Election of Reduced Research Credit Under Section 280C(c)(3), 44800-44802 [2011-18993]

Download as PDF 44800 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations provide an identifier that is unique to each filing (e.g., NYMEX Submission 03–116). 2. Date—The date of the filing. 3. Organization—The name of the organization filing the submission (e.g., CBOT). 4. Filing as a—Check in the appropriate box indicating that the rule or product is being submitted by a designated contract market (DCM), derivatives clearing organization (DCO), swap execution facility (SEF), or swap data repository (SDR), electronic trading facility with a significant price discovery contract (the term will be removed on July 20, 2012).1 5. Type of Filing—An indication as to whether the filing is a new rule, rule amendment or new product. The registered entity should check the appropriate box to indicate the applicable category under that heading. 6. Rule Numbers—For rule filings, the rule number(s) being adopted or modified in the case of rule amendment filings. 7. Description—For rule or rule amendment filings, a description of the new rule or rule amendment, including a discussion of its expected impact on the registered entity, market participants, and the overall market. The narrative should describe the substance of the submission with enough specificity to characterize all material aspects of the filing. (b) Other Requirements—A submission shall comply with all applicable filing requirements for proposed rules, rule amendments, or products. The filing of the submission cover sheet does not obviate the registered entity’s responsibility to comply with applicable filing requirements (e.g., rules submitted for Commission approval under § 40.5 must be accompanied by an explanation of the purpose and effect of the proposed rule along with a description of any substantive opposing views). (c) Checking the box marked ‘‘confidential treatment requested’’ on the Submission Cover Sheet does not obviate the submitter’s responsibility to comply with all applicable requirements for requesting confidential treatment in § 40.8 and, where appropriate, § 145.9 of this chapter, and will not substitute for notice or full compliance with such requirements. Issued in Washington, DC, on July 19, 2011, by the Commission. David A. Stawick, Secretary of the Commission. mstockstill on DSK4VPTVN1PROD with RULES Appendices to Provisions Common to Registered Entities—Commission Voting Summary and Statements of Commissioners Note: The following appendices will not appear in the Code of Federal Regulations. 1 Even though ECM–SPDC was eliminated by the Dodd-Frank Act, the Commission will retain references to this entity in the cover sheet since ECMs may be allowed to operate until July 20, 2012, pursuant to grandfather relief issued by the Commission. See 75 FR 56513 (Sept. 16, 2010). VerDate Mar<15>2010 16:06 Jul 26, 2011 Jkt 223001 Appendix 1—Commission Voting Summary On this matter, Chairman Gensler and Commissioners Dunn, Sommers, Chilton and O’Malia voted in the affirmative; no Commissioner voted in the negative. Appendix 2—Statement of Chairman Gary Gensler I support the final rulemaking to establish a process for the certification and approval of new rules and rule amendments for designated contract markets, derivatives clearing organizations, as well as new registrants, swap execution facilities and swap data repositories. The Dodd-Frank Wall Street Reform and Consumer Protection Act establishes enhanced CFTC review and certification of new rules and amendments. Today’s final regulations provide important procedural guidance to registered entities on how to comply with Congress’s mandate for the Commission’s review of new rules and rule amendments. [FR Doc. 2011–18661 Filed 7–26–11; 8:45 am] BILLING CODE 6351–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9539] RIN 1545–BI09 Election of Reduced Research Credit Under Section 280C(c)(3) Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: This document contains final regulations that amend the regulations concerning the election to claim the reduced research credit. The final regulations simplify how taxpayers make the election and affect taxpayers that claim the reduced research credit. DATES: Effective Date: These regulations are effective on July 27, 2011. Applicability Date: For dates of applicability, see § 1.280C–4(c). FOR FURTHER INFORMATION CONTACT: David Selig, (202) 622–3040 (not a tollfree number). SUPPLEMENTARY INFORMATION: SUMMARY: Background This document contains 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). On July 16, 2009, a notice of proposed rulemaking (REG–130200–08) was published in the Federal Register (74 FR 34523). No public hearing was requested or held. PO 00000 Frm 00040 Fmt 4700 Sfmt 4700 Written and electronic comments responding to the notice of proposed rulemaking were received. After considering the comments received the proposed regulations are adopted as revised by this Treasury decision. Section 280C(c)(1) provides 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. Section 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. Such an election, once made, shall be irrevocable for that taxable year. Section 280C(c)(4) provides that section 280C(b)(3) shall apply for E:\FR\FM\27JYR1.SGM 27JYR1 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES 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 (f)(1)(B). 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 or the section 41(c)(5) alternative simplified research credit method, in computing the group credit for the credit year. Explanation and Summary of Comments These final 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. These final regulations also 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). One commentator was concerned that the controlled group rules in the proposed regulations might cause administrative complexity for some members of a controlled group filing a consolidated return because each member would be required to file a separate Form 6765 to make the election under section 280C(c)(3). Generally, the proposed regulations provided that each 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)), could make the election VerDate Mar<15>2010 16:06 Jul 26, 2011 Jkt 223001 under section 280C(c)(3). In order to clarify and simplify the election procedure for members of consolidated groups, however, the final regulations add that only a common parent (within the meaning of § 1.1502–77(a)(1)(i)) of a consolidated group may make the election under section 280C(c)(3) on behalf of the members of the consolidated group. An attachment to a Form 6765 filed by a common parent of a consolidated group adequately identifying the members for which an election under section 280C(c)(3) is made is generally sufficient to clearly indicate the intent of the common parent to make the election for those members. Another commentator believed that some members of a controlled group may fail to make a timely election under section 280C(c)(3) because, at the time of filing the Form 6765 with the original return, no credit was reported by such members. The election under section 280C(c)(3) may be made whether or not a taxpayer claims any amount of credit on its original return. An example has been added to the final regulations showing that a taxpayer may make an election under section 280C(c)(3) on its original return without reporting any credit. Special Analyses It has been determined that this Treasury decision 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 promulgates a final rule, the Regulatory Flexibility Act (5 U.S.C. chapter 6) requires the agency to ‘‘prepare a final regulatory flexibility analysis’’ with ‘‘a description of and an estimate of the number of small entities to which the rule will apply.’’ See 5 U.S.C. 604(a). Section 605 of the Regulatory Flexibility Act provides an exception to this requirement if the agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The final rule affects individuals and small businesses engaged in research activities under section 41. The IRS has determined that the final 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 final rule will not be significant. This determination is based on the fact that the regulations would simplify the procedure for making the PO 00000 Frm 00041 Fmt 4700 Sfmt 4700 44801 election for the reduced research credit under section 280C(c)(3)(C). Instead of requiring such an election to be made by claiming the reduced credit ‘‘on an original return,’’ the regulations specify that the election is made by clearly indicating an intent to make the election 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 final regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. 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. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is 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 activities. Credit for increasing research (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 E:\FR\FM\27JYR1.SGM 27JYR1 44802 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 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—(1) In general. 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). However, only the common parent (within the meaning of § 1.1502– 77(a)(1)(i)) of a consolidated group may make the election on behalf of the members of a consolidated group. A member or trade or business shall make the election on Form 6765 and by the time prescribed in paragraph (a) of this section. (2) Example. The following example illustrates an application of paragraph (b) of this section: Example. A, B, and C, all of which are calendar year taxpayers, are members of a controlled group of corporations (within the meaning of section 41(f)(5)). A, B, and C each attach a statement to the 2009 Form 6765, ‘‘Credit for Increasing Research Activities,’’ showing A and C had stand-alone entity credits (within the meaning of § 1.41–6(c)(2)) that exceeded the group credit (within the meaning of § 1.41–6(a)(3)(iv)). A and C report their allocated portions of the group credit (as determined under § 1.41–6(c)) on the 2009 Form 6765 and B reports no research credit on the 2009 Form 6765. A and B, but not C, each make an election for the reduced credit on the 2009 Form 6765. In December 2010, A determines that it understated its qualified research expenses in 2009 resulting in the group credit exceeding the sum of the stand-alone credits. On an amended 2009 Form 6765, A, B, and C each report their allocated portions of the group credit (including the excess group credit). B reports its credit as a regular credit under section 41(a) and reduces the credit under section 280C(c)(3)(B). C may not reduce its credit under section 280C(c)(3)(B) because C did not make an election for the reduced credit with its original return. mstockstill on DSK4VPTVN1PROD with RULES (c) Effective/applicability date. This section applies to taxable years ending on or after July 27, 2011. Steven T. Miller, Deputy Commissioner for Services and Enforcement. Approved: July 19, 2011. Emily S. McMahon, Acting Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2011–18993 Filed 7–26–11; 8:45 am] BILLING CODE 4830–01–P VerDate Mar<15>2010 16:06 Jul 26, 2011 Jkt 223001 DEPARTMENT OF THE TREASURY Office of the Secretary 31 CFR Part 1 RIN 1505–AC27 Privacy Act of 1974; Implementation Departmental Offices, Treasury. Final rule. AGENCY: ACTION: In accordance with the requirements of the Privacy Act of 1974, 5 U.S.C. 552a, the Department of the Treasury gives notice of an amendment to update its Privacy Act regulations, and to add an exemption from certain provisions of the Privacy Act for a system of records related to the Office of Financial Stability (OFS). DATES: Effective Date: July 27, 2011. FOR FURTHER INFORMATION CONTACT: Brian Bressman, Department of the Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220, at (202) 927–0419 (fax) or via electronic mail at Brian.Bressman@Treasury.gov. SUPPLEMENTARY INFORMATION: The Departmental Offices published a system of records notice on February 9, 2011, at 76 FR 7239, establishing a new system of records entitled ‘‘Treasury/ DO.225—TARP Fraud Investigation Information System.’’ On February 9, 2011, the Department also published, at 75 FR 7121, a proposed rule amending 31 CFR 1.36(g)(1)(i). The proposed rule exempted the system of records from provisions of the Privacy Act pursuant to 5 U.S.C. 552a(k)(2). The proposed rule requested that public comments be submitted to OFS, Department of the Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. The Department did not receive comments on the proposed rule. Accordingly the Department is hereby giving notice that the system of records entitled ‘‘Treasury/DO.225—TARP Fraud Investigation Information System’’ is exempt from provisions of the Privacy Act, pursuant to 5 U.S.C. 552a(k)(2) as set forth in the proposed rule. This final rule is not a ‘‘significant regulatory action’’ under Executive Order 12866. Pursuant to the requirements of the Regulatory Flexibility Act (RFA), 5 U.S.C. 601–612, it is hereby certified that this rule will not have significant economic impact on a substantial number of small entities. This certification is based on the fact that the final rule affects individuals and not small entities. The term ‘‘small entity’’ SUMMARY: PO 00000 Frm 00042 Fmt 4700 Sfmt 9990 is defined to have the same meaning as the terms ‘‘small business,’’ ‘‘small organization,’’ and ‘‘small governmental jurisdiction,’’ as defined in the RFA. As authorized by 5 U.S.C. 553(d)(3), the Department finds that good cause exists for dispensing with the 30-day delay in the effective date of this rule. These regulations exempt certain investigative records maintained by the Department from notification, access, and amendment of a record. Accordingly, to protect the integrity of the records system, the Department finds that it is in the public interest to make these regulations effective upon publication. List of Subjects in 31 CFR Part 1 Privacy. Part 1, Subpart C of title 31 of the Code of Federal Regulations is amended as follows: PART 1—[AMENDED] 1. The authority citation for part 1 continues to read as follows: ■ Authority: 5 U.S.C. 301 and 31 U.S.C. 321. Subpart A also issued under 5 U.S.C. 552 as amended. Subpart C also issued under 5 U.S.C. 552a. 2. Section 1.36 paragraph (g)(1)(i) is amended by adding the following text to the table in numerical order. ■ § 1.36 Systems exempt in whole or in part from provisions of 5 U.S.C. 552a and this part. * * (g) * * (1) * * (i) * * * * * * * Number * System name * DO.225 .... * * * * * TARP Fraud Investigation Information System. * * * * * * * * * Dated: May 9, 2011. Melissa Hartman, Deputy Assistant Secretary for Privacy, Transparency and Records. [FR Doc. 2011–18959 Filed 7–26–11; 8:45 am] BILLING CODE 4810–25–P E:\FR\FM\27JYR1.SGM 27JYR1

