PLR 1132015: IRS grants 60 days to make a bonus depreciation election

Plain-English summary

The IRS granted a consolidated corporate group 60 days to make an election under section 168(k)(4) for a short taxable year. The taxpayer had filed its original return and a statement indicating the election, but its tax preparer mistakenly advised that an amended return could be filed by a later deadline. The IRS concluded that the taxpayer acted reasonably and in good faith, and that granting relief would not prejudice the government. The election required an amended consolidated return following the procedures in Revenue Procedure 2009-16. The ruling did not decide whether particular property qualified for the depreciation provisions or whether members of a later controlled group were bound by the election.

Ruling snapshot

• Question: Could the corporate group receive additional time to make the section 168(k)(4) election?
• Outcome: approved
• Key authorities: IRC §§ 168, 38, and 53; 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: 201132015 Third Party Communication: None
Release Date: 8/12/2011 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 -------------------------------, ID No. ------------
--------
Telephone Number:

                                                        --------------------

----------------------------------- Refer Reply To:
-------------------------------------------------- CC:ITA:B07
--------------------- PLR-147070-10
---------------------------- Date:
May 17, 2011

Re: Request for Extension of Time to Make the Election to Apply § 168(k)(4)

Legend

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

New Parent = ------------------------------------------

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

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

Date 3 = ---------------------------

Date 4 = ---------------------------

Date 5 = ----------------------

Date 6 = ---------------------------

Date 7 = -------------------

A = -------------------

B = -------------------------

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

      This letter responds to a letter dated November 16, 2010, requesting an

PLR-147070-10 2

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 was the common parent of an affiliated group of corporations that file a

consolidated federal income tax return (“Taxpayer’s consolidated group”) on a calendar-
year basis. Taxpayer is a manufacturer, and marketer of specialty chemicals and
related services.

     On Date 1, New Parent acquired 100 percent of the outstanding stock of

Taxpayer. New Parent has a fiscal year ending A. As a result of the transaction, the
taxable year of Taxpayer and its subsidiaries ended on Date 1, which is Taxpayer’s first
taxable year ending after March 31, 2008. Taxpayer and its subsidiaries were required
to file a final consolidated federal income tax return for the short taxable year beginning
Date 5, and ending Date 1, and New Parent was required to include income, gain, loss,
deductions, and credits of Taxpayer and its subsidiaries for the period Date 2, through
Date 3, in its consolidated federal income tax return filed for the taxable year ending
Date 3.

   During the short taxable year ending Date 1, Taxpayer and its subsidiaries

placed in service eligible qualified property. Taxpayer also has unused alternative
minimum tax (“AMT”) credits and research tax credits from taxable years beginning
before January 1, 2006. Further, Taxpayer’s consolidated group was not a member of
any other controlled group (as defined in section 2.05 of Rev. Proc. 2009-16, 2009-6
I.R.B. 449) for the first taxable year ending after March 31, 2008.

   Taxpayer used an outside tax preparer to prepare its consolidated federal

income tax return for the short taxable year ending Date 1. This return was timely filed
on Date 4, which is after March 11, 2009. As part of this original return, Taxpayer filed
Form 4562, Depreciation and Amortization (Including Information on Listed Property),
indicating that Taxpayer used the straight-line method and did not claim the Stimulus
additional first year depreciation for any qualified property (as defined in § 168(k)(2))
placed in service during the short taxable year ending Date 1, and also included a
statement indicating Taxpayer was making the election to apply § 168(k)(4).

  Taxpayer’s outside tax preparer advised Taxpayer about the time and manner for

making the election to apply § 168(k)(4). Taxpayer’s outside tax preparer mistakenly
advised Taxpayer that they were required to file an amended return for the short taxable
year ending on Date 1, on or before Date 7, which was the due date (including
extensions) of New Parent’s consolidated federal income tax return for the taxable year
ending Date 3. When preparing this amended return, Taxpayer’s outside tax preparer
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realized that the due date for the amended return was Date 6, which was the due date
(without extensions) of New Parent’s consolidated federal income tax return for the
taxable year ending Date 3.

   On Date 6, Taxpayer provided written notification to B and all other partnerships

in which Taxpayer owns a partnership interest, that Taxpayer was making the §
168(k)(4) election for Taxpayer’s short taxable year ending on Date 1.

RULING REQUESTED

   Taxpayer requests on behalf of the consolidated group of which Taxpayer was

the common parent an extension of time pursuant to § 301.9100-3 of the Procedure and
Administrative Regulations to make the election to apply § 168(k)(4) for the short
taxable year ending 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), 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), allowed 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 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 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,
PLR-147070-10 4

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.

   Taxpayer was the common parent of an affiliated group of corporations that filed

a consolidated federal income tax return for the short taxable year ending Date 1.
Further, Taxpayer’s consolidated group for the short taxable year ending Date 1, was
not a member of any other controlled group. Accordingly, on Date 1 (the testing date for
determining the members of a controlled group for the first taxable year ending after
March 31, 2008, when that taxable year ends on the same date for all members of a
controlled group), Taxpayer’s consolidated group is treated as a controlled group and as
one taxpayer for purposes of applying § 168(k)(4) and Rev. Proc. 2009-16 for the first
taxable year ending after March 31, 2008. See § 168(k)(4)(C)(iv) and sections 2.05 and
3.05(1)(a) of Rev. Proc. 2009-16.

