CCA 200142008: Accounting method request cannot make a late depreciation election

Plain-English summary

A taxpayer asked to change the depreciation method for residential rental property from the general system to the alternative system using Form 3115. Chief Counsel advised the IRS office to decline consent. The property did not qualify for mandatory alternative depreciation under § 168(g)(1), so the request effectively sought a late election under § 168(g)(7). That election had to be made on the return for the year the property was placed in service and could not be made through a § 446(e) accounting method change. The taxpayer instead needed to request extra time for the election through a letter ruling.

Ruling snapshot

• Question: Could a Form 3115 accounting method change move residential rental property to the alternative depreciation system?
• Outcome: Denied; Chief Counsel advised declining consent to the Form 3115.
• Key authorities: IRC §§ 168(g)(1), 168(g)(7), 446(e); Treas. Reg. §§ 301.9100-7T, 301.9100-3.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
I N T E R N AL R E V E N U E S E R V I C E WASHINGTON, D.C. 20224
July 5, 2001

Number: 200142008
CC:PSI:6BPHarvey
Release Date: 10/19/2001
CAM-108278-98
UIL: 446.04-17

MEMORANDUM FOR Chief, Planning and Special Programs, Area 9

FROM: Senior Technician Reviewer, Branch 6, Office of Associate
Chief Counsel (Passthroughs & Special Industries) (CC:PSI:6)

SUBJECT: Decline to Grant Consent for a Application for Change in
Method of Accounting

In accordance with section 8.07(2)(a) of Rev. Proc. 2001-1, 2001-1 I.R.B. 1, 32, this Chief Counsel Advice advises you that we decline to grant consent with respect to a Form 3115, Application for Change in Accounting Method, filed by a taxpayer within your jurisdiction. Pursuant to § 6110(k)(3) of the Internal Revenue Code, this Chief Counsel Advice may not be used or cited as precedent.

LEGEND:

B =

C =

D =

This Chief Counsel Advice advises you that we decline to grant consent with respect to a Form 3115, dated C, filed on behalf of B. B requested permission to change from depreciating residential rental property under the general depreciation system of § 168(a) to the alternative depreciation system of § 168(g). This change would have been effective beginning with the taxable year beginning D.

Because the residential rental property at issue is not described in § 168(g)(1)(A) through (D), B was, in effect, requesting permission to make a late election under
§ 168(g)(7) with respect to such property. Pursuant to § 301.9100-7T of the Procedure and Administration Regulations, the election under § 168(g)(7) must be made on the tax return for the taxable year in which the property is placed in service by the taxpayer. As a result, a taxpayer may not make the election under
§ 168(g)(7) through a request under § 446(e) to change the taxpayer’s method of accounting. Instead, the taxpayer should submit a request for a letter ruling,

2
CAM-108278-98

requesting an extension of time under § 301.9100-3 for making the § 168(g)(7) election. Accordingly, we decline to grant consent to B’s Form 3115.

If you have any questions on this matter, do not hesitate to call (202) 622-3110.

KATHLEEN REED

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