Agencies

[Federal Register Volume 76, Number 144 (Wednesday, July 27, 2011)]
[Rules and Regulations]
[Pages 44800-44802]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18993]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9539]
RIN 1545-BI09


Election of Reduced Research Credit Under Section 280C(c)(3)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations that amend the 
regulations concerning the election to claim the reduced research 
credit. The final regulations simplify how taxpayers make the election 
and affect taxpayers that claim the reduced research credit.

DATES: Effective Date: These regulations are effective on July 27, 
2011.
    Applicability Date: For dates of applicability, see Sec.  1.280C-
4(c).

FOR FURTHER INFORMATION CONTACT: David Selig, (202) 622-3040 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains 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). On July 16, 2009, a notice of proposed 
rulemaking (REG-130200-08) was published in the Federal Register (74 FR 
34523). No public hearing was requested or held. Written and electronic 
comments responding to the notice of proposed rulemaking were received. 
After considering the comments received the proposed regulations are 
adopted as revised by this Treasury decision.
    Section 280C(c)(1) provides 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. Section 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. Such an election, once made, shall be 
irrevocable for that taxable year.
    Section 280C(c)(4) provides that section 280C(b)(3) shall apply for

[[Page 44801]]

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 (f)(1)(B).
    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 Sec.  
1.41-6(b), and (ii) allocate the group credit among the members of the 
group in the manner described under Sec.  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 or the section 41(c)(5) alternative 
simplified research credit method, in computing the group credit for 
the credit year.

