Extension granted to elect ten-year amortization of research expenditures

Plain-English summary

A corporation developing automated driving solutions failed to make a timely election under section 59(e) for research and experimental expenditures. That election allows qualifying expenditures that otherwise would be deductible under section 174(a) to be deducted ratably over ten years. Based on the submitted facts and representations, the IRS found that the corporation met the standards for discretionary filing relief under Treasury Regulation section 301.9100-3. It granted the corporation 60 days from the ruling date to make the election in the required manner. The IRS did not determine whether the corporation otherwise qualified under section 174(a) or section 59(e).

Ruling snapshot

• Question: Could the corporation receive more time to make a section 59(e) election for research expenditures?
• Outcome: Approved, with 60 days to make the election
• Key authorities: IRC §§ 59(e), 174(a); Treas. Reg. §§ 1.59-1(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202342010                                             Third Party Communication: None
 Release Date: 10/20/2023                                      Date of Communication: Not Applicable
 Index Number: 174.00-00, 9100.02-00,
               59.00-00                                        Person To Contact:
                                                               ----------------------, ID No. -----------------
 ---------------------------------                             Telephone Number:
 ------------------------------                                --------------------
 ---------------------------------------------------           Refer Reply To:
 -------------------------------------------                   CC:PSI:B03
                                                               PLR-107333-23
                                                               Date:
                                                               July 24, 2023

Legend

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

State      = -------------

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

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

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

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

       This responds to a letter dated March 31, 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 an election 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. X performs research and development associated with automated driving
solutions. X filed an election to be classified as a domestic corporation for federal
income tax purposes as of Date 2.
PLR-107333-23                                2

       According to the information submitted, X did not timely make an election under
§ 59(e) for its fiscal year ending Date 3. 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-107333-23                                  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 year ending
Date 3. Accordingly, an extension of time is hereby granted, until 60 days from the date
of this ruling, for X to make an election under § 59(e) for X’s fiscal year ending Date 3.
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-107333-23                                           4

Enclosure
      Copy for § 6110 purposes

cc: ---------------
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