PLR 201130002: IRS grants more time to elect out of additional first-year depreciation

Plain-English summary

The IRS granted a partnership 60 calendar days to make an election not to deduct additional first-year depreciation for all classes of qualified property placed in service during a prior taxable year. The partnership had filed its federal return without claiming the additional depreciation, but it had not attached the required election statement because its accounting firm failed to advise it about the requirement. The IRS concluded that the partnership satisfied the standards for relief under sections 301.9100-1 and 301.9100-3. The election must be made by filing an amended federal partnership return with a statement covering the qualifying property classes. The ruling did not determine whether any particular property was eligible for the additional depreciation deduction.

Ruling snapshot

• Question: Whether the partnership could receive an extension of time to elect not to deduct additional first-year depreciation.
• Outcome: Approved
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-1(e); Rev. Proc. 2008-54; Treas. Reg. §§ 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201130002
Third Party Communication: None
Release Date: 7/29/2011
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00
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Telephone Number:
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Refer Reply To:
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CC:ITA:B07
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PLR-109037-11
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Date:
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April 19, 2011

Re: Request for Extension of Time to Make the Election Not to Deduct the Additional First Year Depreciation

Legend

Taxpayer = ---------------------------------------
A = -------
B = -------------------------------------------
Date 1 = ---------------------------
Date 2 = ---------------------------

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

This letter responds to a letter dated February 24, 2011, and subsequent correspondence, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make the election not to deduct the additional first year depreciation under § 168(k) of the Internal Revenue Code for all classes of qualified property placed in service in the taxable year ended Date1 (the A taxable year).

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer is a limited liability company that is treated as a partnership for federal income tax purposes. Taxpayer has multiple members, one of which is B. B is also the Tax Matters Member for Taxpayer. Taxpayer’s overall method of accounting is the accrual method.
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Taxpayer timely filed its federal partnership tax return for the taxable year ended Date 1, on Date 2. On this return, Taxpayer did not claim the additional first year depreciation for all classes of property placed in service by Taxpayer during the A taxable year. However, Taxpayer failed to attach the election statement to its federal tax return for the A taxable year with respect to all classes of qualified property. The accounting firm that was retained by Taxpayer to assist in preparing its federal partnership tax return for the A taxable year failed to inform Taxpayer of the election statement.

RULING REQUESTED

Taxpayer requests an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make the election not to deduct the additional first year depreciation under § 168(k) for all classes of qualified property placed in service by Taxpayer in the taxable year ended Date1.

LAW AND ANALYSIS

Section 168(k)(1) (as amended by the Economic Stimulus Act of 2008, Pub. L.
No. 110-185, 122 Stat. 613 (February 13, 2008) and the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009)) provides a 50-percent additional first year depreciation deduction for qualified property acquired after December 31, 2007, and placed in service before January 1, 2010.

Section 168(k)(2)(D)(iii) provides that a taxpayer may elect not to deduct the 50- percent 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) of the Income Tax Regulations as meaning, in general, each class of property described in § 168(e) (for example, 5-year property). See section 5.01 of Rev. Proc. 2008-54, 2008- 38 I.R.B. 722 (rules similar to the rules in § 1.168(k)-1 for “qualified property” or for “30- percent additional first year depreciation deduction” apply for purposes of § 168(k) as currently in effect).

Section 1.168(k)-1(e)(3)(i) provides that the election not to deduct additional first year depreciation must be made by the due date (including extensions) of the federal tax return for the taxable year in which the property is placed in service by the taxpayer.

Section 1.168(k)-1(e)(3)(ii) provides that the election not to deduct additional first year depreciation must be made in the manner prescribed on Form 4562, “Depreciation and Amortization,” and its instructions. The instructions to Form 4562 for the taxable year ended Date 1, provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer’s timely filed tax return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election.
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Under § 301.9100-1, 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 not to deduct the additional first year depreciation under § 168(k) for all classes of property placed in service by Taxpayer during the taxable year ended Date1, that qualify for the additional first year depreciation. This election must be made by Taxpayer filing an amended federal partnership tax return for the taxable year ended Date 1, with a statement indicating that Taxpayer is electing not to deduct the additional first year depreciation for all classes of property placed in service by Taxpayer during that taxable year.

Except as specifically set forth above, we express no opinion concerning the federal 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 by Taxpayer during the taxable year ended Date 1, is eligible for the additional first year depreciation deduction.

We are sending a copy of this letter to the appropriate operating division director.
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This letter 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
Branch Chief, Branch 7
Office of Associate Chief Counsel
(Income Tax and Accounting)

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