Late relief to make a § 59(e) election to amortize R&E costs over 10 years

Plain-English summary

Section 59(e) lets a taxpayer choose to spread certain deductions, including research or experimental (R&E) costs otherwise deductible under § 174(a), ratably over 10 years instead of all at once. This election is made by attaching a statement to a timely filed return. Here, a consolidated group prepared the § 59(e) election statement and filed its return on time, but inadvertently failed to attach the statement, so the election was not valid. The group asked the IRS for an extension of time under Treas. Reg. § 301.9100-3 to make the election. The IRS concluded the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government, and gave it 120 days from the date of the letter to make the election on an amended return. The IRS expressed no view on whether the costs actually qualify under § 59(e) or § 174(a).

Ruling snapshot

• Question: May a consolidated group get a § 301.9100-3 extension to make a § 59(e) election (10-year ratable amortization of R&E costs) that it failed to attach to its timely return?
• Outcome: Approved (120 days from the letter date to make the election).
• Key authorities: IRC §§ 59(e), 174(a); Treas. Reg. § 1.59-1(b)(1); Treas. Reg. § 301.9100-1 through -3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202206011
Person To Contact:
Release Date: 2/11/2022
--------------------, ID No. -----------------
Index Number: 9100.02-03 Telephone Number:
-------------------
---------------------------- Refer Reply To:
--------------------------------- CC:PSI:6
-------------------------------- PLR-111749-21
------------------------------ Date:
--------------------------- November 9, 2021

Re: Request for extension of time under
§§ 301.9100 and 301.9100-3 of the
Procedure and Administration Regulations to
file an election pursuant to § 59(e) of the
Internal Revenue Code

LEGEND:

P = --------------------------------
-----------------------

S = -----------------------------------------------
-----------------------

Taxable Year = ------------------------------------------------------

Date = ------------------

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

   This letter responds to a letter dated Date, submitted on behalf of P and its

subsidiary S, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations to make an election under § 59(e) of the
Internal Revenue Code (Code) and § 1.59-1(b)(1) of the Income Tax Regulations to
deduct ratably over a 10-year period research or experimental (R&E) expenditures
PLR-111749-21 2

incurred in the Taxable Year under § 174(a). This letter is being issued electronically in
accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be
mailed to P.

                                     FACTS

   P represents that the facts are as follows:

   P is the common parent of an affiliated group of corporations that includes S

(hereinafter P and S will be collectively referred to as Taxpayer) and files a consolidated
federal income tax return. Taxpayer files its consolidated federal income tax return on
the basis of a calendar year and uses the accrual method as its overall method of
accounting.

    Taxpayer intended to make an election under § 59(e) for the Taxable Year. For

the Taxable Year, Taxpayer prepared a § 59(e) election statement and electronically
filed a timely income tax return. However, Taxpayer inadvertently failed to attach the
statement to its timely filed return, which is required to make a § 59(e) election under
§ 1.59-1(b)(1). Taxpayer prepared its return for the Taxable Year as though the election
statement had been properly included.

   Taxpayer represents that, in requesting an extension of time to make an election

under § 59(e) for the Taxable Year, it acted reasonably and in good faith and, further,
there is no prejudice to the interests of the government.

                             RULING REQUESTED

 Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 to

make an election under § 59(e) for the Taxable Year.

                              LAW AND ANALYSIS

   Section 59(e)(1) provides, in relevant part, that any qualified expenditure to which

an election under § 59(e)(1) applies shall be allowed as a deduction ratably over the 10-
year period beginning with the taxable year in which such expenditure was made.

  Section 59(e)(2)(B) includes in the definition of “qualified expenditure” any amount

which, but for an election under § 59(e), would have been allowable as a deduction
(determined without regard to § 291) for the taxable year in which paid or incurred under
§ 174(a) (relating to R&E expenditures).

   Section 59(e)(3) provides that except as provided in § 59(e), no deduction shall

be allowed under any other section of the Code for any qualified expenditure to which
an election under § 59(e) applies.

   Section 59(e)(4)(A) provides that an election may be made under § 59(e)(1) with

PLR-111749-21 3

respect to any portion of any qualified expenditure.

   Section 59(e)(4)(B) provides that any election under § 59(e) may be revoked only

with the consent of the Secretary.

     Section 1.59-1(b)(1) provides that an election under § 59(e) shall only be made by

attaching a statement to the taxpayer’s income tax return (or amended return) for the
taxable year in which the amortization of the qualified expenditures subject to the § 59(e)
election begins. The statement must be filed no later than the date prescribed by law for
filing the taxpayer’s original income tax return (including any extensions of time) for the
taxable year in which the amortization of the qualified expenditures subject to the § 59(e)
election begins. Additionally, the statement must include the taxpayer’s name, address,
and taxpayer identification number, and the type and amount of qualified expenditures
identified in § 59(e)(2) that the taxpayer elects to deduct ratably over the applicable period
described in § 59(e)(1).

    Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of

time to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Code except
subtitles E, G, H, and I.

  Section 301.9100-1(b) provides the term “regulatory election” includes an election

the due date of which is prescribed by a regulation published in the Federal Register.

  Sections 301.9100-1 through 301.9100-3 provide the standards used to determine

whether to grant an extension of time to make a regulatory election.

   Section 301.9100-2 allows automatic extensions of time for making certain

elections. Section 301.9100-3 provides rules for requesting extensions of time for
regulatory elections that do not meet the requirements of § 301.9100-2.

   The Commissioner will grant requests for relief under § 301.9100-3 when the

taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to
establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and
in good faith, and the grant of relief will not prejudice the interests of the government.

                                  CONCLUSION

    Based solely on the information submitted and the representations made, we

conclude that the requirements of §§ 301.9100-1 through 301.9100-3 have been
satisfied. Accordingly, the Commissioner grants Taxpayer an extension of time of 120
days from the date of this letter to make an election for the Taxable Year under § 59(e)
and § 1.59-1(b)(1) to deduct ratably over a 10-year period its R&E expenditures
incurred in the Taxable Year. The § 59(e) election for the Taxable Year must comply
with the manner-of-election requirements of § 1.59-1(b)(1).
PLR-111749-21 4

     In making the election for the Taxable Year, Taxpayer must attach a copy of this

letter ruling to its amended consolidated federal income tax return. Alternatively, if
Taxpayer files its amended consolidated federal income tax return electronically, it may
satisfy this requirement by attaching a statement to its amended return that provides the
date and control number of the letter ruling.

   The ruling contained in this letter is based upon information and representations

submitted by Taxpayer and accompanied by a penalties 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 a ruling, it is subject to verification on examination. Except
as specifically set forth above, we express no opinion concerning the federal tax
consequences of the facts described above under any other provision of the Code and
the regulations thereunder. Specifically, we express or imply no opinion concerning
whether Taxpayer satisfies the requirements of §§ 59(e) or 174(a).

  This letter ruling is directed only to the taxpayer who requested it. Under

§ 6110(k)(3), a letter ruling may not be used or cited as precedent.

     In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative. We are also sending a copy of this
letter to the LB&I Policy Office.

                                                 Sincerely,

                                                 Associate Chief Counsel
                                                 (Passthroughs and Special Industries)

                                                        Jennifer Records

                                       By:       _______________________________
                                                 Jennifer A. Records
                                                 Senior Technician Reviewer, Branch 6
                                                 Office of the Associate Chief Counsel
                                                 Passthroughs and Special Industries

Enclosure:
Copy for § 6110 purposes

cc: