court if dr wadia had explained why he rejected the projects that he did not list as identified runs given petitioner’s concession of run sec_807 through discussed below we have sufficient information to conclude that run sec_1 through include all of the additional qualified_research activities that occurred during the base_period ii whether the methodology is known or accepted in the community has been published or has been subjected to peer review respondent also argues that dr wadia’s methodology was not known or accepted in the community was not published and was not subject_to peer review respondent argues that there are no accepted standards or controls for applying dr wadia’s methodology petitioner responds that this factor is simply not applicable to dr wadia’s task and we agree we find it highly unlikely that there are any published methodologies in the scientific world on how to identify research or experimentation performed by a company for a given set of years but clearly congress did not intend for the research_credit to be unattainable because of the absence of a peer-reviewed methodology iii whether the methodology is subject_to known rate of error respondent further argues that there is no known rate of error in applying dr wadia’s methodology however respondent believes that dr wadia’s methodology was subject_to errors as evidenced by dr wadia’s supplemental report which added identified runs that dr wadia did not include in his original report and petitioner’s concession of run sec_807 through respondent points out that petitioner’s concession doubled the number of runs associated with the triton assets from to as evidence of dr wadia’s lack of thoroughness respondent argues that dr wadia should not have missed the wastewater activity test run which is described as a plant test in its supporting documentation respondent also argues that dr wadia erroneously treated the forced draft burner tests runs and as occurring in instead of in his original expert report erroneously treated natural draft burner tests on furnaces and as occurring in instead of or earlier and incorrectly determined the duration of the forced draft burner tests the natural draft burner tests on furnaces and and the natural draft burner tests run sec_1 through on furnace petitioner argues that dr wadia’s methodology is not the type of methodology that can be assigned a known rate of error because it is not the type of research that is generally the subject of statistical studies we agree that whether a project or test satisfies the qualified_research criteria from a scientific point of view is not a question that can be scientifically verified to a certainty while dr wadia’s experience as a scientist was central to his task reasonable scientists could disagree as to whether some projects satisfy the qualified_research criteria and it is the duty_of the court to determine whether any particular project does in fact satisfy sec_41 we find that it is unlikely that any method of identifying qualified_research has been assigned a rate of error but congress clearly intended for some taxpayers to be eligible for the research_credit accordingly the absence of a known rate of error does not affect the weight we will give to dr wadia’s testimony furthermore we do not find that dr wadia’s failure to include the wastewater activity test on his list of identified runs indicates that dr wadia was not thorough because we find that the wastewater activity was not qualified_research while referred to as a plant test in the supporting documentation this project did not involve any experimentation but was merely odor testing even if ucc did form a hypothesis before conducting this activity there is no evidence that ucc performed any analysis of the results regarding dr wadia’s mistake of concluding that the forced draft burner tests occurred in instead of we find that this mistake was immaterial and it was sufficient that dr wadia corrected the mistake in his supplemental expert report furthermore respondent’s arguments regarding natural draft burner tests on furnaces and are contrary to our findings of fact--we find that the tests on those furnaces occurred before the base_period and dr wadia correctly excluded them from his list of identified runs we also find that dr wadia’s determination of the duration of the forced draft burner tests and the tests on furnace during the natural draft burner tests do not understate the duration of those runs while we do not accept dr wadia’s testimony as an opinion as to which activities satisfy sec_41 we find that he interpreted the qualified_research criteria using his knowledge of scientific research_and_experimentation and we find his identification of runs that satisfy the qualified_research criteria from a scientific point of view to be helpful to the court we find that any errors in dr wadia’s methodology have been cured by petitioner’s concession of run sec_807 through which we believe constitute the activities that may not constitute qualified_research but that bear enough marks of qualified_research that they must be considered to ensure that petitioner has not omitted any qualified_research activities from its base_period calculations considering that petitioner conceded the nalco inhibitor test and the wastewater activity which we find do not constitute qualified_research and respondent has not identified any projects that petitioner failed to include that do constitute qualified_research we find it unlikely that there are other projects that do satisfy the qualified_research criteria that petitioner has failed to identify and concede b petitioner’s definition of qualified_research respondent argues that even if he has not identified other activities that should have been included in petitioner’s base_period calculation the burden is on petitioner to prove that it has included in its base_period calculations all of the activities that are similar to the claim