Taxpayer may revoke election out of bonus depreciation

Plain-English summary

A taxpayer elected under IRC § 168(k)(7) not to claim additional first-year depreciation on its five-year property during a year involving related reorganizations. The election was made to avoid expected suspended losses, but the final income allocations differed from the planning assumptions and produced a significant partner-level tax liability. The taxpayer relied on a professional firm and needed the Commissioner's written consent to revoke the election. The IRS concluded that the taxpayer acted reasonably and in good faith and that revocation would not prejudice the government. It granted 60 days to file a written revocation with an amended federal return and attach the ruling or identify its date and control number on an electronically filed return. The IRS did not decide whether the property actually qualifies for bonus depreciation or whether the original election was validly made.

Ruling snapshot

• Question: May the taxpayer revoke its election not to claim bonus depreciation for five-year property?
• Outcome: Approved, with 60 days to file the revocation on an amended return
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-2(f)

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202536004                                             Third Party Communication: None
 Release Date: 9/5/2025                                        Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                               Person To Contact:
 --------------------------------                              -------------------, ID No. -----------------
 --------------------------------------------                  Telephone Number:
 --------------------------------------                        --------------------
 -------------------------------                               Refer Reply To:
                                                               CC:ITA:B07
                                                               PLR-102073-25
                                                               Date:
                                                               June 3, 2025




Re: Request to Revoke the Election Not to Deduct the Additional First Year
Depreciation

LEGEND:

Taxpayer            =     -----------------------------------------------------------------------
Sub1                =     ------------------------------------------------------------------------
Sub2                =     -----------------------------------------------------------------------------
A                   =     -------
B                   =     ------------------------------------
C                   =     --------
D                   =     --------------
Firm                =     --------------------------------------------------------
Date 1              =     ------------------
Date 2              =     ----------------------
Date 3              =     --------------------------
Date 4              =     -----------------------
Date 5              =     ---------------------------
Date 6              =     ---------------------------


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

       This letter refers to a letter dated -----------------------, and supplemental
information, submitted on behalf of Taxpayer by its authorized representative,
requesting the consent of the Commissioner of Internal Revenue to revoke Taxpayer’s
election under § 168(k)(7) of the Internal Revenue Code not to deduct additional first
year depreciation for all assets in the 5-year class of property placed in service by
PLR-102073-25                                  2

Taxpayer during the A taxable year. Taxpayer made the § 168(k)(7) election on its
federal income tax return for the A taxable year. This letter ruling is being issued
electronically, as permissible under section 7.02(5) of Rev. Proc. 2025-1, 2025-1 I.R.B.
1, 34.

       Unless provided otherwise, all references in this letter ruling to § 168(k) are treated
as a reference 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). Further, all references to §
1.168(k)-2 of the Income Tax Regulations are treated as a reference to the final §
1.168(k)-2 regulations published in the Federal Register on November 10, 2020 (85 FR
71734).

                                           FACTS

      Taxpayer, an S corporation, is treated as a partnership for Federal income tax
purposes and files a Form 1120-S, U.S. Income Tax Return for an S Corporation, on a
calendar year basis (Form 1120-S). Taxpayer’s overall method of accounting is the
accrual method. Taxpayer timely filed its Form 1120-S for the A taxable year.
Taxpayer is engaged in the B business.

      Taxpayer was established during the A taxable year on Date 1 to facilitate a §
368(a)(1)(F) reorganization of Sub1 (the "C Reorganization").

       Taxpayer, the parent company, filed a Form 8869 Qualified Subchapter S
Subsidiary Election, for Sub1, the subsidiary corporation, effective Date 1.
Because the C Reorganization qualifies as a mere change in identity or form,
Firm concluded that no filing was required for the stub period prior to the Qsub
election under § 381(b) for Sub1. Firm prepared one federal income tax return for
Taxpayer for the taxable year Date 2 – Date 3.

      Sub1 placed in service qualified property in the 5-year class during the A taxable
year. Taxpayer made an election under § 168(k)(7) not to deduct the additional first
year depreciation for all eligible classes of qualified property on its Form 1120-S for the
A taxable year.