   Section 3.05(2)(a) of Rev. Proc. 2009-16 provides that a § 168(k)(4) election

made by any member of a controlled group is binding on all other members of the
controlled group for all members’ first taxable year ending after March 31, 2008.

   Section 3.05(2)(b) of Rev. Proc. 2009-16 provides that if all members of a

controlled group are members of an affiliated group of corporations that file a
consolidated return (“a consolidated group”), the common parent (within the meaning of
§ 1.1502-77(a)(1)(ii) of the Income Tax Regulations) of the consolidated group makes
the § 168(k)(4) election on behalf of all members of the consolidated group. The
common parent makes this election within the time and in the manner provided in
section 3.01, 3.02, 3.03, or 3.04 of Rev. Proc. 2009-16, as applicable.

  Section 3.01 of Rev. Proc. 2009-16 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.

   Section 3.02 of Rev. Proc. 2009-16 provides the manner for making the §

168(k)(4) election for a taxpayer whose first taxable year ending after March 31, 2008,
ends before December 31, 2008. If the taxpayer has not filed its original federal income
tax return for such taxable year on or before March 11, 2009, section 3.02(1)(a) of Rev.
Proc. 2009-16 provides that the taxpayer must complete three actions to make the §
168(k)(4) election. First, the taxpayer must either (I) claim the Stimulus additional first
year depreciation deduction for any eligible qualified property placed in service by the
taxpayer during such taxable year on its timely-filed federal income tax return for such
taxable year. Such property must not be property in a class for which the taxpayer
elects out of the Stimulus additional first year depreciation deduction under §
168(k)(2)(D)(iii); or (II) file with its timely-filed federal income tax return for such taxable
year the Form 4562, indicating that the taxpayer used the straight line method and did
not claim the Stimulus additional first year depreciation deduction for all eligible qualified
PLR-147070-10 5

property. Taxpayers that choose to follow this option must not claim a refundable credit
on their original federal income tax return. Section 3.02(1)(a)(i) of Rev. Proc. 2009-16.
Second, the taxpayer must file an amended federal income tax return for such taxable
year in the manner described in section 3.02(2) of Rev. Proc. 2009-16 on or before the
due date (without regard to extensions) of the taxpayer's federal income tax return for
the succeeding taxable year. Section 3.02(1)(a)(ii) of Rev. Proc. 2009-16. Finally, if the
taxpayer is a partner in a partnership, the taxpayer must notify the partnership in
accordance with section 5.02 of Rev. Proc. 2009-16. Section 3.02(1)(a)(iii) of Rev.
Proc. 2009-16.

   If the taxpayer filing the amended federal income tax return under section

3.02(1)(a)(ii) of Rev. Proc. 2009-16 is not an S corporation, section 3.02(2)(a) of Rev.
Proc. 2009-16 provides that the taxpayer: (i) includes the amount of the refundable
credit allowed by the § 168(k)(4) election on Line 5g of the Form 1120X, Amended U.S.
Corporation Income Tax Return, (ii) makes appropriate adjustments to Lines 2, 3, and 4
of the Form 1120X to reflect the requirements of § 168(k)(4)(A) (requiring that the
depreciation deduction for all eligible qualified property be determined by using the
straight line method and by not claiming the Stimulus additional first year depreciation
deduction), and (iii) indicates in Part II of the Form 1120X that the taxpayer is making
the § 168(k)(4) election.

   If the electing corporate partner makes the § 168(k)(4) election by filing an

amended return under section 3.02(1)(a)(ii) or 3.03(2) of Rev. Proc. 2009-16, section
5.02 of Rev. Proc. 2009-16 provides that the electing corporate partner must notify the
partnership on or before the date it files the amended return containing the § 168(k)(4)
election.

    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
PLR-147070-10 6

   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 short taxable year ending Date1, and subsequent taxable
years. This election must be made by Taxpayer filing an amended consolidated federal
income tax return for the short taxable year ending Date 1, and in accordance with the
procedures provided in section 3.02(2)(a) of Rev. Proc. 2009-16.

    Except as specifically set forth 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 whether any
item of depreciable property placed in service by any member of Taxpayer’s
consolidated group in the short taxable year ending Date1, is eligible for the Stimulus
additional first year depreciation deduction under § 168(k) or is eligible qualified
property for purposes of § 168(k)(4). Further, no opinion is expressed or implied on
whether the members of New Parent’s controlled group for the taxable year ending Date
3, that were not members of Taxpayer’s consolidated group for the short taxable year
ending Date 1, are bound by the § 168(k)(4) election made by Taxpayer.

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

Taxpayer’s authorized representative. We are also sending a copy of this letter to the
appropriate operating division director.

  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