PLR 200526004: Company may revoke alternative research credit election

Plain-English summary

A corporation had elected the alternative incremental method for calculating its research credit. Before the return deadline for a later year, it asked to revoke that election for that year and future years. The IRS granted permission to revoke the election and directed the corporation to use the general method under IRC § 41(a), provided it did not elect the alternative method again in a later year. The ruling did not determine whether the corporation's expenditures qualified for the credit.

Ruling snapshot

• Question: May the corporation revoke its alternative incremental research credit election?
• Outcome: Approved for the specified year and succeeding years, subject to no later alternative method election.
• Key authorities: IRC §§ 41(a), 41(c)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200526004
Third Party Communication: None
Release Date: 7/1/2005
Date of Communication: Not Applicable
Index Number: 41.00-00
Person To Contact:
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-------------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
CC:PSI:B07
PLR-102393-05
Date: March 23, 2005

Legend:

Corporation = --------------------------------
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w = -------
x = --------------------------

Dear ----:

This letter responds to a letter from your authorized representative dated January 10, 2005, 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. For its w taxable year, Corporation elected to compute its 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 x, Corporation requested permission to revoke its § 41(c)(4) election for qualified research expenses paid or incurred on or after the taxable year ending on x 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.

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 x. Corporation should compute the research credit for the taxable year ending on x and all succeeding taxable years using the general rule of ' 41(a), provided that Corporation does not make a new election to determine the research credit under the AIRC rules of ' 41(c)(4) in a later year.

PLR-102393-05
2

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 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
(Passthroughs & Special Industries)

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