PLR 200314017: Taxpayer may revoke alternative research credit election

Plain-English summary

A consolidated corporate group had elected to calculate its research credit under the alternative incremental rules in section 41(c)(4). It asked to revoke the election before the due date of a later year's return. The IRS consented to revocation for qualified research expenses paid or incurred in that later year. The group should use the general section 41(a) calculation for that year and later years unless it makes a new alternative election. The IRS gave no opinion on whether particular expenditures were qualified research expenses.

Ruling snapshot

• Question: May the group revoke its alternative incremental research credit election?
• Outcome: Approved for the specified year and later years
• Key authorities: IRC §§ 41(a), 41(c)(4)(B)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200314017
Washington, DC 20224
Release Date: 4/4/2003
Index Number: 41.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:7-PLR-135031-02
Date:
December 19, 2002

LEGEND:

Taxpayer: = x: = y: =

Dear
:

We received letters, dated June 24, 2002, July 19, 2002, and August 9, 2002, 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.

The facts and representations submitted are as follows: Taxpayer is an accrual basis taxpayer and the common parent of an affiliated group of companies that join in filing a consolidated federal income tax return. The consolidated federal income tax return is filed on the basis of a calender year. For the taxable year ending on x, Taxpayer elected to determine its credit for increasing research activities under the alternative incremental research rules of § 41(c)(4). Taxpayer determined its research credit for that year using the alternative incremental research rules of § 41(c)(4).

Before the due date of its return (including extensions) for the taxable 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 taxable 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). Section 41(c)(4)(B) provides that an 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. 2 PLR-135031-02

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 activities for the taxable year ending on y 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 expenses.

This ruling is directed only to the taxpayer requesting it. Section 6111(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 Stewart
Assistant to the Chief, Branch 7
Office of Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosure:
Copy for § 6110 purposes