PLR 200505021: Corporation may revoke alternative research credit election

Plain-English summary

A parent corporation had elected the alternative incremental method for calculating the research credit for its controlled group. After the parent sold a subsidiary, that corporation asked to revoke the election for its own research expenses. IRC § 41(c)(4)(B) requires IRS consent to revoke the election. The IRS granted consent for the corporation to use the general research credit rule for the specified year and later years, unless it elected the alternative method again. The ruling did not decide whether any of the corporation's expenses qualified for the credit.

Ruling snapshot

• Question: Could the former group member revoke the alternative incremental research credit election?
• Outcome: Approved for the specified taxable year and succeeding 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: 200505021
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:
CC:PSI:B07
PLR-149201-04
Date: October 21, 2004

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LEGEND

Corporation = -----------------------------------------------------------
Parent = ---------------------------------------------------------
b = -------------------------
c = --------------------------
d = -------
e = --------------------------

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

This letter responds to your letter, dated September 14, 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. From b until c, Corporation was a member of Parent’s § 41(f)(5) controlled group, all the members of which were included on a consolidated return. In d, Parent, on behalf of itself and the members of its controlled group, elected to utilize the alternative incremental research credit rules under ' 41(c)(4) to compute the credit for increasing research activities (research credit). On c, Parent sold all outstanding shares of stock in Corporation and Corporation became a stand-alone entity. Before the due date of its return (including extensions) for the taxable year ending on e, 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 e and all subsequent taxable 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
PLR-149201-04
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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 alternative incremental research credit rules of ' 41(c)(4) for qualified research expenses paid or incurred during the taxable year ending on e. Corporation should compute the research credit for the taxable year ending on e 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 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) 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, Branch 7
Office of Associate Chief Counsel
(Passthroughs and Special Industries)