Taxpayer receives extension for alternative minimum tax credit election

Plain-English summary

A consolidated corporate group had unused alternative minimum tax credits from years before 2006 but failed to elect the Section 168(k)(4) regime for three rounds of extension property. The group's tax vice president and advisers did not identify the election when preparing returns for the relevant years. A separate ruling allowed the taxpayer to revoke elections against additional first-year depreciation, which would make eligible property available for the Section 168(k)(4) election. The IRS found the regulatory-relief requirements satisfied and granted 60 days to make the election for round 3 property. That election would also apply to round 4 and round 5 property, subject to amended-return, partnership-notice, and related adjustment requirements.

Ruling snapshot

• Question: Could the consolidated group make a late Section 168(k)(4) election for round 3, round 4, and round 5 extension property?
• Outcome: Approved; the taxpayer received 60 days to elect for round 3 property and would be treated as elected for rounds 4 and 5.
• Key authorities: IRC §§ 53(c) and 168(k)(4); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2009-16

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201822007 Third Party Communication: None
Release Date: 6/1/2018 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
----------------------------- --------------------------------, ID No. ----------
----------------------------- ------------------
------------------ Telephone Number:
------------------------------- ----------------------
------------------------------- Refer Reply To:
CC:ITA:B07
PLR-127581-17
Date:
March 05, 2018

Re: Request for Extension of Time to Make the Election to Apply § 168(k)(4) to Round 3
Extension Property, Round 4 Extension Property, and Round 5 Extension Property.

Legend

Taxpayer = ------------------------------------------

Date 1 = ---------------------------

Date 2 = ---------------------------

Date 3 = ---------------------------

Date 4 = ---------------------------

A = -------

B = -------

C = -------

D = -----------------------------------------------------------------------------------------------------------

E = -------

Dear ---------------------:

  This letter responds to a letter dated September 8, 2017, and supplemental

correspondence, requesting an extension of time pursuant to § 301.9100-3 of the
Procedure and Administration Regulations to request for extension of time to make the

election to apply § 168(k)(4) of the Internal Revenue Code to round 3 extension
property, round 4 extension property, and round 5 extension property.

   All references in this letter ruling to § 168(k) are treated as a reference to §

168(k) as in effect prior to amendment by § 143(b) of the Protecting Americans from
Tax Hikes Act of 2015, enacted as part of the Consolidated Appropriations Act, 2016,
Division Q, Pub. L. No. 114-113, 129 Stat. 2242 (December 18, 2015) (PATH Act).

FACTS

  Taxpayer represents that the facts are as follows:

    Taxpayer is a C corporation and has a calendar year end. For the taxable years

ended Date 1 (the A taxable year), Date 2 (the B taxable year), and Date 3 (the C
taxable year), Taxpayer was the common parent of an affiliated group of corporations and
filed consolidated federal income tax returns. Taxpayer’s primary business is D.
Taxpayer was in a taxable loss position for each taxable year beginning with the E taxable
year.

   Taxpayer placed in service qualified property (as defined in § 168(k)(2) before

the application of § 168(k)(2)(D)(iii)) during the A, B, and C taxable years. However, on
its consolidated federal income tax returns for the A, B, and C taxable years, Taxpayer
made an election under § 168(k)(2)(D)(iii) not to deduct the additional first year
depreciation for the following eligible classes of property:
1. Property in the 3-year class,
2. Property in the 5-year class,
3. Property in the 7-year class,
4. Property in the 10-year class,
5. Property in the 15-year class,
6. Property in the 20-year class,
7. Computer software (as defined in § 167(f)(1)(B)) for which a deduction is
allowable under §167(a),
8. Water utility property, and
9. Qualified leasehold improvement property.

In a separate letter ruling dated today, Taxpayer is granted consent to revoke such
elections within 60 calendar days from the date of the letter ruling. If Taxpayer revokes
such elections, Taxpayer placed in service eligible qualified property during the A, B,
and C taxable years.

