PLR 1236012: IRS grants time to make a depreciation election

Plain-English summary

The IRS granted an S corporation 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 two 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 S corporation 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: 201236012 Third Party Communication: None
Release Date: 9/7/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 ------------------------, ID No. -------------------
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Telephone Number:

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

---------------------------- Refer Reply To:
------------------------------ CC:ITA:7
---------------------- PLR-107391-12
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 = -------

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 and Year 2.

                                                  FACTS

      Taxpayer represents that the facts are as follows:

    Taxpayer is an S corporation that files Form 1120S, U.S. Income Tax Return for

an S Corporation, on a calendar-year basis. Taxpayer’s overall method of accounting is
the accrual method.

    Taxpayer’s principal operations consist of the sale, leasing, and service of diesel

engines and diesel engine powered generators, and also the sale of related parts,
primarily to companies in the construction industry and customers in need of alternative
power sources. In connection with its normal business operations, Taxpayer acquires
PLR-107391-12 2

tangible personal property eligible for the additional first year depreciation deduction
under § 168(k).

    Taxpayer timely filed its Form 1120S for the taxable years Year 1 and Year 2.

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 and Year 2. However, Taxpayer inadvertently failed to attach to its Form 1120S
for the taxable years Year 1 and Year 2 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 1120S for the taxable years Year 1 and Year 2 failed to inform
Taxpayer of the election statement. Subsequent to filing its Form 1120S for the taxable
years at issue, Taxpayer’s return preparer discovered that the election statement was
not attached to Taxpayer’s Form 1120S 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 and Year 2.

                              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-107391-12 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 and Year 2 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 and Year 2 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 and Year 2 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
during Year 1 or Year 2 is eligible for the additional first year depreciation deduction.
PLR-107391-12 4

 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