Notice 2004-11, Recordkeeping Agreement Pilot Program Involving Credit for Increasing Research Activities

cally to recipients if the furnisher satisfies
the consent, format, posting, and notification requirements described in part
H of the 2003 General Instructions for
Forms 1099, 1098, 5498, and W–2G and
furnishes such payee statements by their
respective due dates.
This notice hereby modifies part H of
the 2003 General Instructions for Forms
1099, 1098, 5498, and W–2G by permitting the electronic delivery of the Form
1099–R, Form 1099–MSA, Form 1099–Q,
Form 5498, Form 5498–ESA, and Form
5498–MSA payee statements by their respective due dates.
IV. Effective Date
This notice is applicable with respect
to Form 1099–R, Form 1099–MSA, Form
1099–Q, Form 5498, Form 5498–ESA,
and Form 5498–MSA payee statements
required to be furnished to recipients for
2003 and subsequent years.

a taxpayer complies with the terms of a
RCRA, then the Service will deem the taxpayer to have satisfied the recordkeeping
requirements of section 6001 of the Internal Revenue Code (Code) for purposes
of the credit for increasing research activities under section 41 (research credit).
A RCRA does not relieve the taxpayer of
its section 6001 recordkeeping obligations
for purposes of any other provision of the
Code.
The purposes of the pilot program are
to develop and evaluate a procedure:
1. To resolve issues concerning the
type and amount of documents that a taxpayer must maintain, retain, and produce
to satisfy the recordkeeping requirements
of section 6001 for the research credit; and
2. To reduce the costs, burdens, and delays frequently encountered by taxpayers
and the Service in examinations involving
the research credit.
SECTION 2. DESCRIPTION OF THE
PILOT PROGRAM

V. Effect on Other Documents
The document entitled 2003 General Instructions for Forms 1099, 1098, 5498, and
W–2G is hereby modified.
Drafting Information
The principal author of this notice is
Pamela R. Kinard of the Office of the Division Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and Treasury participated in its development. For further information regarding
this notice, contact Pamela R. Kinard at
(202) 622–6060 (not a toll-free number).

Recordkeeping Agreement
Pilot Program Involving Credit
for Increasing Research
Activities
Notice 2004–11

The Large and Mid-Size Business Operating Division (LMSB) will administer
the pilot program. The pilot program is
available to LMSB taxpayers who have
claimed the research credit on a timely
filed original Form 1120, “U.S. Corporation Income Tax Return,” series return if
the return is currently under examination.
LMSB anticipates that it may select five to
ten applicants for participation in the pilot
program.
LMSB intends to establish a team to
work with selected applicants to resolve
the type and amount of documents that
each of these taxpayers must maintain, retain, and produce with respect to the taxable years covered by the RCRA to satisfy
the recordkeeping requirements of section
6001 for the research credit. Pilot program
participants may be asked to evaluate the
pilot program. The Service will evaluate
the program and it may be extended, with
modifications, on a permanent basis.
SECTION 3. DESCRIPTION OF A
RCRA

SECTION 1. PURPOSE
This notice announces a pilot program
that will permit the Internal Revenue Service (Service) and large and mid-size business taxpayers to enter into research credit
recordkeeping agreements (RCRAs). If

2004-6 I.R.B.

The Service and a taxpayer will enter
into a RCRA through a letter of understanding signed by the Industry Director.
The letter of understanding will specify the
type and amount of documents that the taxpayer must maintain, retain, and produce

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to be deemed to satisfy the recordkeeping
requirements of section 6001 for the research credit.
A RCRA may cover up to three consecutive taxable years ending after the date of
the RCRA’s issuance. A RCRA will not
cover the following businesses or taxpayers:
1. Any trade or business (or major portion of any trade or business) acquired by
the taxpayer after the RCRA was issued;
2. Any corporation that joined the taxpayer’s controlled group of corporations
after the RCRA was issued, see I.R.C.
§ 41(f)(1)(A); and
3. Any trade or business (whether
or not incorporated) that was not under
common control with the taxpayer on the
date the RCRA was issued, see I.R.C.
§ 41(f)(1)(B).
SECTION 4. REQUEST TO
PARTICIPATE IN THE RCRA PILOT
PROGRAM
.01 Content of request.
A taxpayer must submit a written request to participate in the pilot program to
the Team Manager assigned to the examination. Taxpayers should submit the request on or before May 10, 2004. The request to participate in the RCRA pilot program must contain the following information:
1. The names, addresses, telephone
numbers, and taxpayer identification numbers of all members of the taxpayer’s controlled group of corporations and trades or
businesses under common control with the
taxpayer;
2. The name, title, address, and telephone number of a contact person and a
properly executed Form 2848, “Power of
Attorney and Declaration of Representative,” if the information contact is an authorized representative of the taxpayer;
3. The location of the person responsible for the taxpayer’s tax matters;
4. The location of the taxpayer’s research credit records;
5. A discussion of the taxpayer’s
suitability for the pilot program and any
unique benefits that may result from a
RCRA with the taxpayer;
6. A statement that the taxpayer agrees
that interviews and the inspection of the
taxpayer’s books and records under the
RCRA procedures (see Section 6): (1) do