   Taxpayer has unused alternative minimum tax (AMT) credit from taxable years

beginning before January 1, 2006. Taxpayer did not make the election to apply §
168(k)(4) (the § 168(k)(4) election) on its timely filed consolidated federal income tax
return for its first taxable year ending after March 31, 20----, or for any subsequent

taxable year. Taxpayer’s consolidated group was not a member of any other controlled
group (as defined in section 2.05 of Rev. Proc. 2009-16, 2009-6 I.R.B. 449) on Date 1.

    Taxpayer relied on its Vice President of Tax to make the § 168(k)(4) election

timely. Taxpayer’s Vice President of Tax supervised the preparation of, and reviewed,
the consolidated federal income tax returns for the A, B, and C taxable years, including
making the § 168(k)(4) election. He did not discuss the option of making this election
with any existing tax advisors. Further, the existing tax advisors did not identify the
ability of Taxpayer to make the § 168(k)(4) election. As a result, the § 168(k)(4) election
was not made on Taxpayer’s consolidated federal income tax returns for the A, B, and
C taxable years.

  The period of limitation on assessment for Taxpayer’s A taxable year has been

extended, by agreement under § 6501(c)(4), to Date 4, and the period of limitation on
assessment for Taxpayer’s B and C taxable years are open under § 6501(a). All of
these dates are after the date of this letter ruling.

RULING REQUESTED

   Taxpayer requests an extension of time under the rules of § 301.9100-3 of the

Procedure and Administration Regulations to make the election to apply § 168(k)(4) for
the taxable year ended Date 1, and subsequent taxable years.

LAW AND ANALYSIS

    Section 331(c) of the American Taxpayer Relief Act of 2012, Pub. L. No. 112-

240, 126 Stat. 2313 (January 2, 2013), amended § 168(k)(4) by adding § 168(k)(4)(J) to
the Code. Section 168(k)(4)(J) applied to property placed in service generally after
2012 and before 2014 (round 3 extension property). Section 125(c)(2) of the Tax
Increase Prevention Act of 2014, Pub. L. No. 113-295, 128 Stat. 4010 (December 19,
2014), amended § 168(k)(4) by adding § 168(k)(4)(K) to the Code. Section 168(k)(4)(K)
applied to property placed in service generally after 2013 and before 2015 (round 4
extension property). Section 143(a)(3) of the PATH Act amended § 168(k)(4) by adding
§ 168(k)(4)(L) to the Code. Section 168(k)(4)(L) applied to property placed in service
generally after 2014 and before 2016 (round 5 extension property). With the exception
of revised dates, round 3 extension property, round 4 extension property, and round 5
extension property is property eligible for the additional first year depreciation deduction
under § 168(k). Pursuant to § 168(k)(4)(J), (K), and (L), § 168(k)(4) increased only the
AMT credit limitation under § 53(c) for round 3 extension property, round 4 extension
property, and round 5 extension property. As a result, § 168(k)(4) allowed a C
corporation or an S corporation to elect not to claim the additional first year depreciation
deduction allowable under § 168(k) for round 3 extension property, round 4 extension
property, and round 5 extension property and instead increase the AMT credit limitation
under § 53(c). Accordingly, a C corporation or S corporation was able to claim unused

credits from taxable years beginning before January 1, 2006, that were allocable to
AMT liabilities and accelerate such credits as either refundable credits in the case of a
C corporation or credits against the § 1374(a) tax in the case of an S corporation.

    Under § 168(k)(4)(A), the § 168(k)(4) election applies to a corporation’s first

taxable year ending after March 31, 2008, and to any subsequent taxable year.
However, under § 168(k)(4)(J)(iii)(I), a taxpayer that has not made the § 168(k)(4)
election under § 168(k)(4)(A) for its first taxable year ending after March 31, 2008, nor
made the election under § 168(k)(H)(ii) for its first taxable year ending after December
31, 2008, nor made the election under § 168(k)(4)(I)(iii) for its first taxable year ending
after December 31, 2010, may elect to have § 168(k)(4) apply to its first taxable year
ending after December 31, 2012, and each subsequent taxable year. If the taxpayer
makes the election under § 168(k)(4)(J)(iii)(I), § 168(k)(4) shall only apply to eligible
qualified property which is round 3 extension property.

