PLR 200207004: Revocation of alternative incremental research credit election allowed

Plain-English summary

A taxpayer had elected to calculate its research credit under the alternative incremental rules of IRC § 41(c)(4). After another corporation acquired it, the taxpayer requested consent to revoke that election for its short taxable year and later years. The IRS granted consent and directed the taxpayer to use the general research credit rule under § 41(a), unless it makes a new alternative election. The letter does not decide whether any of the taxpayer's expenditures are qualified research expenses.

Ruling snapshot

• Question: May the taxpayer revoke its alternative incremental research credit election after an acquisition?
• Outcome: Approved
• Key authorities: IRC § 41

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200207004
Washington, DC 20224
Release Date: 2/15/2002
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:07-PLR-125733-01
Date:
October 26, 2001
Re: Ruling under section 41 of the Internal Revenue Code.

Legend:

Taxpayer:

Corporation: v: w: x: y: z:

Dear

We received a letter dated April 12, 2001, from Taxpayer’s authorized representative requesting permission for Taxpayer to revoke its election under § 41(c)(4) of the Internal Revenue Code. This letter responds to that request.

For the taxable year ending on v, Taxpayer elected to determine its credit for increasing research activities under the alternative incremental research credit rules of § 41(c)(4). Taxpayer determined its research credit for the taxable years ending v, w, and x using the alternative incremental research credit rules of § 41(c)(4). On y, Corporation acquired Taxpayer. As a result of the acquisition, Taxpayer has a short taxable year beginning on z and ending on y. Before the due date of its return (including extensions) for the short taxable 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 short taxable year ending on y and all subsequent taxable years.

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). 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 2

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 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 taxable year ending on y. Taxpayer should compute its credit for increasing research expenses for the taxable 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 credit for increasing research activities under the alternative incremental research credit rules of § 41(c)(4).

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 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 representative. 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 the 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 & Special Industries)