PLR 1105023: IRS permits revocation of an election not to claim bonus depreciation

Plain-English summary

A C corporation asked to revoke its election not to claim 50-percent additional first-year depreciation for eligible property placed in service during a prior taxable year. The taxpayer said its outside preparer made the election without considering how it interacted with other elections under IRC § 168, and the taxpayer later sought to change that decision. The IRS granted consent to revoke the election for all eligible classes of property, subject to filing a written statement with an amended consolidated return within 60 calendar days and attaching a copy of the ruling. The ruling addressed only the requested revocation and did not decide whether any particular property otherwise qualified for the deduction.

Ruling snapshot

• Question: May the taxpayer revoke its election not to deduct additional first-year depreciation for eligible property placed in service during the taxable year?
• Outcome: Approved.
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-1(e)(7)(i); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                         Third Party Communication: None

Number: 201105023 Date of Communication: Not Applicable
Release Date: 2/4/2011 Person To Contact:
-------------------------------, ID No. ------------
---------
Telephone Number:
-------------- ---------------------
------------------------------ Refer Reply To:
-------------------------- CC:ITA:B07
-------------------------------- PLR-132343-10
-------------------------------- Date:
October 28, 2010

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

Legend

Taxpayer = ---------------------------------------------------

Date 1 = --------------------------

Date 2 = ---------------------------

A = -------

B = -------

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

     This letter responds to a letter dated August 2, 2010, requesting the consent of

the Commissioner of Internal Revenue to revoke Taxpayer’s election under §
168(k)(2)(D)(iii) of the Internal Revenue Code not to deduct any 50-percent additional
first year depreciation that was made on its federal tax return for the taxable year ended
Date 1.

FACTS
PLR-132343-10 2

   Taxpayer represents that the facts are as follows:

    Taxpayer is a C corporation and has a calendar year end. For the taxable year

ended Date 1 (the A taxable year), Taxpayer was the common parent of one subsidiary
and filed a consolidated federal income tax return with this subsidiary. However, this
subsidiary was sold before Date 1, during the A taxable year. Taxpayer is engaged in the
information technology industry. Since inception in B, Taxpayer has generated
significant net operating losses and general business credit carryforwards.

   Taxpayer placed in service qualified property (as defined in § 168(k)(2) before

the application of § 168(k)(2)(D)(iii)) during the A taxable year. The qualified property is
3-year or 5-year property. However, on its consolidated federal income tax return for the
A taxable year, Taxpayer made an election under § 168(k)(2)(D)(iii) not to deduct the
Stimulus additional first year depreciation deduction for all eligible classes of
property placed in service during the A taxable year.

   For the A taxable year, Taxpayer used an outside tax preparer to prepare its

consolidated federal income tax return. This return was timely filed on Date 2.
Taxpayer relied upon its tax preparer’s advice to make the election not to claim the
Stimulus additional first year depreciation for all eligible property placed in service
during A. Consequently, Taxpayer made such election on its consolidated federal
income tax return for the A taxable year. However, Taxpayer did not consider the
consequences of this election with other provisions of the Code, including the election to
apply § 168(k)(4). Taxpayer was not aware of the ordering rules for applying elections
under § 168(k) as provided by section 4.04 of Rev. Proc. 2008-65, 2008-44 I.R.B. 1082,
which was issued before Date 1.

RULING REQUESTED

   Taxpayer requests consent to revoke its election not to deduct the Stimulus

additional first year depreciation for all qualified property placed in service during the
taxable year ended Date 1.

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) (Stimulus Act), 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), and by § 2022(a) of the Small Business Jobs Act of
2010, Pub. L. No. 111-240, 124 Stat. 2504 (September 27, 2010), allows a 50-percent
additional first year depreciation deduction (Stimulus additional first year depreciation
deduction) for the taxable year in which qualified property acquired by a taxpayer after
2007 is placed in service by the taxpayer before 2011 (before 2012 in the case of
property described in § 168(k)(2)(B) or (C)).
PLR-132343-10 3

    Section 5.01 of Rev. Proc. 2008-54, 2008-33 I.R.B. 722, provides that for

purposes of the Stimulus additional first year depreciation deduction, rules similar to the
rules in § 1.168(k)-1 of the Income Tax Regulations for “qualified property” or for “30-
percent additional first year depreciation deduction” apply. However, in applying
§ 1.168(k)-1(d)(1)(i), the computation of the allowable Stimulus additional first year
depreciation deduction is made in accordance with the rules for 50-percent bonus
depreciation property.

   Section 168(k)(2)(D)(iii) provides that a taxpayer may elect not to deduct the

Stimulus additional first year depreciation for any class of property placed in service
during the taxable year. The term “class of property” is defined in § 1.168(k)-1(e)(2).

    Section 1.168(k)-1(e)(7)(i) provides that an election not to deduct the additional

first year depreciation for a class of property that is qualified property, once made, may
be revoked only with the written consent of the Commissioner of Internal Revenue. To
seek the Commissioner's consent, the taxpayer must submit a request for a letter ruling.

CONCLUSIONS

    Based solely on the facts and representations submitted, we conclude that a

revocation of Taxpayer's election not to deduct any Stimulus additional first year
depreciation for all eligible classes of property placed in service by Taxpayer in the
taxable year ended Date 1, is permitted under § 1.168(k)-1(e)(7)(i). Accordingly,
Taxpayer is granted 60 calendar days from the date of this letter to revoke its election
not to deduct any Stimulus additional first year depreciation for all eligible classes of
property placed in service by Taxpayer in the taxable year ended Date 1. The
revocation must be made in a written statement filed with Taxpayer's amended
consolidated federal tax return for the taxable year ended Date 1. In addition, a copy of
this letter must be attached to such amended return. A copy is enclosed for that
purpose.

    Except as specifically ruled upon above, no opinion is expressed or implied

concerning the tax consequences of the facts described above under any other
provisions of the Code. Specifically, no opinion is expressed or implied on (1) whether
any item of depreciable property placed in service by Taxpayer in the A taxable year is
eligible for the Stimulus additional first year depreciation deduction under § 168(k), or (2)
if any item of such property is eligible for the Stimulus additional first year depreciation
deduction, whether that item is qualified property as defined in § 168(k)(2).

  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.
PLR-132343-10 4

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

Taxpayers= authorized representative. We are also sending a copy of this letter to the
appropriate Industry Director, LB&I.

                                            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