[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.41-7]

[Page 135-136]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.41-7  Special rules.

    (a) Allocations--(1) Corporation making an election under subchapter 
S--(i) Pass-through, for taxable years beginning after December 31, 
1982, in the case of an S corporation. In the case of an S corporation 
(as defined in section 1361) the amount of research credit computed for 
the corporation shall be allocated to the shareholders according to the 
provisions of section 1366 and section 1377.
    (ii) Pass-through, for taxable years beginning before January 1, 
1983, in the case of a subchapter S corporation. In the case of an 
electing small business corporation (as defined in section 1371 as that 
section read before the amendments made by the subchapter S Revision Act 
of 1982), the amount of the research credit computed for the corporation 
for any taxable year shall be apportioned pro rata among the persons who 
are shareholders of the corporation on the last day of the corporation's 
taxable year.
    (2) Pass-through in the case of an estate or trust. In the case of 
an estate or trust, the amount of the research credit computed for the 
estate or trust for any taxable year shall be apportioned among the 
estate or trust and the beneficiaries on the basis of the income of the 
estate or trust allocable to each.
    (3) Pass-through in the case of a partnership--(i) In general. In 
the case of a partnership, the research credit computed for the 
partnership for any taxable year shall be apportioned among the persons 
who are partners during the taxable year in accordance with section 704 
and the regulations thereunder. See, for example, Sec. 1.704-
1(b)(4)(ii). Because the research credit is an expenditure-based credit, 
the credit is to be allocated among the partners in the same proportion 
as section 174 expenditures are allocated for the year.
    (ii) Certain expenditures by joint ventures. Research expenses to 
which Sec. 1.41-2(a)(4)(ii) applies shall be apportioned among the 
persons who are partners during the taxable year in accordance with the 
provisions of that section. For purposes of section 41, these expenses 
shall be treated as paid or incurred directly by the partners rather 
than by the partnership. Thus, the partnership shall disregard these 
expenses in computing the credit to be apportioned under paragraph 
(a)(3)(i) of this section, and in making the computations under section 
41 each partner shall aggregate its distributive share of these expenses 
with other research expenses of the partner. The limitation on the 
amount of the credit set out in section 41(g) and in paragraph (c) of 
this section shall not apply because the credit is computed by the 
partner, not the partnership.
    (4) Year in which taken into account. An amount apportioned to a 
person under this paragraph shall be taken into account by the person in 
the taxable year of such person which or within which the taxable year 
of the corporation, estate, trust, or partnership (as the case may be) 
ends.
    (5) Credit allowed subject to limitation. The credit allowable to 
any person to whom any amount has been apportioned under paragraph 
(a)(1), (2) or (3)(i) of this section is subject to section 41(g) and 
sections 38 and 39 of the Code, if applicable.
    (b) Adjustments for certain acquisitions and dispositions--Meaning 
of terms. For the meaning of ``acquisition,'' ``separate unit,'' and 
``major portion,'' see paragraph (b) of Sec. 1.52-2. An ``acquisition'' 
includes an incorporation or a liquidation.
    (c) Special rule for pass-through of credit. The special rule 
contained in section 41(g) for the pass-through of the credit in the 
case of an individual

[[Page 136]]

who owns an interest in an unincorporated trade or business, is a 
partner in a partnership, is a beneficiary of an estate or trust, or is 
a shareholder in an S corporation shall be applied in accordance with 
the principles set forth in Sec. 1.53-3.
    (d) Carryback and carryover of unused credits. The taxpayer to whom 
the credit is passed through under paragraph (c) of this section shall 
not be prevented from applying the unused portion in a carryback or 
carryover year merely because the entity that earned the credit changes 
its form of conducting business.

[T.D. 8251, 54 FR 21204, May 17, 1989. Redesignated by T.D. 8930, 66 FR 
295, Jan. 3, 2001]