PLR 200210008: Company may revoke alternative research credit election

Plain-English summary

A corporate group had used the alternative incremental research credit for several years and requested permission to stop after a merger. The IRS granted consent to revoke its § 41(c)(4) election beginning with the requested tax year. The group should calculate its research credit under the general § 41(a) rule for that and later years unless it makes a new alternative credit election. The IRS did not decide whether the group's claimed research expenses qualified for the credit.

Ruling snapshot

• Question: May the group revoke its election to use the alternative incremental research credit?
• Outcome: Approved for the requested tax year and subsequent years.
• Key authorities: IRC §§ 41(a), 41(c)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200210008
Washington, DC 20224
Release Date: 3/8/2002
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-142958-01
Re: Date:
November 19, 2001

LEGEND:

Taxpayer:

Corporation: u: v: w: x: y: z:
Date 1:

Dear

We received your letter requesting permission for Taxpayer to revoke its election under
§ 41(c)(4) of the Internal Revenue Code. This letter responds to that request.

Taxpayer is an accrual basis controlled group of corporations using a calendar year for tax purposes. For the taxable year ending on u, 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 on u, v, w, x, and y using the alternative incremental research credit rules of § 41(c)(4).

Effective Date 1, Taxpayer completed a merger with Corporation. Corporation retained its corporate existence and became a member of Taxpayer’s controlled group of corporations. Before the due date of its return (including extensions) for the taxable year ending on z, 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 taxable year ending on z and all subsequent taxable years.

2
PLR-142958-01

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 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 z. Taxpayer should compute its credit for increasing research expenses for the taxable year ending on z 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 Taxpayer. 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)