PLR 200537011: Research credit group may revoke alternative incremental method

Plain-English summary

A corporation and its controlled group had elected the alternative incremental research credit method. They asked to revoke that election for a later tax year and subsequent years. The IRS granted consent under section 41(c)(4), allowing them to calculate the research credit under the general rule from the requested year onward unless they made a new alternative incremental election. The IRS did not decide whether any of their reported spending qualified as research expenses.

Ruling snapshot

• Question: Could the group revoke its alternative incremental research credit election?
• Outcome: Approved; the group could use the general credit method from the requested year forward.
• 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: 200537011
Third Party Communication: None
Release Date: 9/23/2005
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:
CC:PSI:B07

• PLR-108119-05
  Date:
  June 14, 2005

Legend:

Corporation: ------------------------------------------
------------------------
x: --------------------------
y: --------------------------

Dear ----:

We received your letter requesting permission for Corporation to revoke its election under § 41(c)(4) of the Internal Revenue Code. This letter responds to that request.

The facts and representations submitted are as follows:

Corporation is a calendar year, accrual method taxpayer. Corporation is the parent of a § 41(f)(5) controlled group that files a consolidated federal income tax return. For the taxable year ending on x, Corporation elected to utilize the alternative incremental research credit (AIRC) rules of § 41(c)(4) to calculate its research credit. Before the due date of its return (including extensions) for the taxable year ending on y, Corporation submitted a request on behalf of itself and its § 41(f)(5) controlled group to revoke its election to determine its research credit under the AIRC rules for qualified research expenses paid or incurred on or after the taxable year ending on y 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 and its controlled group to revoke its election to determine its

PLR-108119-05
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credit for increasing research activities under the AIRC rules of § 41(c)(4) for qualified research expenses paid or incurred during the taxable year ending on y. Corporation should compute its credit for increasing research activities for the taxable year ending on y and all succeeding taxable 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 AIRC rules of § 41(c)(4).

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) of the Code 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,

Leslie H. Finlow
Chief, Branch 7
(Passthroughs & Special Industries)