Technology Company Disputes $1.4 Million Tax Bill Over Software

A technology company that makes payment software for video games said the IRS incorrectly disallowed ordinary and necessary business expense deductions for certain software development expenses, according to a petition with the US Tax Court.

California-based Xsolla (USA) Inc. filed a petition after the IRS issued a notice of deficiency for $1.4 million for its 2016 tax year. The company said $2.4 million in software expenses should be ordinary and necessary business expenses under IRC Section 162, but the IRS said those costs should be recharacterized as capital expenses, according to the filing.

Initially founded in Russia, Xsolla moved ...