projects and that petitioner has not satisfied that burden respondent argues that petitioner cannot use dr wadia’s expert testimony to prove that it identified all of the activities that occurred during the base_period that are similar to the claim projects because dr wadia did not use the claim projects as models when applying the qualified_research criteria or give any consideration to whether he identified all activities that were similar to the claim projects when carrying out his task furthermore respondent argues that dr wadia’s interpretation of the qualified_research criteria was narrower than petitioner’s credit_year position as evidence respondent again points to the nalco inhibitor antifouling test which involved an activity that was very similar to petitioner’s largest claim project the uop ga-155 project had dr wadia been charged with identifying all projects that were similar to the claim projects respondent argues that dr wadia would have included the nalco inhibitor antifouling test on his original list of identified runs respondent also argues that dr wadia did not rely on the rule_of three when determining whether activities satisfied the qualified_research criteria even though petitioner relied upon the rule_of three for including some of the ucat-j runs as qualified_research accordingly respondent argues that dr wadia may have excluded some activities from his list of identified runs even though the technology tested in those runs had been proven in only one or two successful runs petitioner argues that it satisfied the consistency_requirement because the qualified_research criteria that dr wadia relied upon mirror the requirements of sec_41 and the regulations promulgated thereunder and these were the same criteria that petitioner used for its credit_year claims petitioner argues that using the same selection criteria for both the credit years and the base_period indicates that it complied with the consistency_requirement we agree that the nalco inhibitor antifouling test closely resembles the uop ga-155 project and that the fact that dr wadia did not include the nalco inhibitor antifouling test on his list of identified runs suggests that he interpreted the qualified_research criteria more narrowly than petitioner interpreted the criteria when selecting the claim projects however as discussed above we find that neither the uop ga-155 project nor the nalco inhibitor antifouling test was qualified_research we find that dr wadia’s failure to include projects similar to those claim projects that fail the qualified_research tests is not sufficient basis for denying petitioner an additional research_credit as petitioner correctly argues the consistency_requirement does not alter the definition of qualified_research under sec_41 accordingly petitioner’s failure to adhere to sec_41 when selecting some of the claim projects does not necessarily indicate that dr wadia failed to identify all of the qualified_research activities that occurred during the base_period furthermore we find that the fact that dr wadia did not rely on the rule_of three does not detract from his reliability the evidence indicates that the rule_of three applied only to the pe production process during the credit years not to the entire c p division furthermore we find that dr wadia is qualified to determine whether ucc considered its technology to be experimental or commercial during the base_period respondent also argues that because dr wadia kept no records of the projects that he rejected there is no way to verify his conclusions or consider whether he was correct to reject those projects accordingly respondent argues that dr wadia’s statement that he identified virtually all of the qualified_research activities that occurred during the base_period is a conclusory opinion that cannot be verified we agree that this is a flaw in dr wadia’s methodology however we find that petitioner’s concession of run sec_807 through cures dr wadia’s failure to identify the group of base_period projects that failed the qualified_research criteria in dr wadia’s opinion but might have satisfied the court’s interpretation of sec_41 because run sec_807 through constitute that group of projects while we find it unnecessary to analyze all of the conceded runs in the light of petitioner’s concession that they do satisfy sec_41 the fact that the two runs that respondent specifically criticizes dr wadia for missing do not satisfy the requirements of sec_41 suggests that petitioner’s concession of these runs sufficiently broadens petitioner’s definition of qualified_research for the base_period so that it is at least as broad as if not broader than the court’s interpretation of sec_41 accordingly under the reasoning in 39_f2d_540 2d cir we accept petitioner’s list of identified runs including concessions as a close approximation of all of the qualified_research activities that occurred during the base_period it is highly unlikely that dr wadia failed to include any projects that would materially alter petitioner’s base_period computations our view is supported by the fact witnesses who testified they were not aware of any plant experiments that occurred during the base_period that were not included on the list of identified runs except for the experiments that petitioner subsequently conceded while we agree with respondent that the memories of the fact witnesses may be faulty we find that when taken together as a whole the evidence shows that petitioner has satisfied its duty to identify all of the activities that occurred during the base_period that it was required to take into account in calculating its base_amount while including all of the conceded runs may overstate petitioner’s base_amount petitioner failed to provide the court with any other way to ensure that it has identified all of the additional qualified_research activities that occurred during the base_period and must bear the consequences of its own inexactitude