IRS: No Inclusion of QREs for Purchase of Controlled Group

In Technical Advice Memorandum 201034017 (Aug. 27, 2010), the parent of a consolidated group purchased the stock of a target company that was itself a parent of a consolidated group. The stock sale did not qualify as a tax-free transaction under I.R.C. §§ 355 or 368. The target company’s consolidated group was terminated because of the sale, since the transaction did not qualify as a reverse acquisition under the consolidated tax return rules. Because the consolidated group was terminated, the Service concluded that the target group’s QREs and gross receipts are only included in computing the taxpayer’s research tax credit for the years in which the target group was a member of the acquiring group. The Service concluded that the target group’s prior year QREs were to be disregarded by the taxpayer.