    Pursuant to § 168(k)(4)(K)(ii)(I), a taxpayer that has a § 168(k)(4) election in

effect for round 3 extension property is treated as having a § 168(k)(4) election in effect
for round 4 extension property unless the taxpayer elects to not have § 168(k)(4) apply
to round 4 extension property. Under § 168(k)(4)(L)(ii)(I), a taxpayer that has a §
168(k)(4) election in effect for round 4 extension property is treated as having a §
168(k)(4) election in effect for round 5 extension property unless the taxpayer elects to
not have § 168(k)(4) apply to round 5 extension property.

   Section 168(k)(4)(C)(iv) provides that all corporations that are treated as a single

employer under § 52(a) (generally any controlled group of corporations within the
meaning of § 1563(a), determined by substituting “more than 50 percent” for “more than
80 percent” each place it appears in § 1563(a)(1)) shall be treated as one taxpayer for
purposes of § 168(k)(4) and as having elected the application of § 168(k)(4) if any such
corporation so elects. Hereinafter, such group of corporations is referred to as a
“controlled group.” See section 2.05 of Rev. Proc. 2009-16, 2009-6 I.R.B. 449, 450.

   Section 3.05 of Rev. Proc. 2009-16 provides guidance regarding the election to

apply § 168(k)(4) by a controlled group. Section 3.05(2)(b) of Rev. Proc. 2009-16
provides that if all members of a controlled group are members of an affiliated group of
corporations that file a consolidated return (“a consolidated group”), the common parent
(within the meaning of § 1.1502-77(a)(1)(ii) of the Income Tax Regulations) of the
consolidated group makes the § 168(k)(4) election on behalf of all members of the
consolidated group. The common parent makes this election within the time and in the
manner provided in section 3.01, 3.02, 3.03, or 3.04 of Rev. Proc. 2009-16, as
applicable.

   Under § 301.9100-1, the Commissioner of Internal Revenue has discretion to

grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and
301.9100-3 to make a regulatory election.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

    Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be

granted when the taxpayer provides evidence to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and the grant of
relief will not prejudice the interests of the government.

    In this case, Taxpayer is the common parent of an affiliated group of corporations

that timely filed a consolidated federal income tax return for the taxable year ended
Date 1. Further, Taxpayer’s consolidated group on Date 1, was not a member of any
other controlled group on that date. Thus, any election made by Taxpayer is binding on
all members of Taxpayer’s consolidated group on Date 1, and applies to Taxpayer’s
consolidated group for the taxable year ended Date 1, and any subsequent taxable
year. (But see section 3.05(2)(d) of Rev. Proc. 2009-16 for guidance regarding
members entering or leaving a controlled group.)

    Taxpayer did not make the § 168(k)(4) election on its timely filed consolidated

federal income tax return for its first taxable year ending after March 31, 20----, or for
any subsequent taxable year. Pursuant to § 168(k)(4)(J)(iii)(I), Taxpayer may make the
§ 168(k)(4) election for its first taxable year ending after December 31, 20----, and each
subsequent taxable year. If we grant Taxpayer an extension of time to make the
election under § 168(k)(4)(J)(iii)(I) to apply § 168(k)(4) to round 3 extension property,
that § 168(k)(4) election will be in effect for both round 4 extension property and round 5
extension property pursuant to § 168(k)(4)(K)(iii)(I) and § 168(k)(4)(L)(iii)(I),
respectively. Thus, by Taxpayer making the § 168(k)(4) election for round 3 extension
property, we conclude that Taxpayer is treated as having the § 168(k)(4) election in
effect for round 4 extension property and round 5 extension property.