see id c whether dr wadia is biased respondent argues that dr wadia’s methodology is flawed because dr wadia is biased by matric’s relationship with dow and dr wadia’s reliance on petitioner’s counsel to conduct document searches respondent argues that dr wadia’s failure to include the wastewater activity run on his list of identified runs is evidence of dr wadia’s bias as discussed above we do not think that dr wadia was mistaken in failing to include the wastewater activity on his list of identified runs respondent has failed to offer any other evidence that indicates that dr wadia was biased or that his expert testimony was compromised because of matric’s relationship with dow iv claimed costs to be eligible for the research_credit under sec_41 a taxpayer must incur qres during the credit_year qres are generally defined as the sum of the taxpayer’s in-house_research_expenses and contract_research_expenses that are paid_or_incurred during the taxable_year in carrying on the taxpayer’s business sec_41 petitioner does not claim as qres any contract_research_expenses and the parties do not dispute that the claimed costs were incurred during the taxable_year in carrying on ucc’s business in relevant part sec_41 defines in-house_research_expenses as i any wages paid_or_incurred to an employee for qualified_services performed by such employee and ii any amount_paid or incurred for supplies used in the conduct of qualified_research sec_41 defines the term supplies as any tangible_property other than i land or improvements to land and ii property of a character subject_to the allowance for depreciation supplies must be used in the conduct of qualified_research for their costs to constitute qres sec_41 amounts incurred for supplies or property used only indirectly for qualified_research or for general and administrative expenses are not qres sec_1_41-2 income_tax regs wages paid to an employee constitute qres to the extent that they are paid_or_incurred for qualified_services performed by the employee sec_41 provides that the term qualified_services means services consisting of i engaging in qualified_research or ii engaging in the direct supervision or direct support of research activities which constitute qualified_research engaging in qualified_research means the actual conduct of qualified_research as in the case of a scientist conducting the laboratory experiments sec_1_41-2 income_tax regs sec_1_41-2 income_tax regs defines direct supervision as follows direct supervision --the term direct supervision as used in sec_41 means the immediate supervision first-line management of qualified_research as in the case of a research scientist who directly supervises laboratory experiments but who may not actually perform experiments direct supervision does not include supervision by a higher-level manager to whom first- line managers report even if that manager is a qualified_research scientist the regulations define direct support as services in the direct support of either persons engaging in actual conduct of qualified_research or persons directly supervising persons engaged in actual conduct of qualified_research sec_1 c income_tax regs as discussed above the amoco anticoking research activities and the ucat-j research activities constitute qualified_research however we find that the production activities associated with both projects are not part of the experimental process business_component and do not satisfy the process_of_experimentation test production activities are associated with the separate nonexperimental product business components accordingly only the costs of supplies and wages that relate to ucc’s research activities not production activities may be qres petitioner argues that the costs of all supplies and wages that were incurred during the amoco anticoking and ucat-j projects are qres because the projects could not have occurred without the supplies particularly the raw materials that were used to make the products or without the employees who were operating the plant and the costs of these supplies and wages are not otherwise excluded from the definition of qres in sec_41 we agree that the amoco anticoking and ucat-j projects could not have occurred if ucc had not purchased the raw materials it used in its production process raw materials that ucc previously treated as inventory and deducted as costs of goods sold however this does not make the costs of these raw materials qres the definition of supplies qres includes only amounts paid_or_incurred for supplies used in the conduct of qualified_research sec_41 emphasis added petitioner now seeks to include as qres amounts incurred during the production process upon which the qualified_research was conducted not during the conduct of qualified_research itself these costs are at best indirect research costs excluded from the definition of qres under sec_1_41-2 income_tax regs petitioner argues that sec_41 does not further define the phrase used in the conduct of and the regulations provide only that supplies are used in the conduct of qualified_research if they are used the performance of qualified_services sec_1_41-2 income_tax regs accordingly petitioner argues that the phrase used in the conduct of should be interpreted in its ordinary everyday sense citing 380_us_563 we find that petitioner’s argument fails to recognize the precise definition of qualified_research found in sec_41 sec_41 provides that when a taxpayer seeks a research_credit related to its production process the production process must be divided into two business components one that relates to the process and another that relates to the product this indicates that congress intended to allow taxpayers research credits for research performed to improve their production processes but congress did not intend for all of the activities that were associated with the production process to be eligible for the research_credit if the taxpayer was performing