PLR 1303007: Taxpayer receives more time to elect out of additional depreciation

Plain-English summary

A taxpayer that rehabilitated and operated an affordable apartment community intended to elect out of the additional first-year depreciation deduction for its qualified property. Its tax preparer inadvertently claimed the deduction on the taxpayer's return. The IRS granted the taxpayer 60 calendar days to make the election by filing an amended return with the required statement. The ruling did not decide whether any particular property was eligible for the additional depreciation deduction.

Ruling snapshot

• Question: May the taxpayer receive an extension to elect not to deduct additional first-year depreciation under IRC § 168(k)?
• Outcome: Approved
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e) and 301.9100-1 through 301.9100-3; Rev. Proc. 2008-54

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201303007 Third Party Communication: None
Release Date: 1/18/2013 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
----------------------------------------- ------------------------, ID No. ------------------
------------------------------------------------------------ ----------------------------------------------------
--------------------- Telephone Number:
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---------------------------------------------- Refer Reply To:
-------------------------------- CC:ITA:7
PLR-124210-12
Date:
October 11, 2012

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

Legend

Taxpayer = ------------------------------------------------------------------------------------------
-----------------------
Year1 = -------
Date1 = --------------------------
Date2 = ----------------
Date3 = --------------------------
A = ----
B = ----------------------------------------
C = ----------------------------

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

    This letter responds to a letter dated April 20, 2012, submitted on behalf of

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 year ended Date3
(the Year1 taxable year).

                                                 FACTS

     Taxpayer represents that the facts are as follows:

   Taxpayer was formed on Date1, to acquire, own, maintain, and operate an

affordable A-unit apartment community known as B, located in C (the “Property”).
PLR-124210-12 2

Construction was completed for the rehabilitation and the Property was placed in
service on Date2. At the time Taxpayer was formed, as well as at all relevant times
during the initial planning for and construction of the Property, Taxpayer intended to
deduct the additional first year depreciation for all qualified property as long as the
limited partner agreed. Upon completion of the project, the limited partner reviewed the
projections and determined that Taxpayer should elect not to deduct the additional first
year depreciation for all classes of qualified property placed in service by Taxpayer
during the Year1 taxable year.

    Taxpayer used an outside tax preparer to prepare its federal income tax return

for the Year1 taxable year. On this tax return, the outside tax preparer inadvertently
deducted the additional first year depreciation for all classes of qualified property placed
in service by Taxpayer during the Year1 taxable year.

                              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 by Taxpayer in the Year1 taxable year.

                              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)(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) 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 (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 Year1
PLR-124210-12 3

taxable year 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 election
not to deduct the additional first year depreciation under § 168(k) for all classes of
property placed in service by Taxpayer during the Year1 taxable year that qualify for the
additional first year depreciation deduction. Taxpayer must make this election by filing
an amended federal tax return for the Year1 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 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 the Year1 taxable year 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.
PLR-124210-12 4

  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 operating division director.

                                            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