Taxpayer may revoke elections against additional first-year depreciation

Plain-English summary

A parent corporation and its subsidiaries elected not to claim additional first-year depreciation for several classes of qualified property in three tax years. The tax department had focused on slowing deductions during loss years and had not considered a separate election involving unused alternative minimum tax credits. The taxpayer asked to revoke its earlier elections. The IRS granted consent under Treasury Regulation Section 1.168(k)-1(e)(7)(i). The taxpayer had 60 days to file written revocation statements with amended consolidated returns, but the ruling did not decide whether particular assets actually qualified for additional depreciation.

Ruling snapshot

• Question: Could the taxpayer revoke its elections not to deduct additional first-year depreciation for specified property classes in three tax years?
• Outcome: Approved; the taxpayer received 60 days to revoke the elections through statements filed with amended consolidated returns.
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-1(e); Rev. Proc. 2008-54

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201822025 Third Party Communication: None
Release Date: 6/1/2018 Date of Communication: Not Applicable
Index Number: 168.36-00
Person To Contact:
--------------------------- -------------------------------, ID No. -----------
---------------------------- -----------------
----------------- Telephone Number:
------------------------------ --------------------
------------------------------- Refer Reply To:
CC:ITA:B07
PLR-131321-17
Date:
March 05, 2018

Re: Request to Revoke the Election Not to Deduct the Additional First Year
Depreciation

Legend

Parent = -----------------------------------------

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

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

   This letter responds to a letter dated October 13, 2017, submitted by Parent on

behalf of itself and S1, S2, S3, S4, S5, S6, S7, S8, S9, and S10 (hereinafter collectively
referred to as “Taxpayer”) requesting the consent of the Commissioner of Internal
Revenue to revoke Taxpayer’s election under § 168(k) of the Internal Revenue Code
not to deduct any additional first year depreciation that was made on its federal tax
return for the taxable years ended Date 1, Date 2, and Date 3.

    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 (PATH Act), enacted as part of the Consolidated Appropriations
Act, 2016, Division Q, Pub. L. 114-113, 129 Stat. 2242 (December 18, 2015), for
qualified property acquired by Taxpayer after 2007 and placed in service by Taxpayer
before 2016.

FACTS

     Taxpayer represents that the facts are as follows:

   Taxpayer files a consolidated federal income tax return on a calendar year basis.

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 timely filed its consolidated federal income
tax returns. Taxpayer’s primary business is D.

  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.

   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 deduction 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.

   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. Because
   Taxpayer did not have taxable income during these taxable years, the focus of
   Taxpayer's tax department was to slow deductions by electing not to deduct the
   additional first year depreciation. Further, even though Taxpayer has unused
   alternative minimum tax credit from taxable years beginning before January1, 2006,
   Taxpayer’s Vice President of Tax did not discuss the option of making the election to
   apply § 168(k)(4) (the § 168(k)(4) election) with any existing tax advisors and they did
   not identify the ability of Taxpayer to make the § 168(k)(4) election. Consequently,
   Taxpayer made the election not to deduct the additional first year depreciation for the
   above-mentioned eligible classes of property on its consolidated federal income tax
   returns for the A, B, and C taxable years.

RULING REQUESTED

    Taxpayer requests consent to revoke its elections under § 168(k)(2)(D)(iii) not to

deduct additional first year depreciation under § 168(k)(1) for the above-mentioned
eligible classes of qualified property placed in service by Taxpayer during the taxable
years ended Date 1, Date 2, and Date 3.

LAW AND ANALYSIS

   Section 168(k)(1) allowed, in the taxable year that qualified property is placed in

service, a 50-percent additional first year depreciation deduction for qualified property (i)
acquired by a taxpayer after December 31, 2007, and before September 9, 2010, or
after December 31, 2011 (or December 31, 2012, for qualified property described in
§§ 168(k)(2)(B) or 168(k)(2)(C)) and before January 1, 2016, and (ii) placed in service
by the taxpayer before September 9, 2010, or after December 31, 2011 (or December
31, 2012, for qualified property described in §§ 168(k)(2)(B) or 168(k)(2)(C)) and before
January 1, 2016 (or January 1, 2017, for qualified property described in §§ 168(k)(2)(B)
or 168(k)(2)(C)).

   Section 168(k)(2)(D)(iii) provided that a taxpayer may elect not to deduct

additional first year depreciation for any class of property placed in service by the
taxpayer during the taxable year. The term “class of property” is defined in § 1.168(k)–
1(e)(2)(i) of the Income Tax Regulations to mean, in general, each class of property
described in § 168(e) (for example, 5-year property). See section 5.01 of Rev. Proc.
2008-54, 2008-2 C.B. 722 (rules similar to the rules in § 1.168(k)-1 for “qualified
property” or for “30-percent additional first year depreciation deduction” apply for
purposes of § 168(k) as currently in effect).

    Section 1.168(k)-1(e)(7)(i) provides that an election not to deduct the additional

first year depreciation for a class of property that is qualified property, once made, may
be revoked only with the written consent of the Commissioner of Internal Revenue. To
seek the Commissioner's consent, the taxpayer must submit a request for a letter ruling.

CONCLUSIONS

   Based solely on the facts and representations submitted, we conclude that a

revocation of Taxpayer's elections not to deduct any additional first year depreciation
under § 168(k)(1) for the above-mentioned eligible classes of qualified property placed
in service by Taxpayer during the taxable years ended Date 1, Date 2, and Date 3, is
permitted under § 1.168(k)-1(e)(7)(i). Accordingly, Taxpayer is granted 60 calendar
days from the date of this letter to revoke its elections not to deduct any additional first
year depreciation for the above-mentioned eligible classes of qualified property placed
in service by Taxpayer during the taxable years ended Date 1, Date 2, and Date 3. The
revocations must be made in a written statement filed with Taxpayer's amended
consolidated federal tax returns for the taxable years ended Date 1, Date 2, and Date 3.

   A copy of this letter ruling must be attached to such amended returns. 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 (1) whether any item of depreciable property placed in service
by Taxpayer in the A, B, or C taxable year is eligible for any additional first year
depreciation deduction under § 168(k), or (2) if any item of such property is eligible for
the additional first year depreciation deduction, whether that item is qualified property as
defined in § 168(k)(2).

  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