IRS grants 60 days for a consolidated group to elect out of bonus depreciation

Plain-English summary

Six subsidiaries in a consolidated group placed qualifying 3-year, 5-year, 7-year, and 15-year property in service during a fiscal year. The group's return did not claim additional first-year depreciation for those assets, as the parent intended, but an inadvertent error caused the required election statement to be omitted. The parent sought extra time under Treas. Reg. §§ 301.9100-1 and 301.9100-3 to make the § 168(k)(7) election. The IRS found that the relief requirements were satisfied and granted 60 calendar days to file an amended consolidated return with a statement electing out of bonus depreciation for the specified property classes. The ruling did not decide whether any property qualified for bonus depreciation or whether the taxpayers had classified the property correctly.

Ruling snapshot

• Question: Could the consolidated group make a late § 168(k)(7) election not to deduct additional first-year depreciation for four classes of qualified property?
• Outcome: approved (the parent received 60 calendar days to file an amended consolidated return with the required election statement)
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e), 301.9100-1, 301.9100-3; Rev. Proc. 2017-33

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 202038003                                             Third Party Communication: None
Release Date: 9/18/2020                                       Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                              Person To Contact:
-----------------------                                       -----------------------, ID No. -----------------
------------------------------------                          Telephone Number:
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------------------------------------------                    Refer Reply To:
------------------------------                                CC:ITA:B07
                                                              PLR-123834-19
                                                              Date:
                                                              June 19, 2020




Re: Request to make a late election under § 168(k)(7) not to deduct additional first year
depreciation

Legend

Parent                   =          --------------------------------------------------------------------------------
Subsidiary 1             =          --------------------------------------------------------------------------------
Subsidiary 2             =          ------------------------------------------------
Subsidiary 3             =          --------------------------------------------------------------------------------
Subsidiary 4             =          --------------------------------------------------------------------------------
Subsidiary 5             =          --------------------------------------------------------------------------------
Subsidiary 6             =          --------------------------------------------------------------------------------
Firm                     =          ------------------------------------------------
Date 1                   =          -----------------------
A                        =          -------
B                        =          ------------------------------------

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

        This letter responds to a letter dated October 2, 2019, and subsequent
correspondence, submitted by Parent on behalf of Subsidiary 1, Subsidiary 2,
Subsidiary 3, Subsidiary 4, Subsidiary 5, and Subsidiary 6 (hereinafter Subsidiaries 1
through 6 are collectively referred to as “Taxpayers”), requesting an extension of time
pursuant to §§ 301.9100-1 and 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 certain qualified property placed in
service by Taxpayers during the taxable year ended Date 1 (the A taxable year). This
letter ruling is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859. A paper copy will not be mailed to Parent.

       All references in this letter to § 168(k) are treated as a reference to § 168(k) as in
effect after amendment by § 143(b) of the Protecting Americans from Tax Hikes Act of
PLR-123834-19                                 2

2015 (PATH Act), enacted as part of the Consolidated Appropriations Act, 2016,
Division Q, Pub. L. 114-113, 129 Stat. 2242 (December 18, 2015) and prior to
amendment by the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 131 Stat. 2054 (Dec. 22,
2017) (TCJA).

                                          FACTS

       Parent represents that the facts are as follows:

       Parent is the common parent of an affiliated group of corporations, including
Taxpayers, that files a consolidated federal income tax return. Parent files its
consolidated federal income tax return on a fiscal year basis and uses an accrual
method of accounting. Parent and Taxpayers’ primary business is B. For the A taxable
year, Parent timely filed its consolidated federal income tax return.

      During its A taxable year, Taxpayers placed in service 3-year, 5-year, 7-year, and
15-year property that is qualified property as defined in § 168(k)(2). All such qualified
property was acquired and/or placed in service by Taxpayers before September 28,
2017.

      Parent engaged Firm to prepare its consolidated federal income tax return for the
A taxable year. Parent advised Firm not to claim the additional first year depreciation
under § 168(k) for any class of qualified property placed in service by Taxpayers in the
A taxable year.

