PLR 200511011: Corporation may revoke alternative research credit election

Plain-English summary

A corporation had elected the alternative incremental research credit method for itself and its controlled group. It asked the IRS for permission to revoke that election for a later tax year before the return due date. IRC § 41(c)(4) makes the election continue in later years unless the IRS consents to revocation. The IRS granted consent for the specified year. The corporation and its group would then use the general research credit method for that year and later years, unless a group member made a new alternative method election. The IRS did not decide whether the group's expenditures qualified as research expenses.

Ruling snapshot

• Question: Could the corporation revoke its alternative incremental research credit election for itself and its controlled group?
• Outcome: Approved: revocation permitted for the specified 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: 200511011
Third Party Communication: None
Release Date: 3/18/05
Date of Communication: Not Applicable
Index Number: 41.00-00
Person To Contact:

- ------------------------, ID No. -------------

                                                           Telephone Number:

------------------------------------ ---------------------

                                                           Refer Reply To:
                                                           CC:PSI:B07
                                                           PLR-148661-04
                                                           Date: November 23, 2004

Legend

Corporation = ----------------------------------------------
-----------------------
a = -----------------------------------------
b = -------
c = --------------------------

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

This letter responds to a letter from your authorized representative, 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 an accrual method taxpayer with each taxable year ending on a. All members of Corporation’s § 41(f)(5) controlled group are included on a single consolidated federal income tax return. For its b taxable year, Corporation, on behalf of itself and the members of its controlled group, elected to compute the credit for increasing research activities (research credit) utilizing the alternative incremental research credit (AIRC) rules of § 41(c)(4). Prior to the due date, including extensions, for Corporation’s income tax return for the taxable year ending on c, Corporation, on behalf of itself and members of its controlled group, requested permission to revoke its
§ 41(c)(4) election for the taxable year ending on c and all subsequent 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.

PLR-148661-04
2

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 of ' 41(c)(4) for qualified research expenses paid or incurred during the taxable year ending on c. Corporation should compute the research credit for the taxable year ending on c and all succeeding taxable years using the general rule of ' 41(a), provided that neither Corporation nor any member of its controlled group makes 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 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) 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
(Passthroughs & Special Industries)

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