IRS grants more time to opt out of bonus depreciation

Plain-English summary

The IRS granted a domestic partnership 60 days to make a late election not to claim 50-percent and 100-percent additional first-year depreciation for all qualifying property placed in service during a tax year. The partnership had filed its Form 1065 without claiming the deductions but had inadvertently failed to attach the required election statement. The partnership must file an amended return and attach a statement covering all eligible property classes for that year. The IRS found that the requirements for an extension under the section 301.9100 rules were satisfied.

Ruling snapshot

• Question: Could the partnership make a late election not to deduct additional first-year depreciation?
• Outcome: Approved
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201232001 Third Party Communication: None
Release Date: 8/10/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 ------------------------, ID No. -------------------
---------------------------------------------------
Telephone Number:

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

-------------------------------------------------- Refer Reply To:
------------------------------------------- CC:ITA:7
-------------------------- PLR-100127-12
-------------------- Date:
May 14, 2012

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

Legend

Taxpayer = ------------------------------------------------------------------------------------------
----------------------
Date 1 = --------------------------
A = ------------------------------------------------------------------------------------------
-----------------------

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

    This letter responds to a letter dated December 27, 2011, submitted by

Taxpayer, requesting an extension of time pursuant to § 301.9100-3 of the Procedure
and Administration Regulations to make an election not to deduct the 50-percent and
100-percent additional first year depreciation under § 168(k) of the Internal Revenue
Code for all classes of qualified property placed in service by Taxpayer during the
taxable year ending Date 1.

                                                  FACTS

      Taxpayer represents that the facts are as follows:

     Taxpayer is a domestic partnership engaged in the energy industry. Taxpayer

files Form 1065, U.S. Return of Partnership Income, on a calendar-year basis.
Taxpayer’s overall method of accounting is the accrual method.

PLR-100127-12 2

   Taxpayer owns A, a single-member limited liability company that is disregarded

for federal income tax purposes. During the taxable year ending Date 1, A placed in
service qualified property as defined in § 168(k)(2).

    Taxpayer timely filed its Form 1065 for the taxable year ending Date 1. On the

Form 1065, Taxpayer did not claim additional first year depreciation under § 168(k) with
respect to any qualified property placed in service during the taxable year ending Date

1. However, Taxpayer inadvertently failed to attach to the Form 1065, as required by
   § 1.168(k)-1(e)(3)(ii) of the Income Tax Regulations, the election statement not to claim
   the additional first year deduction for all classes of qualified property placed in service
   for the taxable year ending Date 1. Subsequent to filing its Form 1065 for the taxable
   year ending Date 1, Taxpayer discovered that it had failed to attach the election
   statement 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 50-percent and 100-percent additional first year depreciation
   under § 168(k) for all classes of qualified property placed in service in the taxable year
   ending on Date 1.

                              LAW AND ANALYSIS
   

   Section 168(k)(1), as amended by § 103 of the Economic Stimulus Act of 2008,
   Pub. L. No. 110-185, 122 Stat. 613 (February 13, 2008), 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), and by § 2022(a) of the Small Business Jobs Act of
   2010, Pub. L. No. 111-240, 124 Stat. 2504 (September 27, 2010), allows a 50-percent
   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
   2011 (before 2012 in the case of property described in § 168(k)(2)(B) or (C)).

   Section 168(k)(5), added by § 401(b) of the Tax Relief, Unemployment Insurance
   Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, 124 Stat. 3296
   (December 17, 2010), allows a 100-percent additional first year depreciation deduction
   for qualified property acquired by a taxpayer after September 8, 2010, and before
   January 1, 2012, and placed in service by the taxpayer before January 1, 2012 (before
   January 1, 2013, in the case of property described in § 168(k)(2)(B) and (C)).

   Section 5.01 of Rev. Proc. 2008-54, 2008-2 C.B. 722, provides that for purposes
   

   of the “Stimulus additional first year depreciation deduction” (the 50-percent additional
   first year depreciation deduction), rules similar to the rules in § 1.168(k)(1) for “qualified
   property” or for “30 percent additional first year depreciation deduction” apply.

PLR-100127-12 3

However, in applying § 1.168(k)-1(d)(1)(i), the computation of the allowable “Stimulus
additional first year depreciation deduction” is made in accordance with the rules for 50-
percent bonus depreciation property.

   Section 3.01 of Rev. Proc. 2011-26, 2011-1 C.B. 664, provides that depreciable

property is eligible for the 100-percent additional first year depreciation deduction if the
property is qualified property (as defined in § 168(k)(2)) and also meets the additional
requirements in section 3.02 of Rev. Proc. 2011-26. Further, for purposes of
determining whether depreciable property is qualified property, rules similar to the rules
in §1.168(k)-1 for “qualified property” or for “30-percent additional first year depreciation
deduction” apply.

   Section 168(k)(2)(D)(iii) provides that a taxpayer may elect not to deduct

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).

   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 provides 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.

PLR-100127-12 4

                                     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 50-percent and 100-percent additional first year depreciation under
§ 168(k) for all classes of property placed in service during the taxable year ending Date
1 that qualify for additional first year depreciation. This election must be made by
Taxpayer filing an amended federal partnership 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 taxable year ending Date 1 is
eligible for the additional first year depreciation deduction.

 This letter ruling is directed only to Taxpayer. Section 6110(k)(3) provides that it

may not be used or cited as precedent.

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

Taxpayer’s authorized representatives. We are also sending a copy of this letter to the
appropriate Industry Director, LB&I.

                                             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

cc: