Federal Register / Vol. 74, No. 135 / Thursday, July 16, 2009 / Proposed Rules 34523 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–130200–08] 

RIN 1545–BI09 

Election of Reduced Research Credit 

Under Section 280C(c)(3) 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations that amend the 

regulations concerning taxpayers who 

make the election to claim the reduced 

research credit. The proposed 

regulations simplify how taxpayers 

make the election and affect taxpayers 

that claim the research credit. This 

document also provides a notice of a 

public hearing on these proposed 

regulations. 

DATES: Written or electronic comments 

must be received by October 14, 2009. 

Outlines of topics to be discussed at the 

public hearing scheduled for November 

4, 2009 at 10 a.m. must be received by 

October 16, 2009. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–130200–08), Room 

5205, Internal Revenue Service, PO Box 

7604, Ben Franklin Station, Washington, 

DC 20044. Submissions may be hand 

delivered Monday through Friday 

between the hours of 8 a.m. and 4 p.m. 

to: CC:PA:LPD:PR (REG–130200–08), 

Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue, 

NW., Washington, DC, or sent 

electronically via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov (IRS REG–130200– 

08). The public hearing will be held in 

Auditorium, Internal Revenue Building, 

1111 Constitution Avenue, NW., 

Washington, DC. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

David Selig, (202) 622–3040; concerning 

submission of comments, the hearing, 

and/or to be placed on the building 

access list to attend the hearing, Richard 

A. Hurst, 

Richard.A.Hurst@irscounsel.treas.gov, 

(202) 622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background and Explanation of 

Provisions 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR Part 1) relating to 

the election for claiming the reduced 

research credit under section 280C(c)(3). 

Section 280C(c)(1) provides, in general, 

that no deduction shall be allowed for 

that portion of the qualified research 

expenses (as defined in section 41(b)) or 

basic research expenses (as defined in 

section 41(e)(2)) otherwise allowable as 

a deduction for the taxable year which 

is equal to the amount of the credit 

determined for such taxable year under 

section 41(a). 

Similarly, section 280C(c)(2) provides 

that if the amount of the credit 

determined for the taxable year under 

section 41(a)(1) exceeds the amount 

allowable as a deduction for such 

taxable year for qualified research 

expenses or basic research expenses 

(determined without regard to section 

280C(c)(1)), the amount chargeable to 

capital account for the taxable year for 

such expenses shall be reduced by the 

amount of such excess. 

Section 280C(c)(3)(A) provides, in 

general, that in the case of any taxable 

year for which an election is made 

under section 280C(c)(3), sections 

280C(c)(1) and (c)(2) shall not apply, 

and the amount of the credit under 

section 41(a) shall be the amount 

determined under section 280C(c)(3)(B). 

Under section 280C(c)(3)(B), the amount 

of credit for any taxable year shall be the 

amount equal to the excess of the 

amount of credit determined under 

section 41(a) without regard to section 

280C(c)(3), over the product of the 

amount of credit determined under 

section 280C(c)(3)(B)(i), and the 

maximum rate of tax under section 

11(b)(1). 

Section 280C(c)(3)(C) provides that an 

election under section 280C(c)(3) for 

any taxable year shall be made not later 

than the time for filing the return of tax 

for such year (including extensions), 

shall be made on such return, and shall 

be made in such manner as the 

Secretary may prescribe. Such an 

election, once made, shall be 

irrevocable. 

Section 280C(c)(4) provides that 

section 280C(b)(3) shall apply for 

purposes of section 280C(c). Under 

section 280C(b)(3), in the case of a 

corporation which is a member of a 

controlled group of corporations (within 

the meaning of section 41(f)(5)) or a 

trade or business which is treated as 

being under common control with other 

trades or businesses (within the 

meaning of section 41(f)(1)(B)), section 

280C(b) shall be applied under rules 

prescribed by the Secretary similar to 

the rules applicable under section 

41(f)(1)(A) and (B). 

