PLR 1248004: IRS grants more time for a depreciation election

Plain-English summary

The IRS granted a utility company 60 more days to make an election for 100-percent additional first-year depreciation on certain components of a larger self-constructed property. The company had claimed the depreciation but had inadvertently failed to attach the required election statement to its consolidated return. The IRS found that the requirements for relief under the section 9100 regulations were satisfied. The election had to be made through an amended consolidated return with the required statement.

Ruling snapshot

• Question: Could the utility company receive more time to make the additional first-year depreciation election?
• Outcome: Approved
• Key authorities: IRC § 168(k)(5); Treas. Reg. §§ 1.168(k)-1 and 301.9100-1 through 301.9100-3; Rev. Proc. 2011-26

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201248004 Third Party Communication: None
Release Date: 11/30/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.04-00 -----------------, ID No. -----------------
Telephone Number:

                                                           Refer Reply To:

----------------- CC:ITA:7
---------------------------------- PLR-110800-12
--------------------------------------- Date:
-------------------------- August 30, 2012

Re: Request for Extension of Time to Make the Election Provided in Section 3.02(2)(b)
of Rev. Proc. 2011-26

P = -----------------------------------------------------------
S = -----------------------------------------------------------------
State1 = ------------
Date1 = --------------------------
Date2 = --------------------
Year1 = -------

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

    This letter responds to a letter dated March 9, 2012, submitted by P on behalf of

S, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to make the election provided in section 3.02(2)(b) of Rev.
Proc. 2011-26, 2011-16 I.R.B. 664, to deduct the 100-percent additional first year
depreciation for components of a larger self-constructed property placed in service in
the taxable year ended Date1 (the Year1 taxable year).

FACTS

      P represents that the facts are as follows:

      P is the holding company for a number of operating companies engaged in

energy-related businesses. P is also the parent of S, a regulated public electric and gas
utility serving areas of State1. P and S are members of an affiliated group of
corporations that is headed by P and files consolidated federal income tax returns. The
consolidated federal income tax return for the taxable year ended Date1, was timely
filed on Date2, and was prepared by P.
PLR-110800-12 2

   On this return, S claimed the 100-percent additional first year depreciation

deduction under section 168(k)(5) of the Internal Revenue Code for components that
are eligible under the limited election provided in section 3.02(2)(b) of Rev. Proc. 2011-
26 and placed in service by S during the Year1 taxable year. P and S, however,
inadvertently failed to attach the election statement to the consolidated federal income
tax return for the Year1 taxable year with respect to the eligible components.

RULING REQUESTED

   S requests an extension of time pursuant to § 301.9100-3 of the Procedure and

Administration Regulations to make the election provided in section 3.02(2)(b) of Rev.
Proc. 2011-26 to deduct the 100-percent additional first year depreciation for
components of a larger self-constructed property placed in service in the taxable year
ended Date1 (the Year1 taxable year), for purposes of section 168(k)(5) and section
3.02(1)(a) of Rev. Proc. 2011-26.

LAW AND ANALYSIS

    Section 168(k)(5) provides that in the case of qualified property acquired by the

taxpayer (under rules similar to the rules of section 168(k)(2)(A)(ii) and (iii)) after
September 8, 2010, and before January 1, 2012, and which is placed in service by the
taxpayer before January 1, 2012 (January 1, 2013, in the case of property described in
section 168(k)(2)(B) or (C)), a 100-percent additional first year depreciation deduction
for the taxable year in which such qualified property is placed in service by the taxpayer
is allowable.

    Section 3.01 of Rev. Proc. 2011-26 provides that depreciable property is eligible

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

   Section 3.02(1) of Rev. Proc. 2011-26 provides that for purposes of section

168(k)(5), qualified property is eligible for the 100-percent additional first year
depreciation deduction if the property meets all of the following requirements in the first
taxable year in which the property is subject to depreciation by the taxpayer, whether or
not depreciation deductions for that property are allowable:

   (a) The taxpayer acquires the qualified property after September 8, 2010, and

before January 1, 2012 (before January 1, 2013, in the case of qualified property
described in section 168(k)(2)(B) or (C)). Solely for purposes of section 168(k)(5) and
section 3.02(1)(a) of Rev. Proc. 2011-26, a taxpayer acquires the qualified property
PLR-110800-12 3

when the taxpayer pays or incurs the cost of the property. Qualified property that a
taxpayer manufactures, constructs, or produces (as defined under section 1.168(k)-
1(b)(4)(iii)(A) and modified by section 3.02(1)(a) of Rev. Proc. 2011-26 solely for
purposes of section 168(k)(5)) for use in its trade or business or for its production of
income is acquired by the taxpayer for purposes of section 168(k)(5) and section
3.02(1)(a) of Rev. Proc. 2011-26 when the taxpayer begins constructing, manufacturing,
or producing that property (as determined under section 1.168(k)-1(b)(4)(iii)(B)).

