Part I. Rulings — Internal Revenue Bulletin 2011-35

Section 280C.—Certain Expenses for Which Credits are Allowable

26 CFR1.280C–4: Credit for increasing research ac- tivities.

T.D. 9539

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 §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, 2009–31 I.R.B. 174) 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.

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 (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 Re- search 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

2011–35 I.R.B. 179 August 29, 2011

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 con- trol —(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

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 §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.

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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:

August 29, 2011 180 2011–35 I.R.B.

Section 41.6001–2(b) provides, generally, that a State that receives an application to register a highway motor vehicle must receive from the applicant “proof of payment” of the tax imposed by section 4481(a). Section 41.6001–2(c) specifies that this proof of payment generally consists of a receipted Schedule 1 (Form 2290) that is returned by the IRS to a taxpayer that files Form 2290 and pays the amount of tax due with the return. The taxpayer generally must present proof of payment for the taxable period that includes the date on which the application for registration is filed, but in the case of an application filed in July, August, or September proof of payment for the preceding taxable period may be used.

The tax imposed under section 4481 will expire on September 30, 2011, unless Congress changes the law. Under existing regulations, the person liable for the highway use tax must file a Form 2290 by the last day of the month following the month in which the person becomes liable for the tax. Therefore, under current statutory and regulatory provisions, the person liable for the tax will be required to file a Form 2290 for taxable use during the period of July 1, 2011, through September 30, 2011 (the “2011 short taxable period”). Further, if Congress extends the tax past September 30, 2011, a person who filed Form 2290 for the 2011 short taxable period would have to file a second Form 2290 covering the period after September 30, 2011, through the earlier of the expiration date of the extension or June 30, 2012.

Explanation of Provisions

For purposes of efficient tax administration and alleviating taxpayers’ potential administrative burden, the temporary regulations postpone the due date of Form 2290 for the 2011 short taxable period until November 30, 2011. If Congress does not extend the tax past September 30, 2011, taxpayers will file one Form 2290 and will pay the reduced amount for the 2011 short taxable period by November 30; if Congress does extend the tax past September 30, 2011, and substitutes a longer taxable period for the 2011 short taxable period, taxpayers who become liable for the highway use tax after June 30, 2011, and before November 1,

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.

Steven T. Miller, Deputy Commissioner for Services and Enforcement.

Approved July 19, 2011.

Emily S. McMahon, Acting Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 26, 2011, 8:45 a.m., and published in the issue of the Federal Register for July 27, 2011, 76 F.R. 44800)

Section 6001.—Notice or Regulations Requiring Records, Statements, and Special Returns.

26 CFR 41.6001–2: Proof of payments for State reg- istration purposes.

T.D. 9537

Highway Use Tax; Filing and Payment for Taxable Period Beginning July 1, 2011

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations that provide guidance on the filing of Form 2290 (“ Heavy Highway Vehicle Use Tax Re- turn ”) and payment of the associated highway use tax for the taxable period beginning July 1, 2011. The regulations affect owners and operators of highway motor vehicles with a taxable gross weight of 55,000 pounds or more. The text of the temporary regulations (REG–122813–11) also serves as the text of the proposed

regulations on this subject in this issue of the Bulletin.

DATES: Effective Date: These regulations are effective on July 20, 2011.

Applicability Date: For dates of applicability, see §§41.6001–2T(d), 41.6071(a)–1T(c)(3), and 41.6151(a)–1T(b).

FOR FURTHER INFORMATION CONTACT: Natalie Payne, (202) 622–3130 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends the Highway Use Tax Regulations (26 CFR Part 41) under section 4481 of the Internal Revenue Code (Code).

Section 4481 imposes a tax on the use in any taxable period of a highway motor vehicle with a taxable gross weight of 55,000 pounds or more. The person in whose name the vehicle is registered at the time of the first use must pay the tax. The rate of tax is based on the weight of the vehicle with a maximum of $550 per vehicle per taxable period (the standard amount).

Generally, a “taxable period” is the year that begins on July 1 and ends on the following June 30. For the taxable period beginning on July 1, 2011, however, section 4482(c)(4) of present law provides that the taxable period ends at the close of September 30, 2011. For this three month period, the tax rate is a reduced amount that is 25 percent of the tax rate for a 12-month period.

Section 41.6011(a)–1(a)(1) requires each person that is liable for the tax imposed by section 4481 to file a return for each taxable period and §41.6011(a)–1(b) provides that the return is Form 2290, “ Heavy Highway Vehicle Use Tax Return .”