CONCLUSIONS

   Based solely on the facts and representations submitted and the law and

analysis as set forth above, we conclude that the requirements of §§ 301.9100-1 and
301.9100-3 have been satisfied with respect to round 3 extension property, round 4
extension property, and round 5 extension property. Accordingly, Taxpayer is granted
60 calendar days from the date of this letter to make the election under §
168(k)(4)(J)(iii)(I) to apply § 168(k)(4) to round 3 extension property. By Taxpayer
making the election to apply § 168(k)(4) to round 3 extension property, Taxpayer is
treated as having the § 168(k)(4) election in effect for round 4 extension property and
round 5 extension property.

   The election to apply § 168(k)(4) to round 3 extension property must be made by

Taxpayer: (i) filing an amended consolidated federal income tax return for the A taxable
year with a written statement indicating that Taxpayer is making the election under §
168(k)(4)(J)(iii) to apply § 168(k)(4) to round 3 extension property; and (ii) providing
written notification to any partnership in which Taxpayer or any member of Taxpayer’s
consolidated group was a partner during the A taxable year that Taxpayer is making the
election under § 168(k)(4)(J)(iii) to apply § 168(k)(4) to round 3 extension property. In
addition, Taxpayer must: (i) file an amended consolidated federal income tax return for
the B taxable year if Taxpayer or any member of Taxpayer’s consolidated group placed
in service round 4 extension property in the B taxable year; (ii) file an amended
consolidated federal income tax return for the C taxable year if Taxpayer or any
member of Taxpayer’s consolidated group placed in service round 5 extension property
in the C taxable year; and (iii) provide written notification to any partnership in which
Taxpayer or any member of Taxpayer’s consolidated group was a partner during the B
or C taxable year that Taxpayer is treated as having the § 168(k)(4) election in effect
for round 4 extension property or round 5 extension property, respectively. The
amended consolidated federal income tax returns for the A, B, and C taxable years
must include the adjustment to tax liability, the adjustment to taxable income for the
amount of depreciation allowed or allowable for that taxable year for round 3 extension
property, round 4 extension property, round 5 extension property, and any collateral
adjustments to taxable income or tax liability.

    A copy of this letter ruling must be attached to any federal income tax return to

which it is relevant. A copy is enclosed for that purpose. Alternatively, a taxpayer filing
its federal income tax return electronically may satisfy this requirement by attaching a
statement to the return that provides the date and control number of the letter ruling.

   Except as specifically ruled upon above, no opinion is expressed or implied

concerning the tax consequences of the facts described above under any other
provisions of the Code (including other subsections of § 168). Specifically, no opinion is
expressed or implied on whether: (i) any item of depreciable property placed in service
by Taxpayer or any member of Taxpayer’s consolidated group in the A, B, or C taxable
year is eligible for the additional first year depreciation deduction provided by §
168(k)(1), (ii) any item of depreciable property placed in service by Taxpayer or any
member of Taxpayer’s consolidated group in the A, B, or C taxable year is, under §
168(k)(4), round 3 extension property, round 4 extension property, or round 5 extension
property, as applicable, or (iii) Taxpayer properly determined the bonus depreciation
amount under § 168(k)(4) in the A, B, or C taxable year.

  The rulings contained in this letter are based upon information and

representations submitted by Taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the

material submitted in support of the request for rulings, it is subject to verification on
examination.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

  In accordance with the power of attorney, we are sending a copy of this letter to

Taxpayer’s authorized representatives. We are also sending a copy of this letter to the
appropriate operating division director.

                                               Sincerely,

                                               Kathleen Reed

                                               Kathleen Reed
                                               Chief, Branch 7
                                               Office of Associate Chief Counsel
                                               (Income Tax and Accounting)

Enclosures (2):
copy of this letter
copy for section 6110 purposes