Explanation and Summary of Comments

    These final 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.
    These final regulations also 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 Sec. Sec.  1.41-
6(b)(1) and 1.41-6(c).
    One commentator was concerned that the controlled group rules in 
the proposed regulations might cause administrative complexity for some 
members of a controlled group filing a consolidated return because each 
member would be required to file a separate Form 6765 to make the 
election under section 280C(c)(3). Generally, the proposed regulations 
provided that each 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)), could make the election 
under section 280C(c)(3). In order to clarify and simplify the election 
procedure for members of consolidated groups, however, the final 
regulations add that only a common parent (within the meaning of Sec.  
1.1502-77(a)(1)(i)) of a consolidated group may make the election under 
section 280C(c)(3) on behalf of the members of the consolidated group. 
An attachment to a Form 6765 filed by a common parent of a consolidated 
group adequately identifying the members for which an election under 
section 280C(c)(3) is made is generally sufficient to clearly indicate 
the intent of the common parent to make the election for those members.
    Another commentator believed that some members of a controlled 
group may fail to make a timely election under section 280C(c)(3) 
because, at the time of filing the Form 6765 with the original return, 
no credit was reported by such members. The election under section 
280C(c)(3) may be made whether or not a taxpayer claims any amount of 
credit on its original return. An example has been added to the final 
regulations showing that a taxpayer may make an election under section 
280C(c)(3) on its original return without reporting any credit.

Special Analyses

    It has been determined that this Treasury decision 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 promulgates a final rule, the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) requires the agency to ``prepare a final 
regulatory flexibility analysis'' with ``a description of and an 
estimate of the number of small entities to which the rule will 
apply.'' See 5 U.S.C. 604(a). Section 605 of the Regulatory Flexibility 
Act provides an exception to this requirement if the agency certifies 
that the final rule will not have a significant economic impact on a 
substantial number of small entities.
    The final rule affects individuals and small businesses engaged in 
research activities under section 41. The IRS has determined that the 
final 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 final 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 by claiming the reduced credit ``on an original return,'' the 
regulations specify that the election is made by clearly indicating an 
intent to make the election 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 final regulatory flexibility analysis is not required. Pursuant to 
section 7805(f) of the Internal Revenue Code, the notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.280C-4 is revised to read as follows:


Sec.  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

[[Page 44802]]

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--(1) In general. 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). However, only the common 
parent (within the meaning of Sec.  1.1502-77(a)(1)(i)) of a 
consolidated group may make the election on behalf of the members of a 
consolidated group. A member or trade or business shall make the 
election on Form 6765 and by the time prescribed in paragraph (a) of 
this section.
    (2) Example. The following example illustrates an application of 
paragraph (b) of this section:

    Example.  A, B, and C, all of which are calendar year taxpayers, 
are members of a controlled group of corporations (within the 
meaning of section 41(f)(5)). A, B, and C each attach a statement to 
the 2009 Form 6765, ``Credit for Increasing Research Activities,'' 
showing A and C had stand-alone entity credits (within the meaning 
of Sec.  1.41-6(c)(2)) that exceeded the group credit (within the 
meaning of Sec.  1.41-6(a)(3)(iv)). A and C report their allocated 
portions of the group credit (as determined under Sec.  1.41-6(c)) 
on the 2009 Form 6765 and B reports no research credit on the 2009 
Form 6765. A and B, but not C, each make an election for the reduced 
credit on the 2009 Form 6765. In December 2010, A determines that it 
understated its qualified research expenses in 2009 resulting in the 
group credit exceeding the sum of the stand-alone credits. On an 
amended 2009 Form 6765, A, B, and C each report their allocated 
portions of the group credit (including the excess group credit). B 
reports its credit as a regular credit under section 41(a) and 
reduces the credit under section 280C(c)(3)(B). C may not reduce its 
credit under section 280C(c)(3)(B) because C did not make an 
election for the reduced credit with its original return.

    (c) Effective/applicability date. This section applies to taxable 
years ending on or after July 27, 2011.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
     Approved: July 19, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-18993 Filed 7-26-11; 8:45 am]
BILLING CODE 4830-01-P