research only with respect to the process not the product see sec_1_41-4 income_tax regs here the disputed supplies were raw materials used in the commercial production and sale of finished products they were used to make products for sale not for experimentation the limited congressional intent is also expressed in the shrinking-back_rule which permits taxpayers to divide a business_component into activities that do and do not satisfy the qualified_research tests when a project would otherwise be disqualified when considered in its entirety see sec_1 b income_tax regs taxpayers may not circumvent the narrow definition of qualified_research that congress intended by including as qres costs of a project that are not incurred primarily as a result of the qualified_research activities raw materials used to make finished goods that would have been purchased regardless of whether a taxpayer was engaged in qualified_research are not used in the conduct of qualified_research see sec_41 similarly the costs of wages constitute qres only if they are paid for services consisting of engaging in or supervising qualified_research sec_41 services performed by employees for activities that would occur regardless of whether the taxpayer was engaged in qualified_research are not qualified_services see sec_41 when sec_41 applies and the relevant business_component is the process and production of the product alone would not constitute qualified_research we find that the costs of supplies that would be purchased and wages attributable to services that would have been provided regardless of whether research was being conducted are costs associated with the product business_component and are not incurred in the conduct of qualified_research however additional supplies costs incurred because qualified_research is being performed on the process or wages attributable to services that would not normally have been provided are attributable to the process business_component and are allowable as qres if they otherwise satisfy sec_41 petitioner argues that fudim v commissioner tcmemo_1994_235 requires a different result because in that case the court treated as qres the costs of materials that the taxpayer used to make plastic objects as part of his research on a process known as rapid modeling these costs included the cost of the photopolymers that were fabricated into the plastic objects however in fudim the taxpayer’s rapid modeling process was not a plant process for commercial production of a product that he himself fabricated and sold within the meaning of sec_41 the court found that the taxpayer was not in the business of producing the plastic objects for sale but derived only a minimal amount of income on the models he made during those years accordingly there was no need to allocate costs between the process business_component and a product business_component id unlike the supplies ucc used in its claim projects which would have been purchased for production even if no research had been performed the supplies the taxpayer in fudim purchased were devoted to research id emphasis added for these reasons we find fudim to be distinguishable petitioner also argues that 49_fedclaims_241 supports its position because it implicitly holds that a component part of a product to be delivered to a customer can constitute a supply within the meaning of sec_41 in that case the court rejected the government’s motion for summary_judgment that component parts used to make supersonic low altitude target slat devices could not be supplies id pincite we disagree that lockheed martin supports petitioner’s argument in that case the court explicitly declined to consider whether the component parts were used in the conduct of qualified_research id pincite furthermore lockheed martin is distinguishable from the case before us because in that case the relevant business_component was the slat device not the process used to make the slat devices petitioner also cites a canadian tax case consoltex inc v r c t c in support of its position in consoltex the court held that the cost of yarn used by a textile producer during research conducted to develop improved textile products was eligible for a scientific research and experimental development credit consoltex addressed a provision of canadian law not the sec_41 research_credit in any event consoltex is distinguishable because as in lockheed martin the research conducted related to an experimental product and not the process of producing the product petitioner argues that at many times during the conduct of the claim projects ucc did not know whether the product produced would meet customer specifications however this does not indicate that ucc was conducting qualified_research on its products to the contrary petitioner has argued that for purposes of determining whether the claim projects constitute qualified_research we should focus our analysis on the process not the product in any event the evidence clearly indicates that to the extent that ucc was conducting research on its end products its activities would be excluded from the definition of qualified_research under sec_41 as research after commercial production because all of the products ucc produced during the claim projects satisfied ucc’s functional and economic requirements the fact that ucc occasionally produced off- specification products does not change the fact that ucc had already commercialized those products even if we were to include production activities as part of the relevant business components the production_costs petitioner claims are qres would not be eligible for the research_credit under mayrath v commissioner t c pincite which limits deductions under sec_174 to those expenditures of an investigative nature expended in developing the concept of a model or product sec_41 incorporates sec_174 into the definition of qualified_research petitioner cannot avoid the restrictions of sec_174 by arguing that sec_174 