PLR 200149004: Former group member may revoke alternative research credit election

Plain-English summary

A company had elected the alternative incremental research credit while the taxpayer was part of its controlled group. After the taxpayer left that group, it sought permission to revoke the alternative election for a later tax year. The IRS granted consent and directed the taxpayer to use the general credit rule under § 41(a) for that year and future years unless it made a new alternative election. The taxpayer was told to attach the ruling to an amended return and file it within 60 days of the letter. The IRS expressed no view on whether the reported spending was qualified research expense.

Ruling snapshot

• Question: Could a former controlled group member revoke the alternative research credit election?
• Outcome: Approved for the specified tax year and succeeding years, subject to any new election.
• Key authorities: IRC §§ 41(a), 41(c)(4)(B), 41(f)(1)(A).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200149004
Washington, DC 20224
Release Date: 12/7/2001
UIL: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:P&SI:Br.7-PLR-125311-01
Date:
August 6, 2001

Legend

Taxpayer:

EIN:

Company:

Foreign Corporation:
u:
v:
w:
x:
y:
z:

Dear

We received a letter from your authorized representative requesting permission for Taxpayer to revoke its election to compute its credit for increasing research activities (research credit) under the alternative incremental research credit rules of § 41(c)(4). This letter is in response to that request.

Taxpayer was established as a division of Company. By u, Taxpayer was a wholly-owned subsidiary of Foreign Corporation, a foreign corporation that was a wholly-owned subsidiary of Company.

For the taxable year ending on v, Company elected to determine its research credit under the alternative incremental research credit rules of § 41(c)(4). On or about -2-

PLR-125311-01

w, Foreign Corporation ceased to be a subsidiary of Company and Taxpayer ceased to be a member of the Company controlled group.

On x, 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 for the taxable year ending on y and all succeeding taxable years. The due date (including extensions) of Taxpayer’s return for the taxable year ending y is z.

The computation of the research credit is subject to special rules in § 41(f) for the aggregation of expenditures for controlled groups of corporations. In computing the research credit, § 41(f)(1)(A) provides that all members of the same controlled group of corporations are treated as a single taxpayer.

For taxable 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)(A).

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 representations made, we grant permission for Taxpayer 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 during the tax year that ended on y. Taxpayer should compute its credit for increasing research expenses for the tax year ended 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 amended tax return for the taxable year that ended on y with the applicable Service Center within 60 days after issuance of this letter.

The ruling contained in this letter is 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.

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. If there is a change in material fact -3-

PLR-125311-01

or law (local or federal) before the transactions considered in this ruling take effect, the ruling will have no force or effect.

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.

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

Enclosure (1)