Currently, § 1.280C–4(a) provides that 

the section 280C(c)(3) election to have 

the provisions of section 280C(c)(1) and 

(c)(2) not apply shall be made by 

claiming the reduced credit under 

section 41(a) determined by the method 

provided in section 280C(c)(3)(B) on an 

original return for the taxable year, filed 

at any time on or before the due date 

(including extensions) for filing the 

income tax return for such year. An 

election, once made, for any taxable 

year, is irrevocable for that taxable year. 

The proposed regulations simplify the 

section 280C(c)(3) election to have the 

provisions of section 280C(c)(1) and 

(c)(2) not apply by requiring the election 

to be made on Form 6765, ‘‘Credit for 

Increasing Research Activities.’’ The 

form must be filed with an original 

return for the taxable year filed on or 

before the due date (including 

extensions) for filing the income tax 

return for such year. An election, once 

made for any taxable year, is irrevocable 

for that taxable year. 

The IRS and the Treasury Department 

have received comments on whether all 

members of a controlled group (as 

defined in § 1.41–6(a)(3)(ii)) are bound 

by an election under section 280C(c)(3), 

or whether each member of a controlled 

group can make a separate election 

under section 280C(c)(3). If a taxpayer is 

a member of a controlled group, section 

280C(c)(4) requires that the election for 

the reduced research credit must be 

determined under rules similar to rules 

applicable to a controlled group. Section 

1.41–6(a)(1) provides that to determine 

the amount of research credit (if any) 

allowable to a trade or business that at 

the end of its taxable year is a member 

of a controlled group, a taxpayer must: 

(i) compute the group credit in the 

manner described in § 1.41–6(b), and (ii) 

allocate the group credit among the 

members of the group in the manner 

described under § 1.41–6(c). All 

members of the controlled group are 

required to use the same computation 

method, that is, the section 41(a)(1) 

method, the section 41(c)(4) alternative 

incremental research credit (alternative 

incremental credit) method, or the 

section 41(c)(5) alternative simplified 

research credit method, in computing 

the group credit for the credit year. 

Under section 41(h)(2), as amended by 

section 301(b) of the Tax Extenders and 

Alternative Minimum Tax Relief Act of 

2008 (Div. C of Public Law 110–343, 122 

Stat. 3765), a taxpayer cannot elect the 

alternative incremental research credit 

under section 41(c)(4) for taxable years 

beginning after December 31, 2008. 

The reduced research credit under 

section 280C(c)(3) is not a 

computational rule under section 41 

used for computing the group credit for 

a credit year under §§ 1.41–6(b)(1) and 


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34524 Federal Register / Vol. 74, No. 135 / Thursday, July 16, 2009 / Proposed Rules 

1.41–6T(b)(1). There is no change to the 

overall tax effect of the research credit 

if each member of a controlled group, 

after computing and allocating its share 

of the group credit under §§ 1.41–6(b)(1) 

and 1.41–6(c) and 1.41–6T(b)(1) and 

1.41–6(c)(2), determines whether it 

wants to claim the reduced research 

credit under section 280C(c)(3)(B). 

Accordingly, the proposed regulations 

provide that each member of a 

controlled group may make the election 

under section 280C(c)(3) after the group 

credit is computed and allocated under 

§§ 1.41–6(b)(1) and 1.41–6(c) and 1.41– 

6T(b)(1) and 1.41–6T(c)(2). 

Proposed Effective Date 

The regulations are proposed to apply 

to taxable years ending on or after the 

date of publication of the Treasury 

decision adopting these rules as final 

regulation in the Federal Register. 

Special Analyses 

It has been determined that this notice 

of proposed rulemaking is not a 

significant regulatory action as defined 

in Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

also has been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations. 

When an agency issues a rulemaking 

proposal, the Regulatory Flexibility Act 

(5 U.S.C. chapter 6), requires the agency 

to ‘‘prepare and make available for 

public comment an initial regulatory 

flexibility analysis’’ that will ‘‘describe 

the impact of the proposed rule on small 

entities.’’ (5 U.S.C. 603(a)). Section 605 

of the Regulatory Flexibility Act 

provides an exception to this 

requirement if the agency certifies that 

the proposed rulemaking will not have 

a significant economic impact on a 

substantial number of small entities. 