is relevant only for determining whether activities constitute qualified_research and has no bearing on whether the costs of those activities may be qres see norwest corp subs v commissioner t c pincite h conf rept vol ii supra at ii-71 c b vol pincite the conference agreement limits research expenditures eligible for the incremental credit to ‘research or experimental expenditures’ eligible for expensing under sec_174 furthermore the fact that petitioner first sought the research_credit for the claimed costs in its petition is strong evidence that petitioner did not view these costs as research costs and that ucc would have incurred these costs without the incentive of the research_credit production_costs that ucc would have incurred without the incentive of the research_credit are not the types of costs that congress sought to target when it enacted the research_credit petitioner bears the burden of proving its entitlement to the additional research credits claimed in the petition see rule 292_us_435 norwest corp subs v commissioner supra pincite n eustace v commissioner tcmemo_2001_66 petitioner’s claimed costs for supplies for both the amoco anticoking and ucat-j projects include only costs of production instead of calculating the cost of supplies that ucc used specifically to perform experiments during production or analyze data petitioner’s calculations are founded on the assumption that ucc did not increase its supplies costs during the claim projects above its normal raw materials costs used in its plant cost system to compute cost_of_goods_sold it does not appear that petitioner had any additional supplies qres to claim because petitioner claims as qres only the raw material_costs of the finished products and not any additional supplies this indicates that petitioner has not allocated its claimed qres between the experimental process business components and the nonexperimental product business components of those projects furthermore petitioner did not distinguish between activities that constitute elements of a process_of_experimentation and ordinary production activities we find that the claimed supplies costs are ordinary production_costs that were properly included in inventory and petitioner has not satisfied its burden of proving that the costs it claims as supplies qres were used in the conduct of qualified_research as required by sec_41 petitioner has had ample opportunity to establish that it incurred additional supply qres for the claim projects and has not carried its burden accordingly we find that petitioner is not entitled to claim any additional supply qres for the claim projects and we need not address respondent’s remaining arguments that relate to the costs of these projectsdollar_figure the research credits claimed on petitioner’s original returns and allowed by respondent included the wages of ucc’s r d scientists and engineers at its technical centers petitioner now seeks to treat as additional qres amounts paid to operators at taft and star for the amoco anticoking and ucat-j projects respectively for the amoco anticoking project petitioner treated as wage qres the wages paid to mr hyde mr tregre and mr gorenflo according to the number of hours each spent working on the project mr hyde and mr tregre both credibly testified that they spent a combined total of hours working on the amoco anticoking project we find that the services that mr hyde and mr tregre provided in connection with the amoco anticoking 52respondent also argues that petitioner should not have included the costs of utilities in its supplies costs because utilities are generally excluded from the definition of qualified_research unless they are extraordinary and they were not extraordinary for the claim projects see sec_1_41-2 and income_tax regs petitioner’s claimed supplies costs are unreasonable and are therefore excluded under sec_174 and sec_41 petitioner has failed to substantiate its supplies costs and ms hinojosa erred in her allocation of one- seventeenth of taft’s ethylene supply costs to the amoco anticoking project project including planning the tests participating in the pretreatments and sending the data to the technical center to be analyzed constitute qualified_services while respondent argues that petitioner has not substantiated its claimed qres we find that the testimonies of mr hyde mr tregre and ms hinojosa were credible and sufficiently substantiated the wages paid to these employees we find that petitioner has satisfied its burden and may treat as wage qres dollar_figure and dollar_figure for and respectivelydollar_figure however mr gorenflo did not testify as to how much time if any he spent on the amoco anticoking project accordingly petitioner has not satisfied its burden of proving that mr gorenflo spent hours engaged in qualified_research with respect to the amoco anticoking project in and may not claim his wages as qres for the ucat-j project petitioner treated as additional qres a percentage of all wages paid to star plant personnel during and without determining which employees worked on the ucat-j project or how many hours they dedicated to the project petitioner has not provided any evidence that shows how 53mr hyde spent and hours working on the amoco anticoking project in and respectively and his wage rate was dollar_figure per hour mr tregre spent hours working on the amoco anticoking project in and his wage rate was dollar_figure per hour the parties agree as to the operation of sec_280c and any adjustments that may be required as a result of our decision accordingly we do not discuss it here much time star’s plant employees actually spent on the ucat-j project and there is no way to determine whether petitioner’s estimate is accurate it appears that petitioner has already received a credit under sec_41 for the wages of most of the employees who engaged in qualified_research during the claim years--the r d scientists and engineers accordingly