Extra 60 days granted to a corporation to elect out of bonus depreciation after its preparer omitted the required statement

Plain-English summary

A C corporation that files a consolidated return decided to opt out of the
additional first year (bonus) depreciation deduction under section 168(k) for
all classes of property it placed in service in a given year. To make that
election, the law requires attaching a statement to a timely filed return. The
corporation's accounting firm calculated the return correctly to reflect the
opt-out but forgot to attach the required election statement, and the mistake
was caught only after the extended filing deadline had passed. The taxpayer
asked the IRS for more time to make the election under the section 301.9100
relief rules, which let the Commissioner grant extra time when a taxpayer acted
reasonably and in good faith and the government is not harmed. The IRS agreed
and gave the corporation 60 days from the date of the ruling to make the
election by filing an amended consolidated return with the proper statement.
The result turns on section 168(k)(7) and Treasury Regulations sections
301.9100-1 and 301.9100-3.

Ruling snapshot

• Question: Should the taxpayer get more time to make the section 168(k)(7) election not to deduct bonus depreciation after its preparer omitted the required statement?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 301.9100-1, 301.9100-3; Treas. Reg. § 1.168(k)-2

Full text (IRS public release)

 Internal Revenue Service                                   Department of the Treasury
                                                            Washington, DC 20224

 Number: 202329007                                          Third Party Communication: None
 Release Date: 7/21/2023                                    Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                            Person To Contact:
 ----------------------------------------                   -----------------------, ID No. -----------------
 ---------------------------                                Telephone Number:
 -----------------------------------------                  --------------------
 --------------------------                                 Refer Reply To:
                                                            CC:ITA:B07
                                                            PLR-121100-22
                                                            Date:
                                                            April 17, 2023




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

Legend

 Taxpayer                               =    ---------------------------
                                             --------------------------
 Date1                                  =    --------------------------
 Firm                                   =    --------------------------


Dear ---------:

       This letter responds to a letter dated October 27, 2022, and subsequent
correspondence, submitted by Taxpayer, 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 all classes of qualified property placed in service by
Taxpayer during the taxable year ending on Date1. This letter ruling is being issued
electronically as permissible under section 7.02(5) of Rev. Proc. 2022-1, 2022-1 I.R.B.
1, 35.

       All references in this letter ruling to § 168(k) are treated as a reference to
§ 168(k) as in effect after amendment by Public Law 115-97, 131 Stat. 2054 (Dec. 22,
2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA). Further, all
references in this letter ruling to § 1.168(k)-2 of the Income Tax Regulations are treated
as a reference to the final regulations under § 1.168(k)-2 that were published on
September 24, 2019, in the Federal Register (84 FR 50108). Pursuant to § 1.168(k)-
2(h)(1)(i), § 1.168(k)-2 applies to qualified property under § 168(k)(2) that is placed in
service during or after the taxpayer’s taxable year that includes September 24, 2019.
PLR-121100-22                                2

                                          FACTS

       Taxpayer represents that the facts are as follows:

       Taxpayer, a C corporation, files a consolidated Form 1120, U.S. Corporation
Income Tax Return, on a calendar-year basis. Taxpayer’s overall method of accounting
is an accrual method.

        In its taxable year ending on Date1, Taxpayer placed in service qualified
property, as defined in § 168(k)(2). Taxpayer determined that it would make the
election under § 168(k)(7) to forego the additional first year depreciation deduction for
all classes of qualified property placed in service during that taxable year.

        Taxpayer engaged Firm to prepare and file its Form 1120 for the taxable year
ending on Date1. Taxpayer relied on Firm to properly determine, prepare, and submit
the requisite submissions to implement its determination to elect not to deduct additional
first year depreciation for all classes of qualified property. Taxpayer provided to Firm
the necessary information to properly complete the Form 1120 for the taxable year
ending on Date1.

        Taxpayer timely filed its Form 1120 for the taxable year ending on Date1. Firm
properly calculated taxable income on this federal income tax return to reflect
Taxpayer’s decision to elect not to deduct additional first year depreciation for all
classes of qualified property placed in service in the taxable year ending Date1.
However, Firm inadvertently failed to attach the required election statement to the
return. Taxpayer discovered the missed election after the extended due date of this
return.

                                 RULING REQUESTED

      Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and
301.9100-3 to make the election under § 168(k)(7) 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 ending on Date1.

                                  LAW AND ANALYSIS

       Section 168(k)(1) allows, for the taxable year in which qualified property is placed
in service, an additional first year depreciation deduction equal to the applicable
percentage of the adjusted basis of that qualified property.

        For qualified property acquired by a taxpayer after September 27, 2017,
§ 168(k)(6)(A)(i) and (B)(i) provide that the applicable percentage is 100 percent for
qualified property placed in service by the taxpayer after September 27, 2017, and
PLR-121100-22                                  3

before January 1, 2023 (before January 1, 2024, for qualified property described in
§ 168(k)(2)(B) and (C)).

        Section 168(k)(7) provides that a taxpayer may elect not to deduct the additional
first year depreciation for any class of property placed in service during the taxable year.
Section 1.168(k)-2(f)(1)(i) provides that if this election is made, the election applies to all
qualified property that is in the same class of property and placed in service in the same
taxable year, and no additional first year depreciation deduction is allowable for the
property placed in service during the taxable year in the class of property, except as
provided in § 1.743-1(j)(4)(i)(B)(1). The term "class of property" is defined in § 1.168(k)-
2(f)(1)(ii) as meaning, among other things, each class of property described in § 168(e)
(for example, 5-year property).

        Section 1.168(k)-2(f)(1)(iii)(A) 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 qualified property is placed in service
by the taxpayer.

        Section 1.168(k)-2(f)(1)(iii)(B) 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 taxable year ending Date1 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(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.

       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 a
regulatory 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 making 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 the grant of
relief will not prejudice the interests of the government.
PLR-121100-22                                  4


                                       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 ending Date1. This election must be made by Taxpayer filing an amended
consolidated Federal income tax return for the taxable year ending Date1, 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
that taxable year.

       Except as specifically set forth above, no opinion is expressed or implied
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 (1) whether any item of depreciable property placed in service
by Taxpayer during the taxable year ending Date1, is eligible for the additional first year
depreciation deduction under § 168(k), or (2) whether Taxpayer’s classification of any
item of depreciable property under § 168(e) or Rev. Proc. 87-56, 1987-2 C.B. 674, is
correct.

      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.

        A copy of this letter ruling must be attached to any Federal income tax return to
which it is relevant. Alternatively, a taxpayer filing its Federal return electronically may
satisfy this requirement by attaching a statement to their return that provides the date
and control number of the letter ruling.

      This letter ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that this ruling may not be used or cited as precedent.
PLR-121100-22                                  5

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter ruling to Taxpayer’s authorized representative. We are also sending a
copy of this letter ruling to the appropriate operating division director.

                                  Sincerely,

                                  Charles J. Magee

                                  CHARLES J. MAGEE
                                  Senior Counsel, Branch 7
                                  Office of Associate Chief Counsel
                                  (Income Tax & Accounting)


Enclosures (2):

  copy of this letter
  copy for section 6110 purposes


cc: