Taxpayer received 60 days to elect out of bonus depreciation

Plain-English summary

A consolidated group did not claim additional first-year depreciation for several classes of qualified property, but its internal tax department inadvertently omitted the required election statement from the timely filed return. An IRS examining agent later found the omission. The IRS concluded that the regulatory-extension requirements were satisfied and gave the taxpayer 60 days to make the election by filing an amended consolidated return with the required statement. The ruling did not decide whether any of the property actually qualified for additional first-year depreciation.

Ruling snapshot

• Question: May the taxpayer make a late election not to deduct additional first-year depreciation for several classes of qualified property?
• Outcome: approved, with 60 days to file an amended consolidated return containing the election statement
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201937013                                             Third Party Communication: None
Release Date: 9/13/2019                                       Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                              Person To Contact:
------------------------------                                --------------------------------, ID No. ----------
--------------------------------------------------            ------------------
--------------------------                                    Telephone Number:
-------------------------------------                         ----------------------
--------------------------------                              Refer Reply To:
                                                              CC:ITA:B07
                                                              PLR-133623-18
                                                              Date:
                                                              June 17, 2019


Re: Request for Extension of Time to Make the Election Not to Deduct the Additional
First Year Depreciation

Legend

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

S1 = --------------------------------------------------------------------------------------

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

Date 2 = -------

A = -------

B = ---------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------

C = --

D = --

E = --

F = ----

G = ------------------------------------------------------

H = ----------

I = ----------------
PLR-133623-18                                 2


J = --------------

K = ------------

L = ----------------

M = ----------------


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

       This letter responds to a letter dated November 7, 2018, submitted by Parent on
behalf of itself and S1 (hereinafter “Taxpayer”), requesting an extension of time
pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make the
election not to deduct the additional first year depreciation under § 168(k) of the Internal
Revenue Code for its C-year, D-year, E-year, F-year, and G classes of qualified
property placed in service by Taxpayer during the taxable year ended Date 1 (the A
taxable year).

        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 is a B. Taxpayer is part of an affiliated group that joins in filing a
consolidated federal income tax return on a calendar year basis. Parent’s consolidated
federal income tax return for the A taxable year was timely filed. The period of limitation
on assessment under § 6501(a) for the A taxable year has not expired as of the date of
this letter.

       During its A taxable year, Taxpayer placed in service C-year, D-year, E-year, F-
year, and G property that is qualified property as defined in § 168(k)(2) with a total cost
of $M. Of this amount, $H is C-year property that was placed in service by S1; $I is D-
year property that was placed in service by Parent and S1; $J is E-year property that
was placed in service by Parent and S1; $K is F-year property that was placed in
service by Parent; and $L is G property that was placed in service by Parent. On
Parent’s consolidated federal income tax return for the A taxable year, Taxpayer did not
claim the additional first year depreciation with respect to such property. Taxpayer,
PLR-133623-18                                 3

however, inadvertently failed to attach the election statement not to claim the additional
first year depreciation deduction for its C-year, D-year, E-year, F-year, and G classes of
qualified property placed in service by Taxpayer, as required by § 1.168(k)-1(e)(3)(ii) of
the Income Tax Regulations, to the consolidated federal income tax return for the A
taxable year.

      Taxpayer did not make the election under § 168(k)(4) to accelerate alternative
minimum tax credits (and if applicable, research credits) in lieu of the additional first-
year depreciation deduction for any class of property placed in service for any taxable
year.

        For the A taxable year, Parent’s consolidated federal income tax return was
prepared inhouse by Parent’s internal tax department. Taxpayer determined it would
make the election under § 168(k)(2)(D)(iii) not to claim additional first year depreciation
for its C-year, D-year, E-year, F-year, and G classes of qualified property placed in
service by Taxpayer during the A taxable year. Parent’s internal tax department
prepared it’s A tax return consistent with this decision, claiming no additional first year
depreciation with respect to Taxpayer’s C-year, D-year, E-year, F-year, and G classes
of qualified property placed in service by Taxpayer during the A taxable year. However,
Parent’s internal tax department inadvertently failed to include the required election
statement not to claim the additional first year depreciation deduction for its C-year, D-
year, E-year, F-year, and G classes of qualified property placed in service by Taxpayer,
as required by § 1.168(k)-1(e)(3)(ii). The missing election statement was not detected
by Parent’s in-house tax professionals while reviewing Parent’s A consolidated federal
income tax return.

       During Date 2, Taxpayer’s IRS examining agent discovered that the required
election statement not to claim the additional first year depreciation deduction for its C-
year, D-year, E-year, F-year, and G classes of qualified property, as required by §
1.168(k)-1(e)(3)(ii), was not attached to the A consolidated federal income tax return.

RULING REQUESTED

       Taxpayer requests a ruling pursuant to § 301.9100-3 of the Procedure and
Administration Regulations that it be granted an extension of time to make the election
under § 168(k)(2)(D)(iii) not to deduct the additional first year depreciation under
§ 168(k)(1) for its C-year, D-year, E-year, F-year, and G classes of property placed in
service by Taxpayer during the A taxable year that qualify for the additional first year
depreciation deduction.

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
PLR-133623-18                                 4

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) 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, and section
3.01 of Rev. Proc. 2011-26, 2011-16 I.R.B. 664 (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)(3)(i) provides that the election not to deduct additional first
year depreciation must be made by the due date (including extensions) of the federal
tax return for the taxable year in which the property is placed in service by the taxpayer.

       Section 1.168(k)-1(e)(3)(ii) provides that the election not to deduct additional first
year depreciation must be made in the manner prescribed on Form 4562, “Depreciation
and Amortization,” and its instructions. The instructions to Form 4562 for the A taxable
year provided that the election not to deduct the additional first year depreciation is
made by attaching a statement to the taxpayer's timely filed tax return (including
extensions) indicating that the taxpayer is electing not to deduct the additional first year
depreciation and the class of property for which the taxpayer is making the election.

       Under § 301.9100-1, the Commissioner 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.

CONCLUSION
PLR-133623-18                                5

       Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Taxpayer is granted 60 calendar days from the date of this letter to make the election
not to deduct the additional first year depreciation under § 168(k) for its C-year, D-year,
E-year, F-year, and G classes of property placed in service by Taxpayer during the A
taxable year that qualify for the additional first year depreciation deduction. This
election must be made by Parent filing an amended consolidated federal income tax
return for the A taxable year, with a statement indicating that Taxpayer is electing not to
deduct the additional first year depreciation for its C-year, D-year, E-year, F-year, and G
classes of property placed in service by Taxpayer during that taxable year.

       Except as specifically set forth above, we express no opinion concerning the
federal income 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 any item of depreciable property placed in service by
Taxpayer during the A taxable year is eligible for the additional first year depreciation
deduction.

      The rulings contained in this letter are based upon information and
representations submitted by Parent 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 letter 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
ruling to Parent's authorized representative. We also are sending a copy of this letter
ruling to the appropriate operating division director.


                                                 Sincerely yours,

                                                 DEENA DEVEREUX

                                                 DEENA DEVEREUX
                                                 Senior Technician Reviewer, Branch 7
                                                 Office of Associate Chief Counsel
                                                 (Income Tax & Accounting)


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