petitioner is not entitled to any additional qres attributable to wages paid for the ucat-j project v base_period qres a alleged flaws in ms toivonen’s costing methodology petitioner claims that it incurred dollar_figure of qres during the base_period on the basis of ms toivonen’s costing calculations of the runs identified by dr wadia respondent argues that ms toivonen’s methodology is flawed for the same reasons respondent argues that dr wadia’s methodology is flawed because ms toivonen failed to review or verify dr wadia’s determinations of the run durations and production quantities however as discussed above we find that any flaws in dr wadia’s methodology have been cured by petitioner’s concessions and accordingly ms toivonen’s reliance on dr wadia was justified respondent also argues that ms toivonen’s methodology is flawed because she relied on ms hinojosa and other dow employees to identify the lead pcds and mass relating to the products produced however respondent does not argue that ms hinojosa or the other dow employees were unqualified to identify the lead pcds and mass or that they performed their task poorly to the contrary we find that ms hinojosa and other dow employees were in the best position to correctly identify the lead pcds and mass because they were familiar with the products that ucc produced during the base_period respondent next argues that ms toivonen was forced to use cost accounting information for similar products when the actual accounting information for a product was unavailable respondent believes that in some situations this caused ms toivonen to omit supplies that were used in the production process as an example respondent points to the propyl dipropasol refining test run where dr wadia listed sodium hydroxide as the catalyst but ms toivonen calculated the cost of sodium propylate instead because it was listed on the pcd similarly for the isophorone mids conversion test run and secondary refining system test run dr wadia stated that certain materials were used that ms toivonen did not include in the cost of the runs because they were not listed on the pcds ms toivonen testified that in her expert opinion any discrepancies that may have occurred because she used accounting information that did not exactly match the products produced or dr wadia’s descriptions of the runs are immaterial regarding ms toivonen’s method of costing the propyl dipropasol refining test we find that ms toivonen did not understate the cost of the propyl dipropasol refining test because the cost of sodium propylate was most likely higher than the cost of sodium hydroxidedollar_figure while a more conservative calculation of the cost of the isophorone mids conversion and secondary refining system tests would have included the cost of materials that were used but omitted from the pcds we find that the omissions were immaterial given the small amount of materials that were used we find ms toivonen to be a credible expert witness and in the absence of any evidence to the contrary we find that any errors in her conclusions that may have been caused by the accounting_records she used are immaterial b alleged errors in ms toivonen’s calculations respondent also argues that ms toivonen made errors in her report even when she used the correct documentation as an example respondent argues that ms toivonen incorrectly calculated the cost of big_number pounds of acrolein for the acrolein refining system capacity test run instead of big_number pounds the production quantity reported by dr wadia ms toivonen testified that the discrepancy might be attributable to 54petitioner also argues that sodium propylate is the chemical product of reacting sodium hydroxide with proponal and accordingly ms toivonen’s calculation did in fact include the cost of sodium hydroxide however given our finding we need not decide whether it is appropriate to take judicial_notice of this fact a unit of measure conversion but she did not explain the discrepancy in her expert report and could not be certain when questioned about the discrepancy at trial in the absence of any clear explanation as to why she did not use the production quantity that dr wadia provided we find that ms toivonen should have calculated the cost_of_producing big_number pounds of acrolein which would increase the base_period qres by dollar_figuredollar_figure however we do not agree with respondent that all of ms toivonen’s base_period calculations should be disregarded because of this error and find it would be more appropriate to increase petitioner’s qres for by dollar_figure respondent also argues that ms toivonen lacked the technical expertise to calculate the cost of run sec_807 through as evidence respondent points out that on cross- examination ms toivonen could not answer the question of whether the cost of naphtha was captured as one of the costs for the naphtha-sulfur injection test run ms toivonen believes that the cost of the naphtha may have been captured on secondary pcds which she used to calculate the costs of materials listed on lead pcds but she could not be sure 55ms toivonen calculated the supply cost per pound of acrolein as dollar_figure588 respondent also argues that ms toivonen incorrectly determined that the naphtha-sulfur injection test lasted for days because other documents indicate that it lasted much longer than days as evidence respondent points to two industrial chemicals division monthly reports one for date dated date and a second for date dated date the report for date states that the test began on december which is the date that ms toivonen determined the test began the report for date does not mention the test at all we do not think that the naphtha-sulfur injection test is evidence that ms toivonen lacked the technical expertise to calculate the cost of run sec_807 through ms toivonen captured the costs of the materials listed on the lead pcd for the product and we find the lead pcd to be a reliable