PLR 200246023: Research credit alternative method election revoked

Plain-English summary

A taxpayer and its controlled group had used the alternative incremental method to calculate the research credit for several years. The taxpayer asked to revoke that election before the due date of its return for a later year. Because section 41(c)(4)(B) requires IRS consent to revoke the election, the IRS granted permission for the year specified in the request. The taxpayer should use the general research credit method for that year and later years unless it or a group member makes a new alternative method election. The IRS did not determine whether any claimed spending qualified as research expenses.

Ruling snapshot

• Question: Could the taxpayer revoke its election to use the alternative incremental research credit method?
• Outcome: Approved: revocation consent granted for the specified year.
• Key authorities: IRC §§ 41(a), 41(c)(4)(B), 41(f)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200246023
Washington, DC 20224
Release Date:11/15/2002
Person to Contact:
Index Number: 41.00-00
Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-126183-02
Date:
August 14, 2002

LEGEND:

Taxpayer:
t: u: v: w: x: y:

Dear
:

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

Taxpayer is an accrual basis taxpayer with a t taxable year end. Taxpayer had elected for the taxable year ending u to determine its credit for increasing research activities (research credit) under the alternative incremental research credit rules of § 41(c)(4). For the tax years ending on u, v, w, and x, Taxpayer and all members of its § 41(f)(5) controlled group calculated their research credit under the rules of § 41(c)(4). Before the due date of its return (including extensions) for the tax 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 tax 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).

2

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 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 or a member of its controlled group does not make a new election to determine the 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.

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,

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