        The C Reorganization was an initial step in a larger series of transactions that
involved establishing a partnership, Sub2, to serve as a holding company for several
related entities. (the "D Reorganization"). The D Reorganization occurred on Date 4
and was carried out to consolidate the various operations under one streamlined
entity as the service line is the same. The separation of businesses stemmed out of
various acquisitions in different state markets over the last several years. Combining
all entities allowed better shared resources among the group and provided cohesive
branding throughout the country. On Date 5, Sub1 was converted to a state law
single member LLC and terminated the QSub election. On Date 4, 100% of Sub1
units were exchanged for Sub2 units of the same value. This transaction qualified for
PLR-102073-25                                 3

treatment under § 721 as Taxpayer was deemed to contribute assets of a 100%
owned subsidiary.

        As part of the D Reorganization, six new entities were created and several
related entity stub period returns were filed. During the planning stage of the D
Reorganization, all related entities were reviewed to ensure that suspended losses
were not created for activity prior to Date 4 that could not be offset by taxable
income generated after the D Reorganization due to basis limitations. Thus, the
decision to make the election not to claim the additional first year depreciation
deduction to prevent Taxpayer from generating such potential suspended losses.
After all of Taxpayer’s stub period returns were filed, as well as the Sub2 return, the
income allocations differed significantly from the original planning. This created a
significant tax liability at the partner level because there was a mismatch between
losses and basis that did not offset taxable income generated after the D
Reorganization. Had Taxpayer claimed the additional first year depreciation, as
allowable, the taxable income would have been significantly reduced at the partner
level.

        The Form 1120-S including elections was due by the extended due date of
Date 6. The Form 1120-S was transmitted to the IRS and accepted on Date 7. The §
168(k)(7) election not to deduct first year additional depreciation for the 5-year
property placed in service during the A taxable year was made on Taxpayer’s timely
filed return for the A taxable year.

       Taxpayer relied upon the expertise of Firm, who was aware of all the relevant
facts and competent to render advice on the § 168(k)(7) election.

       Firm advised Taxpayer that because the § 168(k)(7) election not to claim
additional first year depreciation for the qualified property was made for the A
taxable year, Taxpayer was not permitted to amend the return and claim the §
168(k) depreciation deduction to offset the tax liability without obtaining the
written consent of the Commissioner to revoke the § 168(k)(7) election.

                                  RULING REQUESTED

      Accordingly, Taxpayer requests the Commissioner’s consent to revoke its §
168(k)(7) election not to deduct additional first year depreciation for the class of 5-year
property that Taxpayer placed in service during the A taxable year, pursuant to §
1.168(k)-2(f)(5).
PLR-102073-25                                 4

                                  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)(A) as meaning each class of property described in §
168(e) (for example, 5-year property).

      Section 1.168(k)-2(f)(5) provides that an election under § 168(k)(7), once made,
may generally be revoked only by filing a request for a private letter ruling and obtaining
the Commissioner of Internal Revenue's written consent to revoke the election. The
Commissioner may grant a request to revoke the election if the taxpayer acted
reasonably and in good faith, and the revocation will not prejudice the interests of the
Government.
                                  CONCLUSION

       Based solely on the facts and representations submitted, we conclude that the
requirements of § 1.168(k)-2(f)(5) have been satisfied. Accordingly, Taxpayer is
granted 60 calendar days from the date of this letter to revoke its election under §
168(k)(7) not to deduct any additional first year depreciation for 5-year class of property
included in § 1.168(k)- 2(f)(1) that Taxpayer placed in service during the A taxable year.
The revocation must be made in a written statement filed with Taxpayer’s amended
federal tax return for the A taxable year.

      Additionally, a copy of this letter should be attached to such amended return. 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
PLR-102073-25                                 5

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 A taxable year is eligible for the additional first year depreciation
deduction under § 168(k), (2) if any item of such property is eligible for the additional
first year depreciation deduction, (3) whether that item is qualified property as defined in
§ 168(k)(2) or (4) whether Taxpayer properly made the § 168(k)(7) election for the A
taxable year, as required under § 1.168(k)-2(f)(1)(iii).

      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 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 the Associate Chief Counsel
                                          (Income Tax & Accounting)


Enclosures (2):
      copy of this letter
      copy for section 6110 purposes
PLR-102073-25                                         6

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

         -------------------------------------
--------------------------------------------------
         ------------------------------------------
         -------------------------

         ------------------------------------
         ----------------------------------------