February 9, 2004

not constitute an examination or an inspection of books of account for purposes of
section 7605(b) or any administrative provisions adopted by the Service, and (2) will
not preclude or impede a later examination
of a return or inspection of records under
section 7602 or any administrative provisions adopted by the Service for any taxable year.
7. A statement that the Service need not
comply with any applicable procedural restrictions (including providing notice under section 7605(b)) before beginning an
examination or inspection under RCRA
procedures (see Section 6); and
8. A statement that the taxpayer is willing to participate in the pilot program and
to evaluate the pilot program.
.02 Signature.
The taxpayer or the taxpayer’s authorized representative must sign the request
to participate in the RCRA pilot program.
The request must include a copy of Form
2848 if the request is signed by an authorized representative.
.03 No user fee.
The Service will not charge a user fee
for a RCRA request during the pilot program.
SECTION 5. RECOMMENDATION
AND SELECTION PROCESS FOR
PARTICIPATION IN THE RCRA PILOT
PROGRAM
.01 Team Manager’s role.
Team Managers will forward a copy of
the taxpayer’s written request to participate in the pilot program to:
1. The Industry Director for the LMSB
industry group with jurisdiction over the
taxpayer;
2. The Director, Pre-filing and Technical Guidance, for LMSB; and
3. The Director, Field Specialists, for
LMSB.
.02 Recommendation process.
The Team Manager will recommend
whether LMSB should accept the taxpayer
to participate in the pilot program. The
Team Manager will consider the following
factors:
1. The taxpayer’s cooperation with the
Service in the past;
2. The resources needed for the Service to evaluate the taxpayer’s records and
recordkeeping systems; and
3. The potential benefits of a RCRA.

February 9, 2004

.03 Selection process.
The selection of a taxpayer for the pilot program is subject to the approval of
the Industry Director and the concurrence
of the Director, Pre-filing and Technical
Guidance. In addition to the factors set
forth in Section 5.02, the following factors
will be considered in selecting taxpayers to
participate in the pilot program:
1. The potential to provide a crosssection of industries; and
2. The probability of the parties completing a RCRA within a reasonable period
of time.
.04 Communication with the taxpayer.
The Industry Director or Director,
Field Operations, will contact the taxpayer
within 14 days after receipt of the request
to discuss the taxpayer’s suitability for
the pilot program. LMSB will notify the
taxpayer in writing whether the taxpayer
has been selected to participate in the pilot
program. If LMSB does not select the taxpayer, the taxpayer has no right to appeal
the decision.
SECTION 6. TERMS OF A RCRA
The LMSB team and the taxpayer will
negotiate the terms of the RCRA. The
LMSB team and the taxpayer will take
into account the taxpayer’s current recordkeeping systems, records created during
research activities, and records used to
track costs associated with research activities. A RCRA may require a taxpayer to
create and retain records that it does not
currently create and retain. The Service
will enter into a RCRA only if it determines that the records to be maintained,
retained, and produced under the RCRA
satisfy the requirements of section 6001
for the research credit.
SECTION 7. APPROVAL OF A RCRA
The terms of the RCRA negotiated by
the LMSB team and the taxpayer are subject to the approval of the Industry Director and the concurrence of the Director,
Pre-filing and Technical Guidance, and the
Director, Field Specialists. If the Industry
Director approves the negotiated RCRA,
the Industry Director will sign a letter of
understanding evidencing the terms of the
RCRA.

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SECTION 8. EFFECT OF A RCRA
The taxpayer must maintain, retain, and
produce records in accordance with the
terms and conditions in the RCRA. The
taxpayer’s compliance with the RCRA establishes only that the taxpayer has satisfied the recordkeeping requirements of
section 6001 for the research credit and
does not establish that any amounts will be
treated as qualified research expenses for
purposes of section 41(b).
With respect to the taxable years covered by the RCRA, a RCRA does not
limit the Service’s ability to request
non-recorded information during examinations through interviews and other
information gathering methods. In addition, the Service during examinations
may request non-recorded information,
through interviews and other information
gathering methods, as well as recorded
information not identified in the RCRA,
to verify the information contained in documents required under the RCRA if the
Service has reason to question the information’s accuracy or reliability.
A taxpayer may terminate the RCRA
at any time. The Industry Director may
terminate the RCRA if the Service determines that the taxpayer has not complied
with the terms of the RCRA. The taxpayer
may not appeal an Industry Director’s decision to terminate a RCRA.
SECTION 9. EFFECTIVE DATE
The pilot program is effective on February 9, 2004.
SECTION 10. COMMENTS
The Service invites interested persons
to comment on the pilot program. Interested persons should send comments to:
Internal Revenue Service
Attn: Large and Mid-Size Business
Division LM:Q
Mint Building, 3rd Floor, M–3–148
1111 Constitution Avenue, NW
Washington, D.C. 20224
SECTION 11. PAPERWORK
REDUCTION ACT
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork

2004-6 I.R.B.

Reduction Act (44 U.S.C. 3507) under
control number 1545–1859.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this notice is in Section 4. This information is
required to submit a request to participate
in the RCRA Pilot Program. This information will be used to enable the Service
to determine whether the applicant is suitable for participation in the RCRA Pilot
Program. The collection of information is
voluntary to obtain a benefit. The likely respondents are businesses or other for profit
institutions.
The estimated total annual reporting
burden is 1,170 hours.
The estimated annual burden per respondent varies from 5 hours to 126 hours,

2004-6 I.R.B.

depending on individual circumstances,
with an estimated average of 18 hours.
The estimated number of respondents is
65.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.

contacted at (202) 622–4910 (not a tollfree number).
For information regarding the RCRA
Pilot Program, contact Hugh Whitledge,
Engineer Technical Advisor, of the LMSB
Pre-filing and Technical Guidance Office
at (972) 308–7115 (not a toll-free number).
Taxpayers interested in participating in the
pilot program, or with questions about the
pilot program, may also contact the Team
Manager assigned to the examination of
the taxpayer before submitting a request to
participate in the pilot program.

SECTION 12. CONTACT
INFORMATION
The principal author of this notice is
Michael Hara of the Office of Associate
Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. Mr. Hara may be

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February 9, 2004