PLR 200404016: Controlled group may revoke alternative research credit election

Plain-English summary

A corporation and its controlled group had switched from the standard research credit calculation to the alternative incremental method. The corporation sought permission to revoke that election before the return deadline for a later year. The IRS consented to the revocation for qualified research expenses in the specified year. It said the group should then use the general § 41(a) method in that year and later years unless it made a new alternative election. The IRS did not decide whether any particular spending qualified as research expense.

Ruling snapshot

• Question: May the controlled group revoke its alternative incremental research credit election?
• Outcome: Approved, effective for the specified year.
• Key authorities: IRC § 41(a), (c)(4), (f)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200404016
Washington, DC 20224
Release Date: 1/23/2004
Index Number: 41.01-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B07-PLR-117286-03
Date:
October 16, 2003

Legend:

Corporation =

Date
=
x
=
y
=

Dear :

This letter responds to letters received from your authorized representative, dated March 7, 2003 and August 4, 2003, requesting permission for Corporation to revoke its election under § 41(c)(4) of the Internal Revenue Code.

The represented facts are as follows:

Corporation is an accrual method taxpayer with a Date taxable year. Corporation is the parent of a § 41(f)(5) controlled group of corporations, all the members of which are included in Corporation’s consolidated group. From the inception of the credit for increasing research activities (research credit), Corporation utilized the standard method of calculating the research credit under § 41(a). For the taxable year ending on x, Corporation elected to utilize the alternative incremental research credit rules under
§ 41(c)(4) to calculate its research credit, for itself and on behalf of its § 41(f)(5) controlled group of corporations. Corporation and its consolidated group have continued to use the alternative incremental research credit. Before the due date for its return (including extensions) for the taxable year ending on y, Corporation submitted a request, for itself and on behalf of its § 41(f)(5) controlled group, 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 years.

2
PLR-117286-03

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 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 y. Corporation and its § 41(f)(5) controlled group should compute the research credit for the taxable year ending on y 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 or any member of its controlled group 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,

/s/
Brenda M. Stewart
Senior Counsel
Office of Associate Chief Counsel
(Passthroughs and Special Industries)