The proposed rule affects individuals 

and small businesses engaged in 

research activities under section 41. The 

IRS has determined that this proposed 

rule will have an impact on a 

substantial number of small entities. 

However, the IRS also has determined 

that the impact on entities affected by 

the proposed rule will not be 

significant. This determination is based 

on the fact that the regulations would 

simplify the procedure for making the 

election for the reduced research credit 

under section 280C(c)(3)(C). Instead of 

requiring such an election to be made 

‘‘on an original return,’’ the regulations 

specify that the election is made on 

Form 6765, ‘‘Credit for Increasing 

Research Activities,’’ which is attached 

to the return. This form requires only a 

minimal amount of time to complete 

and places no greater burden on the 

taxpayer than the current procedure. 

Accordingly, a Regulatory Flexibility 

Analysis is not required. 

Pursuant to section 7805(f) of the 

Code, these regulations have been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business. 

Comments and Public Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

written comments (a signed original and 

eight (8) copies) or electronic comments 

that are submitted timely to the IRS. The 

IRS and the Treasury Department 

request comments on the clarity of the 

proposed rules and how they can be 

made easier to understand. All 

comments will be available for public 

inspection and copying. 

A public hearing has been scheduled 

for November 4, 2009, at 10 a.m. in 

Auditorium of the Internal Revenue 

Building, 1111 Constitution Avenue, 

NW., Washington, DC. Due to building 

security procedures, visitors must enter 

at the Constitution Avenue entrance. In 

addition, all visitors must present photo 

identification to enter the building. 

Because of access restrictions, visitors 

will not be admitted beyond the 

immediate entrance area more than 30 

minutes before the hearing starts. For 

information about having your name 

placed on the building access list to 

attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this 

preamble. 

The rules of 26 CFR 601.601(a)(3) 

apply to the hearing. Persons who wish 

to present oral comments at the hearing 

must submit electronic or written 

comments and an outline of the topics 

to be discussed and the time to be 

devoted to each topic (a signed original 

and eight (8) copies) by October 16, 

2009. A period of 10 minutes will be 

allotted to each person for making 

comments. An agenda showing the 

scheduling of the speakers will be 

prepared after the deadline for receiving 

outlines has passed. Copies of the 

agenda will be available free of charge 

at the hearing. 

Drafting Information 

The principal author of these 

regulations is David Selig, Office of 

Associate Chief Counsel (Passthroughs 

and Special Industries). However, other 

personnel from the IRS and the Treasury 

Department participated in their 

development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

Par. 2. Section 1.280C–4 is revised to 

read as follows: 

§ 1.280C–4 Credit for increasing research 

activities. 

(a) In general. An election under 

section 280C(c)(3) to have the 

provisions of section 280C(c)(1) and 

(c)(2) not apply and elect the reduced 

research credit under section 

280C(c)(3)(B) shall be made on Form 

6765, ‘‘Credit for Increasing Research 

Activities,’’ (or any successor form). In 

order for the election to be effective, the 

Form 6765 must clearly indicate the 

taxpayer’s intent to make the section 

280C(c)(3) election, and must be filed 

with an original return for the taxable 

year filed on or before the due date 

(including extensions) for filing the 

income tax return for such year, 

regardless of whether any research 

credits are claimed on the original 

return. An election, once made for any 

taxable year, is irrevocable for that 

taxable year. 

(b) Controlled groups of corporations; 

trades or businesses under common 

control. A member of a controlled group 

of corporations (within the meaning of 

section 41(f)(5)), or a trade or business 

which is treated as being under common 

control with other trades or businesses 

(within the meaning of section 

41(f)(1)(B)), may make the election 

under section 280C(c)(3). Such member 

or trade or business shall make the 

election on Form 6765 and by the time 

prescribed in paragraph (a) of this 

section. 

(c) Effective/applicability date. This 

section applies to taxable years ending 

on or after the date of publication of the 

Treasury Decision adopting these rules 

as final regulations in the Federal 

Register. 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. E9–16887 Filed 7–15–09; 8:45 am] 

BILLING CODE 4830–01–P 


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