PLR 200502028: Research credit election revocation allowed for later year only

Plain-English summary

A corporation had elected to calculate its research credit under the alternative incremental research credit rules. It asked to revoke that election for one tax year, or alternatively for a later tax year. Section 41(c)(4) keeps the election in effect for succeeding years unless the IRS consents to revocation. The IRS denied permission for the earlier year but granted it for the later year. From the later year forward, the corporation was to use the general research credit calculation unless it made a new alternative election. The IRS did not decide whether the corporation's claimed spending qualified as research expenses.

Ruling snapshot

• Question: For which tax year could the corporation revoke its alternative incremental research credit election?
• Outcome: Mixed: revocation denied for the earlier year and approved for the later year.
• Key authorities: IRC § 41(a), (c)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200502028
Third Party Communication: None
Release Date: 01/14/2005
Date of Communication: Not Applicable
Index Number: 41.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B07
PLR-144156-02
Date: September 28, 2004
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Legend:

Corporation = ---------------------------------
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w = -------------
x = ---------------------
y = ---------------------
z = ---------------------

Dear ----

This letter responds to a letter from your authorized representative dated July 1, 2004, and previous correspondence, requesting a ruling that Corporation be granted permission 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 taxable year ending on w. For the taxable year ending on y, Corporation elected to compute its credit for increasing research activities (research credit) utilizing the alternative incremental research credit (AIRC) rules of ' 41(c)(4). Corporation has continued to utilize the AIRC. Prior to the due date, including extensions, for Corporation’s income tax return for the taxable year ending on z, Corporation requested permission to revoke its § 41(c)(4) election for the taxable year ending on x. Alternatively, Corporation requested permission to revoke its § 41(c)(4) election for the taxable year ending on z.

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.

Based solely on the facts submitted and representations made, we grant permission for Corporation to revoke its election to determine its research credit under the AIRC rules

PLR-144156-02
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of ' 41(c)(4) for qualified research expenses paid or incurred during the taxable year ending on z. However, we do not grant permission for Corporation to revoke its election to determine its research credit under the AIRC rules of § 41(c)(4) for qualified research expenses paid or incurred during the tax year ending on x. Corporation should compute the research credit for the taxable year ending on z and all succeeding taxable years using the general rule of ' 41(a), provided that Corporation does not make a new election to determine its research credit under the AIRC 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) 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/
Heather C. Maloy
Associate Chief Counsel
(Passthroughs & Special Industries) cc: