PLR 1027023: IRS granted extra time to make a section 168(k)(4) election

Plain-English summary

The IRS granted a C corporation 60 days to make a late election under section 168(k)(4). That election allows an eligible corporation to forgo bonus depreciation and use the resulting amount to increase certain business-credit and alternative-minimum-tax-credit limitations. The corporation had discussed making the election with its tax adviser but did not make it on time because its federal return and extension request were filed late. The IRS allowed the election for the specified taxable year and later years, subject to filing an amended federal return using the procedures in the applicable revenue procedure. The ruling did not extend the deadline for filing the federal return or decide whether particular property qualified.

Ruling snapshot

• Question: Could the corporation make a late section 168(k)(4) election?
• Outcome: approved
• Key authorities: IRC §§ 38, 53, and 168(k)(4); Treas. Reg. §§ 301.9100-1 through 301.9100-3; Rev. Proc. 2008-65 and Rev. Proc. 2009-16

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027023 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
------------------------------------------ -----------------, ID No. -----------------
------------------------------ Telephone Number:
------------------------------------ ---------------------
--------------------------------- Refer Reply To:
CC:ITA:7
PLR-146101-09
Date:
April 06, 2010

Re: --------------------------------------------------------------------------------------------------------------

Taxpayer = --------------------------------------------------------
A = -------
B = ----------------------
Date1 = --------------------------
Date2 = -------------------
Date3 = ---------------------
Date4 = ---------------------
Date5 = ---------------------------

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

   This letter responds to a letter dated October 9, 2009, and supplemental

correspondence, requesting an extension of time pursuant to § 301.9100-3 of the
Procedure and Administration Regulations to make the election to apply § 168(k)(4) of
the Internal Revenue Code.

FACTS

     Taxpayer represents that the facts are as follows:

  Taxpayer is a calendar year-end C corporation engaged in the biopharmaceutical

business of discovering, developing, and commercializing therapeutic products for
diseases such as diabetes and cancer.

  Taxpayer placed in service eligible qualified property during the taxable year

ended Date1 (the A taxable year). Taxpayer also has unused credits from taxable
years beginning before January 1, 2006, that are allocable to research expenditures.
Taxpayer was not a partner in any partnership during the A taxable year and was not a
PLR-146101-09 2

member of a controlled group (as defined in section 2.05 of Rev. Proc. 2009-16, 2009-6
I.R.B. 449) on Date1.

   Taxpayer engaged the outside tax consulting firm, B, to prepare its Form 1120,

U.S. Corporation Income Tax Return, for the A taxable year. B prepared a Form 7004,
Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, on or about Date2, and mailed the Form 7004 to
Taxpayer on Date3 to be filed by Taxpayer by Date4, the due date (without extensions)
of Taxpayer’s Form 1120 for the A taxable year. Taxpayer, however, received the Form
7004 after Date4. Consequently, Taxpayer did not timely file the Form 7004 or its
federal income tax return for the A taxable year. In the previous taxable year, B filed
Form 7004 directly with the Internal Revenue Service on behalf of Taxpayer, and
Taxpayer again expected B to file the Form 7004 directly with the Internal Revenue
Service for the A taxable year.

   Taxpayer filed its federal income tax return for the A taxable year on Date5,

which is after Date4. On this return, Taxpayer did not claim the additional first year
depreciation for any eligible qualified property placed in service in the A taxable year but
did not use the straight line method of depreciation for the eligible qualified property and
did not claim the refundable credit resulting from applying § 168(k)(4). Taxpayer
represents that it did not make the election under § 168(k)(2)(D)(iii) not to deduct
additional first year depreciation for any qualified property (as defined in § 168(k)(2))
placed in service in the A taxable year.

   Before the due date (excluding extensions) of Taxpayer’s federal income tax

return for the A taxable year, Taxpayer discussed making the election to apply §
168(k)(4) with B and decided to make such election. However, because Taxpayer did
not timely file its federal income tax return for the A taxable year, Taxpayer failed to
make the election to apply § 168(k)(4) on that return.

RULING REQUESTED

     Accordingly, Taxpayer requests an extension of time pursuant to § 301.9100-3 of

the Procedure and Administration Regulations to make the election to apply § 168(k)(4)
for its taxable year ended Date1 and subsequent taxable years.

LAW AND ANALYSIS

  Section 168(k), amended by §103 of the Economic Stimulus Act of 2008, Pub. L.

