IRS granted extra time for general asset account elections

Plain-English summary

The IRS considered affiliated taxpayers that had consistently accounted for certain depreciable assets in general asset accounts but inadvertently failed to make the required elections. The IRS concluded that the requirements for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3 were satisfied. It granted 60 calendar days from the ruling date to make the elections under Treas. Reg. § 1.168(i)-1(k). For closed years, each entity had to file a statement identifying the relevant property with the IRS service center and attach the ruling. For open years, each entity had to file an amended return with an amended Form 4562.

Ruling snapshot

• Question: May the affiliated taxpayers receive more time to make general asset account elections for depreciable property?
• Outcome: Approved
• Key authorities: IRC § 168(i)(4); Treas. Reg. §§ 1.168(i)-1 and 301.9100-1 through -3; Rev. Proc. 87-56

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201025035 Third Party Communication: None
Release Date: 6/25/2010 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
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------------------------------------------------------------ Telephone Number:
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---------------------------------- Refer Reply To:
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PLR-144862-09
Date:
March 17, 2010

In re: ------------------------------------------------------------------------------------------------------------

Legend

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PLR-144862-09 2

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

   This letter responds to a letter dated October 2, 2009, and supplemental

correspondence submitted, by P on behalf of itself and its affiliated entities, X1, X2, X3,
X4, X5, X6, X7, X8, and X9 (hereinafter, P and these affiliated entities are collectively
referred to as “Taxpayers”), requesting an extension of time pursuant to § 301.9100-3 of
the Procedure and Administration Regulations to make a general asset account
election.

                                     FACTS

   Taxpayers represent that the facts are as follows:

   For all years involved, Taxpayers have consistently accounted for certain

tangible depreciable assets in general asset accounts, and treated dispositions of these
assets, in accordance with § 168(i)(4) of the Internal Revenue Code and § 1.168(i)-1 of
the Income Tax Regulations. Such assets are included in the following asset classes of
Rev. Proc. 87-56, 1987-2 C.B. 674: (1) asset class 0.11, Office Furniture, Fixtures, and
Equipment; (2) asset class 0.12, Information Systems; (3) asset class 0.22,
Automobiles, Taxis; (4) asset class 48.14, Telephone Distribution Plant; (5) asset class
48.41, CATV-Headend; (6) asset class 48.42, CATV-Subscriber Connection and
Distribution Systems; (7) asset class 48.43, CATV-Program Origination; (8) asset class
48.44, CATV-Service and Test; and (9) asset class 48.45, CATV-Microwave Systems.

   Except for X1 and X8, the years involved are the taxable years ended A (the E

taxable year) through D (the H taxable year). For X1 and X8, the years involved are the
taxable years ended B (the F taxable year) through D. The period of limitation on
assessment under § 6501(a) has expired for the taxable years ended A through C.

    Taxpayers timely filed their federal income tax returns for the years involved.

Over these years, Taxpayers engaged different outside tax return preparers to prepare
their federal income tax returns. During a meeting with the current outside tax return
preparer, Taxpayers discovered that they inadvertently failed to make a general asset
account election under § 1.168(i)-1(k) for each of the years involved.

                             RULING REQUESTED

   Accordingly, Taxpayers request an extension of time pursuant to § 301.9100-3

make the election under § 1.168(i)-1(k) to account for certain assets used in Taxpayers’
trade or business in one or more general asset accounts pursuant to § 168(i)(4).
PLR-144862-09 3

                              LAW AND ANALYSIS

  Section 168(i)(4) provides that, under regulations, a taxpayer may maintain one

or more general asset accounts for any property to which § 168 applies. Except as
provided in the regulations, all proceeds realized on any disposition of property in a
general asset account are included in income as ordinary income. Section 1.168(i)-1
provides rules for general asset accounts under § 168(i)(4).

  Section 1.168(i)-1(a) provides that the provisions of § 1.168(i)-1 apply only to

assets for which an election has been made under § 1.168(i)-1(k).

    Section 1.168(i)-1(k)(1) provides that, if a taxpayer makes an election under

§ 1.168(i)-1(k), the taxpayer consents to, and agrees to apply, all of the provisions of
§ 1.168(i)-1 to the assets included in a general asset account. Except as provided in
§ 1.168(i)-1(c)(1)(ii)(A) (special rules for assets generating foreign source income),
(e)(3) (special rules applicable to dispositions of assets included in a general asset
account), (g) (assets subject to recapture), or (h) (changes in use), an election made
under § 1.168(i)-1(k) is irrevocable and will be binding on the taxpayer for computing
taxable income for the taxable year for which the election is made and for all
subsequent taxable years. An election under § 1.168(i)-1(k) is made separately by
each person owning an asset to which § 1.168(i)-1 applies (for example, by each
member of a consolidated group, at the partnership level (and not by the partner
separately), or at the S corporation level (and not by the shareholder separately)).