document to use to calculate the cost_of_producing a finished product while as discussed below this test does highlight a different flaw in petitioner’s costing methodology because it includes only the cost of ordinary production activities we find that the fact that naphtha was not listed on the lead pcd suggests that its cost would not materially affect the cost_of_producing the product made in the naphtha-sulfur injection test furthermore the evidence that respondent argues indicates that the naphtha-sulfur injection test likely lasted much longer than days does not so indicate to the contrary it indicates that it started on the date that ms toivonen determined it started and had not been completed as of days before the date that ms toivonen determined that it ended respondent also believes that ms toivonen mistakenly failed to include the cost of refrigeration when costing the mmp refrigeration test run sec_1_41-2 income_tax regs provides that general and administrative expenses do not qualify as qres and sec_1_41-2 income_tax regs provides that utilities are generally treated as general and administrative expenses however sec_1_41-2 income_tax regs provides that utilities may constitute qres if they are extraordinary respondent argues that the cost of refrigeration in the mmp refrigeration test was extraordinary we find that refrigeration was not an extraordinary expenditure in the refrigeration capacity tests in the first test in which ucc evaluated transfer chiller control at negative degrees centigrade instead of negative degrees centigrade ucc actually used less refrigeration than it would have during the ordinary production of mmp in the second test in which ucc estimated the ambient heat gain of the day tanks and storage tanks any refrigeration used was not above the normal amount that ucc would have used had it not been performing a test accordingly we do not find the cost of refrigeration to have been an extraordinary expenditure during either of these tests c documents ms toivonen relied upon respondent argues that ms toivonen’s methodology is flawed because ms toivonen relied on petitioner’s counsel to provide her with the accounting_records related to run sec_807 through instead of conducting an independent search of all of the documents in the record furthermore respondent argues that ms toivonen looked only at accounting_records to identify costs instead of identifying technical documents to see whether they provided additional information as to the duration or production quantity of the runs we find that the fact that ms toivonen did not personally find the necessary accounting_records she needed to cost run sec_807 through is irrelevant there has been no suggestion nor is there any evidence that petitioner’s attorneys were not competent to provide ms toivonen with the documents she needed or that they withheld or tampered with any information given the large number of documents produced in this controversy it would have been impractical to require ms toivonen to search through all of the documents in the record without the assistance of petitioner’s counsel we also find that respondent’s argument that ms toivonen looked only at accounting_records to calculate the cost of run sec_807 through is inaccurate ms toivonen’s supplemental expert report cites numerous technical documents and trial testimony to support her findings for each run ms toivonen provided a reasonable explanation as to how she determined the duration and production quantity and included citations of technical documents and testimony where appropriate while as discussed above respondent argues that ms toivonen failed to review technical documents that contradict her findings regarding the duration of the naphtha-sulfur injection test we find that the technical documents at issue are consistent with ms toivonen’s determinations for that test furthermore because the refrigeration used in the mmp refrigeration tests was not extraordinary there was no need for ms toivonen to review additional documents to determine the cost of the refrigeration used accordingly we find that ms toivonen committed no error in relying upon the documents that she relied upon d consistency_requirement respondent argues that ms toivonen’s methodology for costing the identified runs was inconsistent with ms hinojosa’s methodology for calculating the cost of the claim projects specifically respondent disputes ms toivonen’s treatment of base case costs and wage costs in general respondent argues that the fact that petitioner claimed qres of dollar_figure million for the uop ga-155 project indicates that petitioner failed to satisfy the consistency_requirement because the largest base_period project before the trial was costed as dollar_figure million and the most qres petitioner claims in base_period year are dollar_figure million respondent’s argument is contrary to the purpose of the research_credit the research_credit was designed to encourage taxpayers to increase their spending on qualified_research if the fact that a taxpayer incurred more qres in a credit_year than in the base_period could be treated as dispositive that the taxpayer ran afoul of sec_41 this would thwart the purpose of the research_credit furthermore we find that as a general matter petitioner used the same methodology to calculate its credit_year and base_period qres in the opinions of ms toivonen and ms hinojosa petitioner’s accounting expert witnesses the costing methodology ms toivonen applied in calculating ucc’s base_period costs is consistent with ms hinojosa’s methodology in arriving at this conclusion each expert witness reviewed the methodology used by the other we find both expert witnesses to be credible on this matter and find that ms toivonen’s costing methodology was generally consistent with ms hinojosa’s costing methodology base case costs respondent argues that petitioner’s treatment of base case costs for the base_period differs