PLR 200408019: Company may leave alternative research credit method

Plain-English summary

A corporate group had elected the alternative incremental method for computing its research credit and used it for three tax years. It asked for the IRS's consent to revoke that election beginning with a later tax year. The IRS granted permission and directed the group to use the general section 41(a) method for that year and later years unless it makes a new alternative election. The IRS did not rule on whether any of the group's spending qualified as research expenses.

Ruling snapshot

• Question: May the group revoke its alternative incremental research credit election?
• Outcome: Approved, beginning with the requested tax year.
• Key authorities: IRC §§ 41(a), 41(c)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200408019
Release Date: 2/20/04
Index Number: 41.01-00 41.01-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B07 – PLR-151750-03
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Date:
November 12, 2003

Legend

Taxpayer: ------------------------------
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w: ---------------------------
x: ---------------------------
y: ---------------------------
z: ---------------------------

Dear -----------------:

We received your letter 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 submitted and the representations made are as follows: Taxpayer is the common parent of an affiliated group of corporations that file a consolidated return. Taxpayer is an accrual method taxpayer using a calendar year for tax purposes. For the taxable year ending on w, Taxpayer elected on behalf of itself and the members of its controlled group to determine its credit for increasing research activities under the alternative incremental research credit (AIRC) rules of § 41(c)(4). Taxpayer determined its research credit for the taxable years ending on w, x, and y using the AIRC rules of
§ 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 AIRC rules of § 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 AIRC 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.

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PLR-151750-03

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 AIRC rules of § 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 activities for the taxable year ending on z 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 AIRC 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 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, copies of this letter are being sent to Taxpayer’s authorized representatives. 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, Branch 7
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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