   Section 1.168(i)-1(k)(2) provides that the election to apply § 1.168(i)-1 shall be

made on the taxpayer's timely filed (including extensions) income tax return for the
taxable year in which the assets included in the general asset account are placed in
service by the taxpayer.

   Section 1.168(i)-1(k)(3) provides that, in the year of election, a taxpayer makes

the election under this section in the manner provided for on Form 4562 and its
instructions. The instructions to Form 4562 provided that the general asset account
election is made for the E and F taxable years by checking the box on line 14 on Form
4562 and for the G through H taxable years by checking the box on line 18 on Form
4562.

   Section 1.168(i)-1(k)(3) further provides that the taxpayer shall maintain records

that identify the assets included in each general asset account, that establish the
unadjusted depreciable basis and depreciation reserve of the general asset account,
and that reflect the amount realized during the taxable year upon dispositions from each
general asset account. The taxpayer's recordkeeping practices should be consistently
applied to the general asset accounts.
PLR-144862-09 4

   Under § 301.9100-1, the Commissioner has discretion to grant a reasonable

extension of time under the rules set forth in §§ 301.9102-2 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 an
election. Section 301.9100-2 provides automatic extensions of time to for making
certain elections. Section 301.9100-3 provides extensions of time for making 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 the 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.

    Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable

extension of time to make a regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(ii)
provides that the interests of the Government are ordinarily prejudiced if the taxable
year in which the regulatory election should have been made or any taxable years that
would have been affected by the election had it been timely made are closed by the
period of limitations on assessment under § 6501(a) before the taxpayer’s receipt of a
ruling granting relief under §301.9100-3. However, the Service may condition a grant of
relief upon a showing that the interests of the Government are not prejudiced under the
standards set forth in § 301.9100-3(c)(1)(i).

     Section 301.9100-3(c)(1)(i) provides that the interests of the Government are

prejudiced if granting relief would result in a taxpayer having a lower tax liability in the
aggregate for all taxable years affected by the election than the taxpayer would have
had if the election had been timely made (taking into account the time value of money).
Similarly, if the tax consequences of more than one taxpayer are affected by the
election, the Government's interests are prejudiced if extending the time for making the
election may result in the affected taxpayers, in the aggregate, having a lower tax
liability than if the election had been timely made.

                                 CONCLUSIONS

   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,
Taxpayers are granted 60 calendar days from the date of this letter to make the election
under § 1.168(i)-1(k) to account for certain assets used in Taxpayers’ trade or business
in one or more general asset accounts pursuant to § 168(i)(4). For the taxable years
closed by the period of limitations on assessment under § 6501(a), this election must be
made by P, X1, X2, X3, X4, X5, X6, X7, X8, and X9 each filing a statement indicating
PLR-144862-09 5

that each respective entity is making the election under § 1.168(i)-1(k) for tangible
depreciable property placed in service during such taxable years and specifying what
property is subject to such election, along with a copy of this letter ruling, with the IRS
Service Center(s) where these entities filed their original federal tax returns for such
taxable years. For the open taxable years, this election must be made by P, X1, X2,
X3, X4, X5, X6, X7, X8, and X9 each filing an amended federal income tax return for
each such taxable year, attaching to such amended return an amended Form 4562 with
the appropriate box checked.

   Except as specifically set forth above, no opinion is expressed or implied

concerning the Federal income tax consequences of the facts described above.
Specifically, no opinion is expressed or implied on whether Taxpayer’s classification of
each item of depreciable property placed in service by Taxpayer during the E through H
taxable years is proper under Rev. Proc. 87-56.

  This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

  In accordance with the power of attorney, we are sending a copy of this letter to

Taxpayer’s authorized representatives. We are also sending a copy of this letter to the
appropriate Industry Director, LMSB.

                                             Sincerely,

                                             Kathleen Reed

                                             KATHLEEN REED
                                             Chief, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax and Accounting)

Enclosures (2):
copy of this letter
copy for section 6110 purposes