PLR 200333006: Corporation may revoke alternative research credit election

Plain-English summary

A corporation had elected the alternative incremental method for calculating its research credit under § 41(c)(4). It asked to revoke that election before the due date of the return for the year when the revocation would begin. The IRS consented to revocation for that year. The corporation should calculate the credit under the general rule of § 41(a) for that year and later years, unless it makes a new alternative method election. The IRS did not rule on whether the corporation's expenditures were qualified research expenses.

Ruling snapshot

• Question: May the corporation revoke its alternative incremental research credit election?
• Outcome: Approved for the specified year, with the general method applying afterward unless a new election is made.
• Key authorities: IRC §§ 41(a), 41(c)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200333006
Washington, DC 20224
Release Date: 8/15/2003
Index Number: 41.01-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B07-PLR-139675-02
Date:
March 6, 2003

Legend:

Corporation =
x
=
y
=
z
=

Dear :

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

The represented facts are as follows:

Corporation is an accrual method, calender year taxpayer. From its inception, through the taxable year ending on x, Corporation utilized the standard method of calculating the credit for increasing research activities under § 41(a). For the taxable year ending on y, Corporation elected, for itself and on behalf of its § 41(f)(5) controlled group, to utilize the alternative incremental research credit rules under § 41(c)(4) to calculate its research credit. Corporation has continued to use the alternative incremental research credit. Before the due date for its return (including extensions) for the taxable year ending on z, Corporation 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 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.

2
PLR-139675-02

Based solely on the facts submitted and representations made, we grant permission for Corporation 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. Corporation should compute its credit for increasing research activities for the taxable year ending on z and all succeeding years using the general rule of § 41(a), provided that Corporation 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) in a later year.

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 Corporation 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
Senior Counsel
Office of Associate Chief Counsel
(Passthroughs and Special Industries)