PLR 200505020: IRS permits revocation of alternative research credit election

Plain-English summary

A corporation had elected the alternative incremental method for computing its research credit. It asked the IRS for consent to revoke that election before its return was due for a later tax year. The IRS granted permission under IRC § 41(c)(4)(B). The corporation was to use the general credit rule for the specified year and later years, unless it made a new alternative method election. The ruling gave no opinion on whether its expenditures qualified for the research credit.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200505020
Third Party Communication: None
Release Date: 2/4/05
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
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PLR-148873-04
Date: October 14, 2004

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LEGEND

Corporation = -----------------------------------
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x = -------
y = --------------------------

Dear ----:

This letter responds to your letter, dated September 13, 2004, 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 a calendar year, accrual method taxpayer. In x, Corporation elected to utilize the alternative incremental research credit rules under ' 41(c)(4) to compute its research credit. Before the due date of its return (including extensions) for the taxable year ending on y, 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 y 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.

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
PLR-148873-04
2

qualified research expenses paid or incurred during the taxable year ending on y. Corporation 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 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.

A copy of this letter must be attached to any income tax return to which it is relevant.

The ruling contained in this letter is 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 ruling, it is subject to verification on examination.

Sincerely,

/s/
Leslie Finlow
Branch Chief, Branch 7
Office of Associate Chief Counsel
(Passthroughs and Special Industries)