Partnership received 60 days to opt out of bonus depreciation for 15-year property

Plain-English summary

A partnership wanted to preserve eligibility for a federal tax credit by declining additional first-year depreciation on all qualified property placed in service during a tax year. Its return preparer elected out for five-year property but mistakenly classified qualified improvement property as 39-year property instead of 15-year property. A later accounting firm discovered that the election statement did not cover the 15-year class. The partnership requested regulatory relief to add that class to its section 168(k)(7) election. The IRS granted 60 calendar days to file a written election statement with the service center or with an administrative-adjustment request. The ruling did not decide whether any property actually qualified for bonus depreciation or whether the taxpayer qualified for the federal tax credit.

Ruling snapshot

• Question: May the partnership receive extra time to elect out of additional first-year depreciation for its 15-year property class?
• Outcome: Approved, with 60 calendar days to make the election
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.168(k)-2(f)(1) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202348010 Third Party Communication: None
Release Date: 12/1/2023 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-114877-23
Date: September 6, 2023

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

Legend

Taxpayer = ------------------------------
-------------------------
Taxable Year1 = ------------------------------------------------------
Taxable Year2 = ------------------------------------------------------
Date1 = ---------------------------
Date2 = -----------------------
X = ----------------------------------------------------------------------
---------------------------------
Y federal tax credit = -----------------------------------------------
Firm1 = -----------------------------------------
Firm2 = ------------------------------

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

  This letter responds to a letter dated July 18, 2023, submitted on behalf of

Taxpayer by Taxpayer’s authorized representative, requesting an extension of time
pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
PLR-114877-23 2

Regulations to make the election under § 168(k)(7) of the Internal Revenue Code
(Code) not to deduct additional first year depreciation under § 168(k) for the 15-year
class of qualified property placed in service by Taxpayer during Taxable Year1. This
letter ruling is being issued electronically, as permissible under section 7.02(5) of Rev.
Proc. 2023-1, 2023-1 I.R.B. 1, 35.

   Unless provided otherwise, all references in this letter ruling to § 168(k) refer to §

168(k) as in effect after amendment by the Tax Cuts and Jobs Act, Pub. L. 115-97, 131
Stat. 2054 (December 22, 2017). All references to § 168(e) refer to § 168(e) as in effect
after amendment by section 2307 of the Corona Virus Aid, Relief, and Economic Security
Act, Pub. L. 116-136, 134 Stat. 281 (March 27, 2020). All references to § 1.168(k)-2 of
the Income Tax Regulations refer to the final regulations under § 1.168(k)-2 published in
the Federal Register on November 10, 2020 (85 FR 71734).

                                       FACTS

  Taxpayer, a limited liability company, is treated as a partnership for Federal

income tax purposes and files a Form 1065, U.S. Return of Partnership Income (Form
1065) on a calendar year basis. Taxpayer’s overall method of accounting is the accrual
method. Taxpayer is engaged in the business of X.

    During Taxable Year1, Taxpayer placed in service certain depreciable property

classified as 5-year property and qualified improvement property (as defined in §
168(e)(6)) that is classified as 15-year property under § 168(e)(3)(E)(vii) that is qualified
property for the additional first-year depreciation deduction under § 168(k). Taxpayer
engaged Firm1 to prepare and file its Form 1065 for Taxable Year1. Firm1 prepared
Taxpayer’s Form 1065 and attached a Form 4562, Depreciation and Amortization, for
Taxable Year1 and timely filed Taxpayer’s Form 1065 (including extensions) for
Taxable Year1. However, Firm1 inadvertently misclassified the qualified improvement
property as 39-year property. Firm1 also made an election under § 168(k)(7) not to
claim the depreciation deduction under 168(k) for the 5-year class of property on the
attached Form 4562.

    Firm1 knew that Taxpayer intended to maintain its eligibility to claim Y federal tax

credits, which required not claiming additional first-year depreciation under § 168(k) with
respect to any qualified property that taxpayer placed in service Taxable Year1. Firm1
and Taxpayer were not aware that the qualified improvement property placed in service
in Taxable Year1 is classified as 15-year property, and that the § 168(k)(7) election
should have been made not to claim depreciation under § 168(k) for such property to be
eligible for the Y federal tax credit for Taxable Year1.

    On Date2, Taxpayer engaged Firm2 to prepare its Form 1065 for Taxable Year2.

In reviewing Taxpayer’s records, Firm2 became aware that the qualified improvement
property was misclassified and the § 168(k)(7) election statement did not cover the
qualified improvement property placed in service in Taxable Year1. Firm2 informed
PLR-114877-23 3

Taxpayer that in order to maintain its eligibility for the Y federal tax credit, Taxpayer
must file an election under § 168(k)(7) not to deduct additional first-year depreciation for
the class of 15-year property Taxpayer placed in service in Taxable Year1.

                               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 under § 168(k) for
its 15-year class of property that was placed in service by Taxpayer during Taxable
Year1.
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
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 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.
PLR-114877-23 4

   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.

                                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 the 15-year class of property placed in service by Taxpayer during Taxable Year1.
The election should be made in a written statement filed with the appropriate service
center either: (1) to be associated with Taxpayer’s Form 1065, Return of Partnership
Income for Taxable Year1, or (2) accompanying Form 8082, Notice of Inconsistent
Treatment of Administrative Adjustment Request (AAR), and any related filings as
instructed on Form 8082, as appropriate.

    A copy of this letter should be attached to the relevant filing. 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.

   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 Taxable Year1, is eligible for the additional first year depreciation
deduction under § 168(k).

  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
PLR-114877-23 5

material submitted in support of the request for ruling, 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 on file with this office, 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 director.

                                             Sincerely,



                                             ELIZABETH R. BINDER
                                             Senior Counsel, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax & Accounting)

Enclosure:
copy of this letter for section 6110 purposes

cc: ------------------------

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