Today, the IRS issued proposed regulations under Section 41 relating to software developed primarily for internal use.  Proposed regulations concerning internal use software were last issued in 2001, but 2004 final regulations reserved the matter.  Consistent with the 2001 proposed regulations, the new proposed regulations allow research credits with respect to certain internal use software that meets a high threshold of innovation test.  However, the new proposed regulations modify this test, including by making the determination of whether software is “innovative” turn on a measurable objective standard, not a determination of the unique or novel nature of the software or the software development process.  The new proposed regulations also modify the definition of internal use software and provide for rules relating to dual function software (software that is used both internally and to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data).  The proposed regulations also include examples to illustrate the application of the process of experimentation requirement to computer software under Section 41(d)(1)(C).