   (b) The taxpayer places the qualified property in service after September 8, 2010,

and before January 1, 2012 (before January 1, 2013, in the case of qualified property
described in section 168(k)(2)(B) or (C)).

 (c) The original use of the qualified property commences with the taxpayer after

September 8, 2010.

   Section 3.02(2)(a) of Rev. Proc. 2011-26 provides, in relevant part, that if a

taxpayer manufactures, constructs, or produces qualified property for use by the
taxpayer in its trade or business or for its production of income, rules similar to the self-
constructed property rules in section 1.168(k)-1(b)(4)(iii) apply for determining whether
this property meets the acquisition requirement of section 3.02(1)(a) of Rev. Proc. 2011-
26.

   Section 3.02(2)(b) of Rev. Proc. 2011-26, however, provides a limited exception

to sections 1.168(k)-1(b)(4)(iii)(C)(1) and (2) for certain components of a larger self-
constructed property solely for purposes of section 168(k)(5) and section 3.02(1)(a) of
Rev. Proc. 2011-26. If before September 9, 2010, a taxpayer begins the manufacture,
construction, or production of the larger self-constructed property that is qualified
property for use in its trade or business or for its production of income, but this larger
self-constructed property meets the requirements of sections 3.02(1)(b) and (c) of Rev.
Proc. 2011-26, the taxpayer may elect to treat any acquired or self-constructed
component of that larger self-constructed property as being eligible for the 100-percent
additional first year depreciation deduction if the component is qualified property and is
acquired or self-constructed by the taxpayer after September 8, 2010, and before
January 1, 2012 (before January 1, 2013, in the case of qualified property described in
section 168(k)(2)(B) or (C)). The taxpayer may make this election for one or more
components that are described in section 3.02(2)(b) of Rev. Proc. 2011-26. The
taxpayer must make the election in section 3.02(2)(b) of Rev. Proc. 2011-26 by the due
date (including extensions) of the federal tax return for the taxpayer’s taxable year in
which the larger self-constructed property is placed in service by the taxpayer, and by
attaching a statement to that return indicating that the taxpayer is making the election
provided in section 3.02(2)(b) of Rev. Proc. 2011-26 and whether the taxpayer is
making the election for all or some of the components described in section 3.02(2)(b) of
Rev. Proc. 2011-26.
PLR-110800-12 4

   Under § 301.9100-1, the Commissioner of Internal Revenue 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, S is
granted 60 calendar days from the date of this letter to make the election provided in
section 3.02(2)(b) of Rev. Proc. 2011-26 to deduct the 100-percent additional first year
depreciation for components of a larger self-constructed property placed in service in
the taxable year ended Date1 (the Year1 taxable year), for purposes of section
168(k)(5) and section 3.02(1)(a) of Rev. Proc. 2011-26. This election must be made by
P filing an amended consolidated federal tax return for that taxable year, with a
statement indicating that S is making the election provided in section 3.02(2)(b) of Rev.
Proc. 2011-26 for all or some of the components described in section 3.02(2)(b) of Rev.
Proc. 2011-26 placed in service by S 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 by S during the taxable year ended Date1
is qualified property (as defined in section 168(k)(2) and section 1.168(k)-1) or is eligible
for the 100-percent additional first year depreciation deduction, or when S began the
manufacture, construction, or production of any item of depreciable property (including
components of a larger self-constructed property) placed in service by S during the
taxable year ended Date1.

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

P’s authorized representative. We are also sending a copy of this letter to the
appropriate operating division director.
PLR-110800-12 5

  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,

                                             Kathleen Reed

                                             Kathleen Reed
                                             Branch Chief, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax and Accounting)

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