PLR 200148017: Research credit alternative election may be revoked

Plain-English summary

A corporation in a controlled group had chosen the alternative incremental method for calculating its research credit. It asked to revoke that election for a later tax year and future years before its return for the later year was due. The IRS consented to the revocation, allowing the corporation to use the general research credit rule for the later year and following years unless it made a new alternative election. The letter instructed the corporation to attach the ruling to its return and did not decide whether its expenditures qualified as research expenses.

Ruling snapshot

• Question: Could the corporation revoke its alternative incremental research credit election?
• Outcome: Approved; the later year and following years use the general rule unless a new election is made.
• Key authorities: IRC §§ 41(a), 41(c)(4)(B).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200148017
Washington, DC 20224
Release Date: 11/30/2001
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-135433-01
Date:
August 10, 2001

LEGEND:

Taxpayer:

x:
y:

Dear

We received your letter requesting permission for Taxpayer to revoke its election under § 41(c)(4). This letter is in response to that request.

For the tax year ending on x, Taxpayer, as a member of a § 41(f)(5) controlled group of corporations, determined its credit for increasing research activities (research credit) under the alternative incremental research credit rules of § 41(c)(4). Before the due date of its return (including extensions) for the tax year ending on y, Taxpayer submitted a request to revoke its election to determine its research credit under the alternative incremental research credit rules of § 41(c)(4) for qualified research expenses paid or incurred on or after the tax year ending on y and all subsequent taxable years.

For tax years beginning after June 30, 1996, taxpayers may elect to determine their research credit under the alternative incremental research credit rules of
§ 41(c)(4).

Section 41(c)(4)(B) provides that any election under § 41(c)(4)(A) shall apply for the taxable year in which made and all succeeding taxable years unless revoked with the consent of the Secretary.
Based solely on the facts submitted and the representations made, we grant permission for Taxpayer to revoke its election to determine its credit for increasing research activities under the alternative incremental research credit rules of § 41(c)(4) for qualified research expenses paid or incurred during the tax year that 2 PLR-135433-01 ended on y. Taxpayer should compute its research credit for the tax year ending on y and all succeeding taxable years using the general rule of § 41(a) provided that Taxpayer does not make a new election to determine its research credit under the alternative incremental research credit rules of § 41(c)(4). Taxpayer should attach a copy of this letter to its tax return for the tax year ending on y with the applicable Service Center within 60 days after issuance of this letter.

Except as expressly provided herein, we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Further, we express or imply no opinion concerning expenditures Taxpayer treated as qualified research expenses.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.

The rulings contained in this letter are based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Sincerely,
Leslie H. Finlow
Chief, Branch 7
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosure