PLR 1236011: IRS grants partnership time to make a depreciation election

Plain-English summary

The IRS granted a limited liability company treated as a partnership 60 days to make a late election not to claim additional first-year depreciation under IRC § 168(k). The taxpayer had omitted the required election statement from its timely filed returns for three redacted taxable years after its accounting firm failed to inform it about the statement. The IRS allowed the election to be made on amended returns, with a statement covering the eligible property classes. The ruling did not decide whether any particular property otherwise qualified for the depreciation deduction.

Ruling snapshot

• Question: Could the partnership receive more time to elect not to deduct additional first-year depreciation?
• Outcome: Approved
• Key authorities: IRC §§ 168 and 6110; Treas. Reg. §§ 1.168(k)-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201236011 Third Party Communication: None
Release Date: 9/7/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 ------------------------, ID No. -------------------
---------------------------------------------------
------------------------------------------------------------- Telephone Number:
--------------------
----------- Refer Reply To:
------------------------------------------- CC:ITA:7
------------------------------ PLR-107390-12
---------------------- Date:
May 17, 2012

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

Legend

Taxpayer = ------------------------------------------------------------------------------------------
----------------------
Year 1 = -------
Year 2 = -------
Year 3 = -------

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

    This letter responds to a letter dated February 10, 2012, and supplemental

correspondence, 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 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 years Year 1, Year 2, and Year 3.

                                                 FACTS

      Taxpayer represents that the facts are as follows:

    Taxpayer is a limited liability corporation treated as a partnership for federal tax

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

    Taxpayer was organized for the purpose of holding ownership interests in a

crane, foundation drilling, and other heavy equipment dealership businesses. In
PLR-107390-12 2

connection with its normal business operations, Taxpayer acquires tangible personal
property eligible for the additional first year depreciation deduction under § 168(k).

     Taxpayer timely filed its Form 1065 for the taxable years Year 1, Year 2, and

Year 3. On these returns, Taxpayer did not claim the additional first year depreciation
for all classes of qualified property placed in service by Taxpayer during the taxable
years Year 1, Year 2, and Year 3. However, Taxpayer inadvertently failed to attach to
its Form 1065 for the taxable years Year 1, Year 2, and Year 3 the election statement
not to deduct the additional first year depreciation for all classes of qualified property
placed in service during these taxable years. The accounting firm that was retained by
Taxpayer to prepare its Form 1065 for the taxable years Year 1, Year 2, and Year 3
failed to inform Taxpayer of the election statement. Subsequent to filing its Form 1065
for the taxable years at issue, Taxpayer’s return preparer discovered that the election
statement was not attached to Taxpayer’s Form 1065 for such taxable years.

                              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 Year 1, Year 2, and Year 3.

                              LAW AND ANALYSIS

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

deduction for qualified property (i) acquired after December 31, 2007, and before
September 9, 2010, or acquired generally after December 31, 2011, and (ii) placed in
service before January 1, 2013 (or January 1, 2014, for qualified property described in
§ 168(k)(2)(B) or (C)).

    Section 168(k)(5) provides a 100-percent additional first year deprecation

deduction for qualified property acquired after September 8, 2010, and generally before
January 1, 2012, and placed in service before January 1, 2012 (or January 1, 2013, for
qualified property described in § 168(k)(2)(B) or (C)).

   Section 168(k)(2)(D)(iii) provides that a taxpayer may elect not to deduct the 50-

percent additional first year depreciation or the 100-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, 2008-2 C.B. 722 and section
3.01 of Rev. Proc. 2011-26, 2011-1 C.B. 664 (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).
PLR-107390-12 3

   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 Year 1, Year 2, and Year 3 provide 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 election
not to deduct the additional first year depreciation under § 168(k) for all classes of
property placed in service during taxable years Year 1, Year 2, and Year 3 that qualify
for the additional first year depreciation deduction. Taxpayer must make this election by
filing amended federal tax returns for taxable years Year 1, Year 2, and Year 3 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 tax consequences of the facts described above under any other provisions of
the Code (including other subsections of § 168). Specifically, no opinion is expressed
or implied on whether any item of depreciable property placed in service by Taxpayer
PLR-107390-12 4

during Year 1, Year 2, or Year 3 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 a copy of this letter to

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

                                               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