       On Parent’s consolidated federal income tax return for the A taxable year, the
additional first year depreciation was not claimed for all classes of qualified property
placed in service by Taxpayers. However, due to an inadvertent error, the statement
indicating Taxpayers elected under § 168(k)(7) to forgo the additional first year
depreciation deduction was not attached to Parent’s consolidated federal income tax
return for the A taxable year.

       Parent did not make an election under § 168(k)(4) to accelerate alternative
minimum tax credits in lieu of the additional first year depreciation deduction for the A
taxable year.

                                 RULING REQUESTED

       On behalf of Taxpayers, Parent requests an extension of time to make an
election under § 168(k)(7) not to deduct the additional first year depreciation under §
168(k) for the 3-year, 5-year, 7-year, and 15-year property placed in service by
Taxpayers during the taxable year ended Date 1, that qualify for the additional first year
depreciation deduction.

                                  LAW AND ANALYSIS
PLR-123834-19                                 3


       Section 168(k)(1) allowed, in the taxable year that qualified property is placed in
service, an additional first year depreciation deduction for qualified property placed in
service by the taxpayer before January 1, 2020 (or January 1, 2021, for property
described in §§ 168(k)(2)(B) or 168(k)(2)(C)). Pursuant to § 168(k)(1)(A) and (6), the
additional first year depreciation deduction percentage was 50 percent for qualified
property placed in service in 2017 (in 2018 for property described in § 168(k)(2)(B) or
(C)) and 40 percent for qualified property placed in service in 2018 (in 2019 for property
described in § 168(k)(2)(B) or (C)).

       Section 168(k)(7) allows a taxpayer to elect out of additional first year
depreciation for any class of property placed in service during the taxable year (the §
168(k)(7) election). Because the qualified property placed in service by Taxpayers
during the A taxable year is not subject to § 168(k) as amended by the TCJA, the
procedures in Rev. Proc. 2017-33, 2017-19 l.R.B. 1236, 1240, for making the §
168(k)(7) election apply.

        Section 4.04 of Rev. Proc. 2017-33 provides guidance regarding the § 168(k)(7)
election. Section 4.04(1) of Rev. Proc. 2017-33 provides that the rules for making the §
168(k)(7) election are similar to the rules for making the election under § 168(k)(2)(D)(iii)
as in effect before the enactment of the PATH Act. As a result, the § 168(k)(7) election
applies to all qualified property that is the same class of property and placed in service
in the same taxable year. Section 4.04(2) of Rev. Proc. 2017-33 provides that rules
generally similar to the rules in § 1.168(k)-1(e)(2), (3), (5) and (7) of the Income Tax
Regulations apply for purposes of § 168(k)(7).

       Sections 1.168(k)-1(e)(2) defines the term "class of property" as meaning, among
other things, each class of property described in § 168(e) (for example, 5-year
property).

       Sections 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.

        Sections 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
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(a), 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.
PLR-123834-19                                4


       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 rules for requesting extensions of time for
regulatory 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 that granting
relief will not prejudice the interests of the Government.

                                     CONCLUSION

        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, on
behalf of Taxpayers, Parent is granted an extension of 60 calendar days from the date
of this letter ruling to make the election not to deduct the additional first year
depreciation deduction under § 168(k) for 3-year, 5-year, 7-year, and 15-year property
placed in service by Taxpayers in 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 Taxpayers are electing not to deduct the additional first year depreciation
for their 3-year, 5-year, 7-year, and 15-year property placed in service during that
taxable year.

       Except as specifically set forth above, no opinion is expressed or implied
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 (1) whether any item of depreciable property placed
in service by Taxpayers in the A taxable year is eligible for the additional first year
depreciation deduction under § 168(k), or (2) whether Taxpayers’ classifications of any
item of depreciable property under § 168(e) or Rev. Proc. 87-56, 1987-2 C.B. 674, are
correct.

      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.
PLR-123834-19                                          5

        In accordance with the power of attorney, we are sending a copy of this letter
ruling to Parent’s authorized representatives. We also are sending a copy of this letter
ruling to the appropriate operating division director.


                                          Sincerely,


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




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




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