Late election to amortize R&E expenditures over 10 years allowed under 9100 relief

Plain-English summary

A calendar-year, accrual-method taxpayer wanted to spread its research and experimental (R&E) expenditures over 10 years using the election in Code section 59(e), rather than deduct them all at once. That election has to be made by attaching a statement to the tax return (or amended return) for the year the amortization starts, filed by the original due date plus extensions. The taxpayer capitalized and amortized the costs on its return but did not timely file the required election statement, so it asked the IRS for "9100 relief" (Treas. Reg. §§ 301.9100-1 and 301.9100-3) to make the election late. Finding that the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, the IRS granted a 120-day extension to make the § 59(e) election on an amended return. The IRS expressed no view on whether the taxpayer actually meets the substantive requirements of §§ 59(e) or 174(a), only that it may make the election late.

Ruling snapshot

• Question: May a taxpayer that failed to timely file the statement electing 10-year amortization of R&E expenditures under § 59(e) get an extension of time to make it?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 59(e); IRC § 174(a); Treas. Reg. § 1.59-1(b); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                       Department of the Treasury
                                               Washington, DC 20224

Number: 202320001                              Third Party Communication: None
Release Date: 5/19/2023                        Date of Communication: Not Applicable
Index Number: 9100.02-03
                                               Person To Contact:
------------------------                         ------------------, ID No. -----------------
------------------------------------           Telephone Number:
-----------------------------                    --------------------
-----------------------------                  Refer Reply To:
----------------------------------               CC:PSI:B06
 ---------------------------                      PLR-116102-22
                                               Date:
------------------------------------------------ February 16, 2023


LEGEND


Taxpayer         =        -----------------------------
                          -------------------------

a                =        ------------------

Tax Year         =        ----------------------------------------------------------

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

        This letter responds to a letter dated August 19, 2022, and subsequent
correspondence, submitted by Taxpayer 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 Taxpayer’s
research and experimental (R&E) expenditures described in § 174(a) incurred in Tax
Year. This letter is being issued electronically in accordance with Rev. Proc. 2022-1,
2022-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.

                                    FACTS

        Taxpayer represents that the facts are as follows:

      Taxpayer files a federal income tax return on a calendar year basis using the
accrual method of accounting.

      Taxpayer intended to make an election under § 59(e) and § 1.59-1(b)(1) to
deduct ratably over a 10-year period its R&E expenditures. On its federal
income tax return for Tax Year, Taxpayer capitalized and amortized its R&E
expenditures in the amount of $a incurred during that year under § 59(e). Taxpayer has
made representations explaining why the statement required to make the election under
§ 59(e) and § 1.59-1(b)(1) was not timely filed.

       Taxpayer represents that, in requesting an extension of time to make a § 59(e)
election for Tax Year, it has 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) to capitalize and amortize Taxpayer’s R&E expenditures
incurred during its Tax Year.

                              LAW AND ANALYSIS

       Section 59(e)(1) allows a taxpayer, in general, to deduct ratably over the 10-year
period any qualified expenditure to which an election under § 59(e) applies, 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 for the taxable year in which paid or incurred under § 174(a) (relating to R&E
expenditures).

      Section 59(e)(3) specifically prohibits the deduction of the qualified expenditures
under any other section of the Code if the option under § 59(e) is elected.

      Section 59(e)(4)(A) provides that an election under § 59(e)(1) may be made with
respect to any portion of any qualified expenditure.

      Section 59(e)(4)(B) provides that an election made 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).

       Section 1.59-1(b)(2) provides, in part, that a taxpayer may make an election
under § 59(e) with respect to any portion of any qualified expenditure paid or incurred
by the taxpayer in the taxable year to which the election applies. An election under
§ 59(e) must be for a specific dollar amount and the amount subject to an election under
§ 59(e) may not be made by reference to a formula.

        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 that 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
301.9100-1(a).

       Section 301.9100-2 provides 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. Section 301.9100-3(a).

                                CONCLUSION

       Based solely on the information submitted and representations made, we
conclude that the requirements of §§ 301.9100-1 and 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 under § 59(e) and § 1.59-1(b)(1) to deduct
ratably over a 10-year period its R&E expenditures incurred for Tax Year. The § 59(e)
election must comply with the manner-of-election requirements of § 1.59-1(b)(1).

         In making the election for Tax Year, Taxpayer must attach a copy of this letter
ruling to its amended federal income tax return. Alternatively, if Taxpayer
files its amended 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 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 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 ruling is directed only to the taxpayer who requested 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, we are sending a
copy of this letter to your authorized representative.



                                             Sincerely,
                                             Associate Chief Counsel
                                             (Passthroughs and Special Industries)


                                       By:   _________/S/____________________
                                             Jennifer A. Records
                                             Senior Technician Reviewer, Branch 6
                                             Office of the Associate Chief Counsel
                                             (Passthroughs and Special Industries)

Enclosure
Copy for § 6110 Purposes


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