Late research expenditure elections allowed for three years

Plain-English summary

A corporation failed to make section 59(e) elections for research and experimental expenditures in three fiscal years. That election permits qualifying section 174 expenditures to be deducted ratably over ten years and prevents their deduction under another Code provision. The IRS found that the corporation satisfied the standards for discretionary filing relief. It granted 60 days to make the elections for all three years in the manner required by the regulations. The IRS did not decide whether the corporation or its expenditures otherwise qualified under sections 59(e) and 174(a).

Ruling snapshot

• Question: May the corporation make late section 59(e) elections for research expenditures in three fiscal years?
• Outcome: Approved, with 60 days to make all three elections
• Key authorities: IRC §§ 59(e), 174(a); Treas. Reg. §§ 1.59-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202432019 Third Party Communication: None
Release Date: 8/9/2024 Date of Communication: Not Applicable
Index Number: 174.00-00, 9100.02-00,
59.00-00 Person To Contact:
----------------------, ID No. -----------------
-------------------------- Telephone Number:
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------------------------- Refer Reply To:
---------------------------- CC:PSI:B03
PLR-125174-23
Date:
May 15, 2024

Legend:

X = ---------------------------------------
-----------------------

State = ------

Date 1 = ----------------------

Date 2 = --------------------------

Date 3 = --------------------------

Date 4 = --------------------------

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

    This responds to a letter dated December 18, 2023, submitted on behalf of X by

X's authorized representatives, requesting an extension of time under §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to make elections
under § 59(e) of the Internal Revenue Code (“Code”) and § 1.59-1(b)(1) of the Income
Tax Regulations.

                                                 FACTS

   The information submitted states that X was formed under the laws of State on

Date 1 and is classified as a corporation for federal tax purposes. According to the
information submitted, X did not timely make an election under § 59(e) for its fiscal
PLR-125174-23 2

years ending Date 2, Date 3, and Date 4. X has made representations explaining why
the election under § 59(e) was not timely filed.

                               LAW AND ANALYSIS

     Section 59(e)(1) allows a taxpayer to deduct ratably over a specified period any

qualified expenditure to which an election under § 59(e)(1) applies.

    Section 59(e)(2) 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 research and
experimental expenditures).

    Section 59(e)(1) allows a taxpayer to deduct research and experimental

expenditures ratably over the 10-year period beginning with the taxable year in which
the expenditures were made.

   Section 59(e)(3) specifically prohibits the deduction of the qualified expenditures

under any other section of the Code if this option is elected. Section 59(e)(4)(A) allows a
taxpayer to make an election under § 59(e)(1) for any portion of any qualified
expenditure.

    Section 1.59-1(b)(1) prescribes the time and manner of making the election

under § 59(e). According to § 1.59-1(b)(1), 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 taxpayer must file the statement 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.

    Section 301.9100-1(c) of the Procedure and Administration Regulations provides

that the Commissioner may grant a reasonable extension of time to make a regulatory
election, or a statutory election (but no more than 6 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
whose due date is prescribed by a regulation published in the Federal Register.

    Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2.
PLR-125174-23 3

     Under § 301.9100-3, a request for relief will be granted when the taxpayer

provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

                                  CONCLUSION

    Based solely on the facts and representations submitted, we conclude that the

requirements of § 301.9100-3 have been satisfied with respect to X’s fiscal years ending
Date 2, Date 3, and Date 4. Accordingly, an extension of time is hereby granted, until
60 days from the date of this ruling, for X to make elections under § 59(e) for X’s fiscal
years ending Date 2, Date 3, and Date 4. The election must comply with the
requirements of § 1.59-1(b).

    Except as specifically ruled upon above, we express or imply no opinion

concerning the federal tax consequences of the facts of this case under any other
provision of the Code. Specifically, we express or imply no opinion concerning whether
X satisfies the requirements of § 174(a) or § 59(e). In addition, §301.9100-1(a) provides
that the granting of an extension of time for making an election is not a determination
that the taxpayer is otherwise eligible to make the election.

   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.

    This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

                                     Sincerely,

                                     Holly Porter
                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)

                                     Bradford R. Poston
                               By:
                                     Bradford R. Poston
                                     Special Counsel
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

PLR-125174-23 4

Enclosure
Copy for § 6110 purposes

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