United States

IRS allows late elections for investment credit and R&D amortization

TAX ALERT  | 

The IRS recently released two private letter rulings (PLRs) that provide guidance on extensions of time for taxpayers failing to file timely elections. The first, PLR 201841001, grants an extension to a taxpayer failing to timely elect to claim the investment tax credit (ITC) determined under section 48, in lieu of the renewable electricity production tax credit (PTC) under section 45, with respect to certain renewable energy facilities. The second, PLR 201841004, grants an extension to a taxpayer failing to timely elect ten year amortization for section 174(a) research and experimentation expenditures under section 59(e).

In both circumstances, the PLRs determined that the taxpayer was eligible for a 120 day extension to make the late elections in question, that the taxpayer had acted reasonably and in good faith when requesting an extension, and that the extension would not prejudice the Government. However, neither PLR granted an extension of time for filing the taxpayer’s federal income tax return.

Applicable law

A taxpayer is generally eligible for a reasonable extension of time (but no more than six months unless the taxpayer is abroad) under Regulations sections 301.9100-1 and 301.9100-3 (commonly known as “9100 relief”) to make a regulatory election if:

  • the election is one that a taxpayer is otherwise eligible to make;
  • the taxpayer acted reasonably and in good faith; and
  • granting relief will not prejudice the interests of the Government

It is important to note that the granting of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election.

As for timing of the elections in question, Notice 2009-52 provides that the election to claim the ITC in lieu of the PTC must be made on a timely filed return (including extensions) for the taxable year in which the facility that is to be treated as a qualified investment credit facility is placed in service.

Similarly, under Regulations section 1.59-1(b)(1), an election under section 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 section 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).

Highlights of the PLRs

PLR 201841001

The taxpayer requested 9100 relief for extensions of time after the taxpayer’s internal accountant failed to timely file Form 7004 and 1120, mistakenly believing they had been filed electronically. The taxpayer represented that at all times the taxpayer intended and believed that their Forms 7004 and 1120 had been timely filed. Further, that in requesting the extension the taxpayer had acted reasonably and in good faith, and that there is no prejudice to the interest of the Government.

Considering only the information submitted and the representations made, the Government found that the requirements for 9100 relief had been satisfied, and that the taxpayer should be granted an extension of 120 days to make the late election to claim the ITC in lieu of the PTC with respect to its renewable energy facilities.

PLR 201841004

As above, the taxpayer requested 9100 relief for extensions of time after the taxpayer’s internal accountant failed to timely file Form 7004 and 1120, mistakenly believing they had been filed electronically. The taxpayer again represented that at all times the taxpayer intended and believed that their Forms 7004 and 1120 had been timely filed. Further, that in requesting the extension the taxpayer had acted reasonably and in good faith, and that there is no prejudice to the interest of the government.

The Government again only considered the information submitted and the representations made, finding that the requirements for 9100 relief had been satisfied, and granted the taxpayer an extension of 120 days to make the late election under section 59(e) to deduct ratably over the 10-year period research and experimental expenditures paid and incurred for the taxable year in question.

Takeaways

Section 6110(k)(3) provides that  PLRs may not be used or cited as precedent as they only apply to a specific taxpayer’s facts. However, if a taxpayer fails to file Forms 7004 and/or 1120 because of the mistaken belief that the forms were properly electronically filed, can represent that they acted reasonably and in good faith in requesting an extension to make the elections, and can represent that the extension would not prejudice the government, the taxpayer may be able to support late elections under sections 48 and 59(e) in a similar manner to that which is described above. 

AUTHORS


Subscribe to Tax Alerts



How can we help you with business incentives?