PLR 200217054: Research credit election revoked with IRS consent

Plain-English summary

A calendar year taxpayer had elected the alternative incremental research credit method under § 41(c)(4). Before the extended due date for the applicable return, the taxpayer asked to revoke that election for qualified research expenses paid or incurred in the specified tax year and later years. The IRS granted permission to revoke the election. The taxpayer was instructed to compute the research credit under the general rule in § 41(a) for that year and later years unless it made a new alternative incremental credit election. The IRS expressed no opinion on whether the claimed expenditures were qualified research expenses.

Ruling snapshot

• Question: May the taxpayer revoke its alternative incremental research credit election?
• Outcome: Approved: the election may be revoked for the specified year and succeeding years, subject to the stated condition.
• Key authorities: IRC §§ 41(a) and 41(c)(4)(B).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200217054
Washington, DC 20224
Release Date: 4/26/2002
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-150616-01
Date:
January 29, 2002

Re: Ruling under section 41 of the Internal Revenue Code.

LEGEND:

Taxpayer:
x: y: z:

Dear .
:

We received a letter 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.

Taxpayer is a calendar year taxpayer. For the taxable year ending on x, 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 x and y using the alternative incremental research credit rules of § 41(c)(4). 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.

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 2 PLR-142958-01

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 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)