CCA 201125030: Bonus depreciation applied to eligible recapitalized costs

Plain-English summary

Chief Counsel Advice addressed whether a taxpayer could claim bonus depreciation for eligible property after costs were recapitalized. The advice stated that bonus depreciation was available if the applicable requirements were met. It also explained that bonus depreciation was mandatory unless the taxpayer elected not to claim it for the class of property involved, and that such an election would also apply to the recapitalized costs. The advice noted limited IRS procedures allowing a deemed election not to claim bonus depreciation and concluded that Revenue Procedure 2011-26 did not appear to apply to the facts presented.

Ruling snapshot

• Question: Could the taxpayer claim bonus depreciation for eligible recapitalized costs?
• Outcome: Advice given.
• Key authorities: IRC § 168; Rev. Procs. 2002-33, 2003-50, and 2011-26.

Full text (IRS public release)

ID: CCA_2011052508504157 Number: 201125030
Release Date: 6/24/2011
Office: ------------
UILC: 168.36-00

From: ------------------
Sent: Wednesday, May 25, 2011 8:50:53 AM
To: -------------------
Cc:
Subject: RE: Bonus Dep Question

Hi ---------. Under the facts presented, the taxpayer is entitled to bonus depreciation (assuming the bonus depreciation requirements are met). Bonus depreciation for eligible property is mandatory unless the taxpayer elects not to deduct bonus depreciation for the eligible property in a class of property (for example, 20-year property). If the taxpayer made an election not to deduct bonus depreciation for the class of property in which the "re-capitalized" costs will be included, that election also would apply to the "re-capitalized" costs.

The Service has allowed a deemed election not to deduct bonus depreciation in very limited circumstances. These are in Revenue Procedures 2002-33 and 2003-50 (for 2000 and 2001 returns) and in Revenue Procedure 2011-26 (for 2010 return). It appears that Rev. Proc. 2011-26 does not apply in this case.

If you have any further questions on this matter, please contact me.

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