PLR 200543031: Research credit method election may be revoked

Plain-English summary

A corporation had elected to calculate the research credit using the alternative incremental research credit method for itself and its controlled group. It asked the IRS for consent to revoke that election before the filing deadline for a later tax year. The IRS granted permission to use the general research credit rule for that year and later years, unless the group made a new alternative method election. The IRS did not decide whether any expenditures claimed by the group qualified as research expenses.

Ruling snapshot

• Question: Could the controlled group revoke its alternative incremental research credit election?
• Outcome: Approved; the group may use the general rule from the specified year forward.
• Key authorities: IRC § 41(a), (c)(4), (f)(5).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200543031
Third Party Communication: None
Release Date: 10/28/2005
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:
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CC:PSI:B07
PLR-129105-05
Date: July 21, 2005

LEGEND:

Corporation: -------------------------------------------------------
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a: ------------------
b: ---------
c: --------------------------

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

This letter responds to a letter from your authorized representative, dated May 27, 2005, requesting permission for Corporation to revoke its election under Section 41(c)(4) of the Internal Revenue Code.

The facts and representations submitted are as follows:

Corporation is an accrual method taxpayer with each taxable year ending on a.
Corporation is the parent of a § 41(f)(5) controlled group that files a consolidated federal income tax return. For its b taxable year, Corporation, on behalf of itself and the members of is 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 the 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-129105-05
2

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 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 its research credit for the taxable year ending on c and all succeeding 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 representatives. 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,

Brenda M. Stewart
Senior Counsel, Branch 7
(Passthroughs & Special Industries)

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