PLR 1205003: IRS grants extra time to elect out of additional first-year depreciation

Plain-English summary

The IRS granted an affiliated group an extension of time to elect not to claim additional first-year depreciation under IRC § 168(k). The group had timely filed its consolidated returns but inadvertently failed to attach the required election statements for all classes of qualified property placed in service in two tax years. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The taxpayer was given 60 calendar days to file amended consolidated returns with the required statements.

Ruling snapshot

• Question: Whether the taxpayer could receive an extension of time to make elections not to deduct additional first-year depreciation.
• Outcome: approved
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e)(2) and (e)(3), 301.9100-1, 301.9100-2, and 301.9100-3; Rev. Proc. 2008-54.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201205003 Third Party Communication: None
Release Date: 2/3/2012 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
---------------------------------------------------- -----------------, ID No. -----------------
---------------------------------------------- Telephone Number:
------------------------------------- ---------------------
---------------------------------- Refer Reply To:
CC:ITA:7
PLR-128854-11
Date:
October 21, 2011

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

P = ------------------------------------------------------------------------
S1 = --------------------------------------------
S2 = ------------------------------------------------
S3 = -----------------------------------------------------------
A = -----------------------
Date1 = --------------------------
Date2 = --------------------------
Date3 = ---------------------------
Date4 = ---------------------------
LB&I Official = ----------------------

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

   This letter responds to a letter dated July 8, 2011, and subsequent

correspondence, submitted by P on behalf of itself and S1, S2 and S3 (hereinafter, P,
S1, S2 and S3 will be collectively referred to as “Taxpayer”), 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 years ended Date1 and Date2.

FACTS

     P represents that the facts are as follows:

     P is the common parent of an affiliated group of corporations, including S1, S2,

and S3, that files consolidated federal income tax returns on a calendar year basis. The
affiliated group timely filed its federal income tax return for the taxable year ended
Date1 on Date3 and timely filed its federal income tax return for the taxable year ended
Date2 on Date4.

    On each of the federal tax returns for the taxable years ended Date1 and Date2,

Taxpayer did not claim the additional first year depreciation deduction for all classes of
qualified property placed in service by Taxpayer during each of those taxable years.
Taxpayer, however, inadvertently failed to attach the election statement not to claim the
additional first year depreciation deduction for all classes of qualified property placed in
service by Taxpayer, as required by § 1.168(k)-1(e)(3)(ii) of the Income Tax
Regulations, for the taxable years ended Date1 and Date2. For the taxable years
ended Date1 and Date2, Taxpayer’s tax returns were prepared by A.

    During its quarterly tax provision review process, Taxpayer discovered that it had

failed to attach the election statement to the federal tax returns for the taxable years
ended Date1 and Date2 with respect to all classes of qualified property. Thereafter, A
advised Taxpayer to file this request to correct these mistakes.

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 years ended Date1 and Date2.

LAW AND ANALYSIS

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

deduction for qualified property placed in service in taxable years ended Date1 and
Date2.

   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) 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
years ended Date1 and Date2 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.

   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 elections
not to deduct the additional first year depreciation under § 168(k) for all classes of
property placed in service during the taxable years ended Date1 and Date2 that qualify
for additional first year depreciation. These elections must be made by P filing
amended consolidated federal tax returns for such taxable years, 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 such taxable years.

   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 taxable years ended Date1
and Date2 are 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 representatives. We are also sending a copy of this letter to the
appropriate LB&I Official.

  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