No. 110-185, 122 Stat. 613 (February 13, 2008), and by § 1201(a)(1) of the American
Recovery and Reinvestment Tax Act of 2009, Div. B of Pub. L. No. 111-5, 123 Stat. 115
(February 17, 2009), allows a 50-percent additional first year depreciation deduction
(Stimulus additional first year depreciation deduction) for the taxable year in which
PLR-146101-09 3

qualified property acquired by a taxpayer after 2007 is placed in service by the taxpayer
before 2010 (before 2011 in the case of property described in § 168(k)(2)(B) or (C)).

    Section 3081(a) of the Housing and Economic Recovery Act of 2008, Pub. L. No.

110-289, 122 Stat. 2654 (July 30, 2008) (Housing Act), amended § 168(k) by adding §
168(k)(4). Section 168(k)(4)(A) provides that a corporation may elect to apply §
168(k)(4) (the § 168(k)(4) election). If the corporation makes the § 168(k)(4) election, §
168(k)(4)(A) further provides that for the corporation’s first taxable year ending after
March 31, 2008, and for each subsequent taxable year, the corporation must not claim
the Stimulus additional first year depreciation deduction for all eligible qualified property,
must use the straight line method of depreciation as the applicable depreciation method
for all eligible qualified property, and must increase its business credit limitation under §
38(c) and the alternative minimum tax (AMT) credit limitation under § 53(c) by the bonus
depreciation amount (as defined in § 168(k)(4)(C) and as determined under section 5 of
Rev. Proc. 2008-65, 2008-44 I.R.B. 1082) that is determined for that taxable year and
allocated to such limitation. Specifically, § 168(k)(4)(E)(iii) and (iv) provides, in general,
that the corporation will be able to claim unused credits from taxable years beginning
before January 1, 2006, that are allocable to research expenditures or AMT liabilities.

   Section 4.01 of Rev. Proc. 2008-65 provides that, except as provided in §

3081(b) of the Housing Act (relating to certain automotive partnerships), only a
corporation may elect to apply § 168(k)(4). If the election to apply § 168(k)(4) is made,
the election applies to all eligible qualified property placed in service by the taxpayer in
the taxpayer’s first taxable year ending after March 31, 2008, and in any subsequent
taxable year.

    Section 3.01 of Rev. Proc. 2009-16, 2009-6 I.R.B. 449, provides that a corporate

taxpayer must make the § 168(k)(4) election by the due date (including extensions) of
the federal income tax return for the taxpayer’s first taxable year ending after March 31,
2008. Even if the taxpayer does not place in service any eligible qualified property
during its taxable year ending after March 31, 2008, the taxpayer must make the §
168(k)(4) election for that taxable year if the taxpayer wishes to apply the election to
eligible qualified property placed in service in subsequent taxable years.

     If a taxpayer is not a member of a controlled group, section 3.04 of Rev. Proc.

2009-16 provides the manner for making the § 168(k)(4) election for taxpayers whose
first taxable year ending after March 31, 2008, ends on or after December 31, 2008.
Specifically, a C corporation makes the § 168(k)(4) election by: (a) claiming the
refundable credit on line 32g of the 2008 Form 1120; (b) filing the 2008 Form 3800 or
Form 8827, or both, as applicable. Taxpayers should refer to the applicable instructions
to the 2008 Forms 3800 and 8827 for guidance regarding computation of the refundable
credit and allocation of the bonus depreciation amount between the business credit
limitation and AMT credit limitation; (c) filing the 2008 Form 4562, “Depreciation and
Amortization,” indicating that the taxpayer used the straight line method and did not
PLR-146101-09 4

claim the Stimulus additional first year depreciation deduction for all eligible qualified
property; and (d) notifying any partnership in which the C corporation is a partner, in
accordance with section 5.02 of Rev. Proc. 2009-16. Section 3.04(1) of Rev. Proc.
2009-16.

    Under § 301.9100-1 of the Procedure and Administration Regulations, the

Commissioner 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 an
election. Section 301.9100-2 provides automatic extensions of time 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 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.

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,
Taxpayer is granted 60 calendar days from the date of this letter to make the election to
apply § 168(k)(4) for the taxable year ended Date1 and subsequent taxable years. This
election must be made by Taxpayer filing an amended federal income tax return for the
taxable year ended Date1 that is in accordance with the procedures provided in section
3.04(1) of Rev. Proc. 2009-16.

   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. Specifically, no opinion is expressed or implied on whether any
item of depreciable property placed in service in the A taxable year is eligible for the
additional first year depreciation deduction under § 168(k) or is eligible qualified
property for purposes of § 168(k)(4). Further, this letter ruling does not grant an
extension of time for filing Taxpayer’s federal income tax return for the taxable year
ended Date1.

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

Taxpayers= authorized representatives. We are also sending a copy of this letter to the
appropriate Industry Director, LMSB.
PLR-146101-09 5

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

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

                                             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