from its treatment of base case costs for the credit years respondent argues that for the amoco anticoking project petitioner treated the cost of testing the untreated cracking sets as qres but for the nalco test run petitioner did not treat the cost of the base case runs as qres respondent argues that both the amoco anticoking project and the nalco test used base cases and that petitioner should have treated both base cases the same we agree that it is possible that ucc conducted some qualified_research before the start date petitioner determined for the nalco test however as discussed above we find that none of the supply costs that petitioner claimed with respect to the amoco anticoking project constituted qres similarly we find that it would be inappropriate to treat the costs of raw materials that were used during the base case runs as qres while we allowed petitioner to treat dollar_figure that ucc paid to two of its employees as wage qres this was less than one-tenth of percent of the total qres that petitioner claimed for the amoco anticoking project accordingly even if petitioner improperly omitted wages paid to ucc plant employees to conduct qualified_research before the date on which petitioner believes the nalco test began given petitioner’s expansive reading of sec_41 we find it highly unlikely that petitioner’s calculation of the nalco test understates the amount of qres that were actually incurred accordingly under the principles provided in cohan v commissioner f 2d pincite- we find it more appropriate to accept petitioner’s calculation of the nalco test than to reject petitioner’s efforts as a whole wage costs respondent next argues that ms toivonen’s method of calculating wage costs was inconsistent with the method ms hinojosa used for the credit years specifically the wage costs for the ucat-j project ms hinojosa calculated the wage costs for the ucat-j project by multiplying the total wages incurred for all star employees by the ratio of ucat-j production pounds to total production pounds in each of the credit years respondent argues that when calculating the wages incurred at star for the base_period ms toivonen inconsistently excluded a number of groups of personnel that were included in the credit_year wage costs as discussed above we find that none of the costs that petitioner claims as qres with respect to the ucat-j project constitute qres ms hinojosa determined that the amount of time spent by plant operators and other support staff during the ucat- j runs was not significantly different when compared to normal production runs this indicates that the employees whose wages ms hinojosa calculated were not involved in the conduct of qualified_research but were engaged in ordinary production activities even if those employees were involved in the conduct of qualified_research petitioner has offered no way of distinguishing the wages ucc it paid for its employees to engage in qualified_research and to engage in ordinary production activities accordingly petitioner did not violate sec_41 by excluding similar costs from its base_period calculations e whether ms toivonen calculated the cost of qualified_research activities we find ms toivonen’s methodology to be flawed for the same reason that ms hinojosa’s methodology is flawed in calculating the cost of the identified runs ms toivonen identified only ordinary production_costs not the costs of performing research the naphtha-sulfur injection test run highlights the flaw in petitioner’s costing methodology that we discussed with regard to the claim projects ms toivonen calculated the cost of the naphtha-sulfur injection test as being the cost_of_producing ethylene which is not an experimental product however if the naphtha-sulfur injection test constitutes qualified_research the activities that constitute process_of_experimentation would be limited to the planning of the test injecting naphtha into the process stream testing the results and analyzing the results the ordinary production activities that would occur during the production of ethylene regardless of 56we accept petitioner’s concession that this run constitutes qualified_research whether an experiment was being conducted would fail the process_of_experimentation test although most likely naphtha would be considered a supply used in the experiment however in costing the naphtha-sulfur injecting test ms toivonen included all of the ordinary production_costs and excluded the cost of naphtha ms toivonen similarly calculated the cost of all of the other identified runs as if they were ordinary production runs ms toivonen did not calculate the cost of any additional supplies that may have been purchased for the tests or calculate the wages paid to any specific plant employees who worked on the projects however we find ms toivonen’s error to be harmless because it causes petitioner to overestimate its base_amount thereby reducing the research_credit ms toivonen concluded that the total cost of all of the identified runs was dollar_figure because petitioner has provided us with no way to divide these costs between costs incurred in the conduct of qualified_research and costs incurred as ordinary production_costs we shall treat the entire amount as additional base_period qres adjusted according to our findingsdollar_figure vi conclusion we find that petitioner has established that it incurred additional wage qres of dollar_figure and dollar_figure for and 57we find that ms toivonen improperly calculated the cost of the acrolein refining system capacity test respectively but no additional supplies qres for the claim projects furthermore we accept petitioner’s calculations for the base_period adjusted according to our findings as ucc’s additional base_period qres we shall instruct the parties to resolve any issues regarding the remaining credit_year projects in a manner consistent with this opinion on the basis of the foregoing an appropriate order will be issued