PLR 200241042: Taxpayer may revoke alternative research credit election

Plain-English summary

A taxpayer had elected to calculate its research credit under the alternative incremental method in § 41(c)(4). It asked to revoke that election before the extended filing deadline for a later tax year. The IRS consented to revocation for qualified research expenses paid or incurred in that year. The taxpayer was directed to use the general credit rule in § 41(a) for that year and later years unless it made a new alternative method election. The IRS gave no opinion on whether the taxpayer's expenditures qualified as research expenses.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200241042
Washington, DC 20224
Release Date: 10/11/2002
Index Number: 41.01-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-123921-02
Date:

Re: Ruling under section 41 of the Internal July 11, 2002 Revenue Code

LEGEND:

Taxpayer =

y
=
z
=

Dear
:

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

For the taxable year ending on y, Taxpayer determined its research credit using the alternative incremental research credit rules of section 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 section 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 section 41(c)(4). Section 41(c)(4)(B) provides that any election under section 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 section 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 section 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 section 41(c)(4).

Except as expressly provided herein, we express or imply no opinion concerning 2
PLR-123921-02

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,
Brenda M. Stewart
Assistant to the Chief, Branch 7
Office of Associate Chief Counsel
(Passthroughs and Special Industries)