Partnership gets 60 days to opt out of bonus depreciation

Plain-English summary

A partnership claimed 100 percent bonus depreciation on five-year and seven-year property placed in service during a redacted tax year. After filing its return, the partnership and its return preparer learned that the deduction caused unfavorable state-tax consequences for one or more partners. The preparer had not advised the partnership to elect out because neither understood those state consequences before filing. The IRS found that the partnership met the standards for discretionary election relief. It granted 60 days from the ruling date to file an amended Form 1065 electing out of bonus depreciation for every class of qualified property placed in service during the year. The IRS did not decide whether any particular property otherwise qualified for bonus depreciation.

Ruling snapshot

• Question: Could the partnership make a late Section 168(k)(7) election not to claim bonus depreciation?
• Outcome: Approved, with 60 days to file an amended Form 1065 covering all qualified-property classes
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.168(k)-2(f) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202323001                                              Third Party Communication: None
 Release Date: 6/9/2023                                         Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                                Person To Contact:
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 -----------------------------------                            Refer Reply To:
                                                                CC:ITA:B07
                                                                PLR-100662-23
                                                                Date:
                                                                March 14, 2023




Re: Request for Extension of Time to Make the Election Under § 168(k)(7) Not to
Deduct Additional First Year Depreciation

Legend

 Taxpayer             =      --------------------------
 Firm                 =      -------------------------
 Taxable Year         =      ----------------------------------------------------------------
 State                =      ---------------------
 Date1                =      ---------------------------

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

         This letter responds to a letter dated December 20, 2022, and subsequent
correspondence, submitted by your representative on behalf of Taxpayer. In that letter,
Taxpayer requests the consent of the Commissioner of Internal Revenue
(Commissioner) to grant an extension of time pursuant to §§ 301.9100 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 (Code)
for all classes of qualified property placed in service by Taxpayer during the Taxable
Year.

                                                      FACTS

        Taxpayer represents that the facts are as follows:

      Taxpayer is treated as a partnership for federal income tax purposes and files a
Form 1065, U.S. Income Tax Return for Partnership Income, on a calendar year basis.
Taxpayer's overall method of accounting is the accrual method.
PLR-100662-23                                  2

       During the Taxable Year, Taxpayer placed in service property that is classified as
5-year property or 7-year property and is qualified property under § 168(k)(2) of the
Code (collectively, classes of property). On its timely filed federal tax return for the
Taxable Year, Taxpayer deducted the additional first year depreciation for the classes of
property.

       Taxpayer engaged Firm to prepare its federal income tax return for the Taxable
Year. Taxpayer reviewed this federal income tax return prior to its filing, but was not
aware at that time of certain unfavorable state tax implications to one or more partners
of Taxpayer stemming from Taxpayer’s deduction of the additional first year
depreciation on its federal income tax return for its Taxable Year. These implications
were discovered after the Taxpayer filed its federal income tax return on Date1, in
connection with a partner’s State income tax return.

        Firm was also not aware that Taxpayer’s claiming the additional first year
depreciation deduction on its federal income tax return for the Taxable Year would
result in unfavorable State tax implications that impacted one or more partners of
Taxpayer. As a result, Firm did not advise Taxpayer to make the election not to deduct
the additional first year depreciation for the classes of property placed in service during
the Taxable Year.

                                   RULING REQUESTED

      Accordingly, Taxpayer requests an extension of time pursuant to §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to make the election
under § 168(k)(7) not to deduct the additional first year depreciation deduction for all
classes of property that are qualified property under § 168(k) and placed in service by
Taxpayer during the Taxable Year.

                                   LAW AND ANALYSIS

       Sections 168(k)(1) and (6) allow, in the taxable year that qualified property is
placed in service, a 100-percent additional first year depreciation deduction for qualified
property acquired by the taxpayer after September 27, 2017, and placed in service by
the taxpayer after September 27, 2017, and before January 1, 2023 (or before January
1, 2024 for qualified property described in § 168(k)(2)(B) or (C)).

        Section 168(k)(7) provides that a taxpayer may make an election not to deduct
the additional first year depreciation for any class of property that is qualified property
placed in service during the taxable year (the § 168(k)(7) election). Section 1.168(k)-
2(f)(1)(i) provides that the § 168(k)(7) election applies to all qualified property that is in
the same class of property and placed in service in the same taxable year. Section
1.168(k)-2(f)(1)(ii) defines "class of property" for purposes of the § 168(k)(7) election as
meaning each class of property described in § 1.168(k)-2(f)(1)(ii)(A)-(G).
PLR-100662-23                                  3

       Section 1.168(k)-2(f)(1)(iii)(A) provides that the § 168(k)(7) 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)-2(f)(1)(iii)(B) provides that the § 168(k)(7) 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 Taxable Year provide 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, 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 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,
Taxpayer 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 under § 168(k)
for all classes of qualified property placed in service by Taxpayer during the Taxable
Year. This election must be made by Taxpayer filing an amended Form 1065 for the
Taxable Year, with a statement indicating that Taxpayer is electing not to deduct the
additional first year depreciation for all classes of qualified property placed in service by
Taxpayer during the Taxable Year.

       Except as specifically set forth above, we express no opinion concerning the
federal 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
PLR-100662-23                                           4

during the Taxable Year, is eligible for the additional first year depreciation deduction
under § 168(k).

      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 Taxpayer's authorized representatives. We are also sending a copy of this
letter ruling to the appropriate IRS operating division official.

                                                   Sincerely,

                                                   s/Elizabeth R. Binder

                                                   ELIZABETH R. BINDER
                                                   Assistant to the Branch Chief, Branch 7
                                                   Office of Associate Chief Counsel
                                                   (Income Tax and Accounting)


Enclosures (2):
      Copy of letter
      Copy for § 6110 purposes

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