CCA 200851049: The reservation incentive shortens the write-off but not the recovery period the bonus test reads

Plain-English summary

A two-sentence answer to a question about which of two recovery periods counts when the same property has been assigned both.

Depreciation runs on recovery periods, the number of years over which the cost of an asset is written off. Section 168(c) holds the ordinary table. Section 168(j) contains a separate incentive for property used in the active conduct of a trade or business on an Indian reservation, assigning such property shorter recovery periods so the deduction comes faster. The subject line captures the resulting doubleness exactly: property with a ten year life under the general rules carries a six year period once the reservation provision applies.

Bonus depreciation under section 168(k) then adds a further allowance in the year property is placed in service, and one of its conditions, at section 168(k)(2)(B)(i)(II), is stated in terms of the property's recovery period. That is what creates the question. If a single asset has a ten year period under the general table and a six year period under the reservation rules, the condition cannot be applied until someone says which number it is reading.

The answer is that it reads the general one. The writer points to Treas. Reg. 1.168(k)-1(b)(2)(i)(A), which provides that for purposes of section 168(k)(2)(B)(i)(II) the recovery period is determined in accordance with section 168(c), and draws the consequence: the recovery periods assigned under section 168(j) are not used for that purpose. The reservation incentive governs how fast the property is depreciated without changing the classification the property carries for the bonus depreciation test.

The release is a pointer to the operative sentence in the regulation and nothing more. It does not describe the property, does not say whether the taxpayer ends up better or worse off for the answer, and gives no reasoning beyond the regulation's own words.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: the regulation introduced as "Section 1.168(k)-1(b)(2)(i)(A) of the Income Tax Regulations" rather than in the abbreviated form; "6 yr" and "10 year MACRS life" in the subject line as written; and "Indian Reservation Property" capitalized there.

Ruling snapshot

• Question: For the recovery period condition in section 168(k)(2)(B)(i)(II), does property used on an Indian reservation carry its shortened section 168(j) period or its ordinary section 168(c) period?
• Outcome: Advice given. The section 168(c) period. Treas. Reg. 1.168(k)-1(b)(2)(i)(A) provides that the recovery period is determined in accordance with section 168(c) for purposes of section 168(k)(2)(B)(i)(II), so the recovery periods assigned under section 168(j) are not used for that purpose.
• Key authorities: Treas. Reg. 1.168(k)-1(b)(2)(i)(A); IRC sections 168(c), 168(j) and 168(k)(2)(B)(i)(II).

Full text (IRS public release)

ID: CCA_2008102808290657 Number: 200851049
Office: ---------------- Release Date: 12/19/2008

UILC: 168.36-00

From: ------------------
Sent: Tuesday, October 28, 2008 8:29:10 AM
To: ------------------
Cc: -------------------
Subject: RE: 50% Bonus Depreciation on 6 yr Indian Reservation Property (10 year MACRS life)

Section 1.168(k)-1(b)(2)(i)(A) of the Income Tax Regulations provides that the recovery
period is determined in accordance with section 168(c) for purposes of section
168(k)(2)(B)(i)(II). Thus, the recovery periods assigned under section 168(j) are not
used for purposes of section 168(k)(2)(B)(i)(II).

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