PLR 1136019: IRS grants more time to elect out of additional first-year depreciation

Plain-English summary

The IRS granted a taxpayer 60 days to make an election not to claim additional first-year depreciation for all classes of qualified property placed in service during a specified tax year. The taxpayer had filed its return on time and did not claim the deduction, but inadvertently failed to attach the required election statement. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The election must be made by filing an amended federal tax return with the required statement.

Ruling snapshot

• Question: Whether the taxpayer may receive an extension of time to elect not to deduct additional first-year depreciation under IRC § 168(k).
• Outcome: Approved.
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e)(2), 1.168(k)-1(e)(3), and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201136019 Third Party Communication: None
Release Date: 9/9/2011 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 -----------------, ID No. -----------------
Telephone Number:
---------------------
--------------------------------------- Refer Reply To:
------------------------- CC:ITA:7
----------------------- PLR-152456-10
------------------------------- Date:
June 03, 2011

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

Taxpayer = -----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
----------------------------
LLC 1 = -----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
------------------------
LLC 2 = -----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
------------------------
C = -----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
-----------------------------------------
Year X = -------
SB/SE = --------------------------------------------------------------
Official

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

      This letter responds to a letter dated December 17, 2010, submitted by Taxpayer

on behalf of LLC 1 and LLC 2, 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 (Code)
for all classes of qualified property placed in service in taxable year Year X.

FACTS

      Taxpayer represents that the facts are as follows:

PLR-152456-10 2

  Taxpayer is the common parent of an affiliated group of corporations that files a

consolidated return for federal income tax purposes. Taxpayer is the single member
owner of LLC 1. LLC 1 is the single member owner of LLC 2. LLC 1 and LLC 2 are
each disregarded as an entity separate from Taxpayer for federal income tax purposes.
Taxpayer‘s business operates as a C.

     For taxable year Year X, Taxpayer timely filed Form 1120, U.S. Corporation

Income Tax Return, for its affiliated group. On the return, Taxpayer did not claim the
additional first year depreciation deduction for all classes of qualified property placed in
service during taxable year Year X. Taxpayer, however, inadvertently failed to attach to
the return the election statement not to claim the additional first year deduction for all
classes of qualified property placed in service for taxable year Year X. Subsequent to
filing its Year X federal tax return, Taxpayer discovered that it had failed to attach the
election statement to the return for the Year X taxable year with respect to all classes of
qualified property placed in service for that taxable year.

RULING REQUESTED

   Taxpayer requests an extension of time pursuant to § 301.9100-3 to make the

election not to deduct the additional first year depreciation under § 168(k) for all classes
of qualified property placed in service in taxable year Year X.

LAW AND ANALYSIS

  Section 168(k)(1) provides a 50-percent additional first year depreciation

deduction for qualified property placed in service in taxable year Year X.

   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 Year X provided that the election not to deduct the additional first year depreciation
PLR-152456-10 3

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.

   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 during the Year X taxable year that qualify for additional first
year depreciation. This election must be made by Taxpayer filing an amended federal
tax return for that taxable year, with a statement indicating that Taxpayer is electing not
to deduct the additional first year depreciation for all classes of property placed in
service during that taxable year.

    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 during the Year X taxable year is eligible
for the additional first year depreciation deduction.

  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 SB/SE Official.
PLR-152456-10 4

  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,

                                             WILLIE E. ARMSTRONG, JR.

                                             WILLIE E. ARMSTRONG, JR.
                                             Senior Technician Reviewer, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax and Accounting)

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