PLR 200223049: Research credit election revoked with IRS consent

Plain-English summary

A taxpayer had elected the alternative incremental method for calculating its research credit and later asked to revoke that election. It requested consent before the return deadline for the year in which the revocation would begin. The IRS granted permission to revoke the election for qualified research expenses incurred during that year. The taxpayer was directed to use the general credit rule for that year and later years unless it made a new alternative incremental election. The IRS did not determine whether the taxpayer's expenditures were qualified research expenses.

Ruling snapshot

• Question: Could the taxpayer revoke its alternative incremental research credit election for the stated year and later years?
• Outcome: Approved. The IRS consented to revocation beginning with the taxable year ending on the redacted date.
• Key authorities: IRC §§ 41(a), 41(c)(4), 441(f).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200223049
Washington, DC 20224
Release Date: 6/7/2002
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:07-PLR-157783-01
Date:
Re: March 05, 2002

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 (Code). This letter responds to that request.

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). For taxable year y, Taxpayer represents that it is electing to change its taxable year to that of a 52-53 week taxable year pursuant to § 441(f) of the Code. Taxpayer’s taxable year will fall on the Tuesday nearest to December 31. For taxable year y, Taxpayer’s fiscal year end will be z.

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

2

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’s 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)