The due date for filing Form 2290 is not prescribed by statute and section 6071 provides that when the Code does not set the time for filing a return, the Secretary is to prescribe such time by regulations. Under §41.6071(a)–1(a), Form 2290 generally must be filed by the last day of the month following the month in which a person becomes liable for tax. For most taxpayers, their first use of a vehicle in a taxable period occurs in July and thus their return is due by August 31.

2011–35 I.R.B. 181 August 29, 2011

heading to newly designated paragraph (b)(1)(i).

Adding paragraph (b)(1)(ii).
Redesignating paragraph (b)(4) as paragraph (b)(4)(i) and adding a paragraph heading to newly designated paragraph (b)(4)(i).
Adding paragraph (b)(4)(ii).
Redesignating paragraph (c)(2) as paragraph (c)(2)(i), adding a paragraph heading to newly designated paragraph (c)(2)(i) and adding paragraph (c)(2)(ii).

The additions read as follows:

§41.6001–2 Proof of payment for State registration purposes .

- - - (b) - * (1) - * (i) Registration generally . - * * (ii) [Reserved]. For further guidance, see §41.6001–2T(b)(1)(ii).
- - - (4) - * (i) General rule . - * * (ii) [Reserved]. For further guidance, see §41.6001–2T(b)(4)(ii).
- - - (c) * - (2) - * (i) General rule . - * * (ii) [Reserved]. For further guidance, see §41.6001–2T(c)(2)(ii).
- - - Par. 3. Section 41.6001–2T is added to read as follows:

§41.6001–2T Proof of payment for State registration purposes (temporary) .

(a) [Reserved]. For further guidance, see §41.6001–2(a) .

(b)(1)(i) [Reserved]. For further guidance, see §41.6001–2(b)(1)(i).

(ii) Special rule for registration after June 30, 2011, and before December 1, 2011 . Between July 1, 2011, and November 30, 2011, a State must register a highway motor vehicle without proof of payment if the person registering the vehicle presents the original or a photocopy of a bill of sale (or other document evidencing transfer) indicating that the vehicle was purchased by the owner either as a new or used vehicle during the preceding 150 days before the date that the State receives the application for registration of the vehicle,

2011, also will file a Form 2290 for the period July 1, 2011 - June 30, 2012 (or the end of the new taxable period, if earlier), by November 30, 2011. In either case, most taxpayers will have to file only one return for the taxable period beginning July 1, 2011. But for the change made by the temporary regulations, most taxpayers would have to file two returns if Congress extends the tax past September 30.

Further, the temporary regulations state that taxpayers should file a Form 2290 no earlier than November 1, 2011, for taxable use during the 2011 short taxable period. The IRS will not provide a receipted Schedule 1 for a return and associated payment for the taxable period beginning July 1, 2011, before November 1, 2011. Because taxpayers will not be able to receive a receipted Schedule 1 for filing a Form 2290 and paying the tax for the taxable period beginning July 1, 2011, until November 1, 2011, the temporary regulations provide that the receipted Schedule 1 for the taxable period ending June 30, 2010, must be accepted by a State as a substitute proof of payment for registration applications filed during the period of July 1, 2011, through November 30, 2011.

Section 41.6001–2(b)(1) provides that a State may register a highway motor vehicle without proof of payment if the person registering the vehicle presents the original or a photocopy of a bill of sale (or other document evidencing transfer) indicating that the vehicle was purchased by the owner either as a new or used vehicle during the preceding 60 days before the date that the State receives the application for registration of such vehicle. Because taxpayers will not be able to obtain proof of payment during the period between July 1, 2011, and November 1, 2011, the temporary regulations provide that between July 1, 2011, and November 30, 2011, a State must register a highway motor vehicle without proof of payment if the person registering the vehicle presents the original or a photocopy of a bill of sale (or other document evidencing the sale) that demonstrates that the owner purchased the vehicle, either as a new or used vehicle, within 150 days of the date that the State receives the application for registration, and the vehicle has not been registered in any state since the purchase date.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. 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 this regulation. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the Special Analysis section in the preamble to the cross-referenced notice of proposed rulemaking in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, this final and temporary regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

The principal author of these regulations is Natalie Payne, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development.

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Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 41 is amended as follows:

PART 41—EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES

Paragraph 1. The authority citation for part 41 is amended to read in part as follows:

Authority: 26 U.S.C. 7805. - * * Section 41.6001–2T also issued under 26 U.S.C. 6001. - * * Section 41.6071(a)–1T also issued under 26 U.S.C. 6071(a). - * *

Section 41.6151(a)–1T also issued under 26 U.S.C. 6151(a). - * *

Par. 2. Section 41.6001–2 is amended by:

Redesignating paragraph (b)(1) as paragraph (b)(1)(i) and adding a paragraph

August 29, 2011 182 2011–35 I.R.B.

(2) Cross reference . For provisions relating to time and place for paying the tax imposed under section 4481, see §41.6151(a)–1.

(3) Effective/applicability date . This paragraph (c) applies on and after July 20, 2011. (4) Expiration date . The applicability of this section expires on or before July 15, 2014. Par. 6. Section 41.6151(a)–1 is revised to read as follows:

§41.6151(a)–1 Time and place for paying tax .

[Reserved]. For further guidance, see §41.6071(a)–1T(a) and (b).

Par. 7. Section 41.6151(a)–1T is added to read as follows:

§41.6151(a)–1T Time and place for paying tax (temporary) .

(a) In general . The tax must be paid at the time prescribed in §41.6071(a)–1 (or §41.6071(a)–1T, as appropriate) for filing the return and at the place prescribed in §41.6091–1 for filing the return.

(b) Effective/applicability date . This section applies on and after July 20, 2011.

Steven T. Miller, Deputy Commissioner for Services and Enforcement.

Approved July 13, 2011.

Emily S. McMahon, Acting Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 15, 2011, 4:15 p.m., and published in the issue of the Federal Register for July 20, 2011, 76 F.R. 43121)

and the vehicle has not been registered in any state subsequent to such date of purchase.

(b)(2) through (b)(4)(i) [Reserved]. For further guidance, see §41.6001–2(b)(2) through (b)(4)(i).

(ii) Special rule for registration after June 30, 2011, and before December 1, 2011 . In the case of a highway motor vehicle subject to tax under section 4481(a) for which a State receives an application for registration during the months of July, August, September, October, or November of 2011, a State shall accept proof of payment for the taxable period of July 1, 2010, through June 30, 2011, to verify payment of the tax imposed by section 4481(a).

[Reserved]. For further guidance, see §41.6001–2(c) through (c)(2)(i).

(ii) Substitute proof of payment for the taxable period beginning July 1, 2011 . For purposes of this section and §41.6001–2, in the case of a highway motor vehicle for which a State receives an application for registration during the period of July 1, 2011, through November 30, 2011, a State shall accept as a substitute for proof of payment, proof of payment for the taxable period of July 1, 2010, through June 30, 2011. (iii) Cross reference . For provisions relating to the use of proof of payment for the taxable period of July 1, 2010, through June 30, 2011, to verify payment of the tax imposed by section 4481(a), see §41.6001–2T(b)(4)(ii).

(d) Effective/applicability date . Paragraphs (b)(1)(ii), (b)(4)(ii), (c)(2)(ii) and (c)(2)(iii) of this section apply on and after July 20, 2011.

(e) Expiration date . The applicability of this section expires on or before July 15, 2014.

Par. 4. Section 41.6071(a)–1 is amended as follows:

In paragraph (a) introductory text, the phrase “Except as provided in paragraph (b) of this section” is removed and “Except as provided in paragraph (b) or paragraph (c) of this section” is added in its place.
Add paragraph (c). The addition reads as follows:

§41.6071(a)–1 Time for filing returns .

- - - (c) [Reserved]. For further guidance, see §41.6071(a)–1T(c) through (c)(3).

Par. 5. Section 41.6071(a)–1T is added to read as follows:

§41.6071(a)–1T Time for filing returns (temporary) .

(a) through (b) [Reserved]. For further guidance, see §41.6071(a)–1(a) through (b).

(c) Special rule for highway motor vehi- cles for which a taxable use occurs during the period July 1, 2011, through Septem- ber 30, 2011 —(1) Date for filing returns . In the case of a highway motor vehicle for which a taxable use occurs during the period July 1, 2011, through September 30, 2011, the person liable for the tax must file a return described in §41.6011(a)–1 no later than November 30, 2011. The return should be filed no earlier than November 1, 2011. If the return is filed and payment is submitted before November 1, 2011, the IRS will not provide a receipted Schedule 1 (Form 2290, “ Heavy Highway Vehicle Use Tax Return ”) as proof of payment until after November 1, 2011, and will provide such receipted Schedule 1 only if the full amount of the tax for the 2011 taxable period (determined under the law in effect as of November 1, 2011) has been paid.

2011–35 I.R.B. 183 August 29, 2011