PLR 1310014: Taxpayers receive more time to make pollution-control and bonus-depreciation elections

Plain-English summary

The IRS considered a group of affiliated energy companies that had claimed certain deductions but failed to attach the required election statements to a timely filed consolidated return. It granted the parent 60 more days to make the § 169 election for certified pollution-control facilities and granted the affected subsidiaries 60 more days to make the § 168(k)(5) election for certain components of larger self-constructed properties under Rev. Proc. 2011-26. The companies had to file amended consolidated returns with the required statements. The ruling did not decide whether the facilities or property otherwise met the substantive requirements for the deductions.

Ruling snapshot

• Question: May the affiliated companies make the missed § 169 and § 168(k)(5) elections late?
• Outcome: Approved, 60-day extensions were granted subject to filing requirements and other conditions.
• Key authorities: IRC §§ 169, 168(k), 6501; Treas. Reg. §§ 1.169-3, 1.169-4, 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: 201310014 Third Party Communication: None
Release Date: 3/8/2013 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
------------------------------------------------------------ ------------------, ID No. ------------------
-------------- Telephone Number:
------------------------ ----------------------
------------------------ Refer Reply To:
----------------------------- CC:ITA:7
PLR-125773-12
Date:
December 07, 2012

Re: Request for Extension of Time to Make the Election Under Section 169 and the
Election Provided in Section 3.02(2)(b) of Rev. Proc. 2011-26

P = --------------------------------------------------
S1 = ------------------------------------------------------------------
S2 = -------------------------------------------------------------------
S3 = ------------------------------------------------------------------
S4 = ----------------------------------------------------------------
S5 = ------------------------------------------------------------------
S6 = ---------------------------------------------------------------------------------
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S9 = ---------------------------------------------------------------
S10 = ----------------------------------------------------------------------------------------
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S12 = ---------------------------------------------------------
S13 = -------------------------------------------------------------------------------
S14 = ---------------------------------------------------------------------
S15 = -------------------------------------------------------------------
A = ---------------------------
Date1 = ---------------------------
Date2 = ----------------------------
Year1 = -------
Year2 = -------
Year3 = -------
State1 = -------
State2 = -------------------

Dear -----------------:
PLR-125773-12 2

   This letter responds to a letter dated June 14, 2012, submitted by P on behalf of

S1, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to make the election under section 169 of the Internal
Revenue Code to amortize certain pollution control facilities placed in service in the
taxable year ended Date1, and by P on behalf of S1, S2, S3, S4, S5, S6, S7, S8, S9,
S10, S11, S12, S13, S14, and S15, 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 under section 168(k)(5) for certain
components of certain larger self-constructed properties 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 parent and holding company of an affiliated group of corporations which

includes S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14, and S15. The
companies are engaged in energy-related businesses. The affiliated group of
corporations files consolidated federal income tax returns on a calendar-year end basis.
The consolidated federal income tax return for the taxable year ended Date1, was
timely filed on Date2, and was prepared by the tax staff of S5, which performs all tax
functions for P and its subsidiaries.

   S9 wholly owns S1. S9 provides energy related products and services to

wholesale and retail electric customers. S1 owns and operates fossil (coal) and
hydroelectric generating facilities located primarily in State1 and State2, and S1 sells its
entire electric output to S9 pursuant to an intercompany power sales agreement.

    One of the fossil plants that S1 owns and operates is the A. Different units of the

A went into service in different years, but everything at the A was originally in operation
prior to the end of Year2. Subsequent improvements/replacements of more than 20-
percent of adjusted basis resulted in a new placed in service date after Year3.

    During Year1, S1 placed in service certain pollution control equipment and

related property at the A. For purposes of section 169, all of the pollution control
equipment was placed in service in Year1; equipment for different pollution control units
went into service in different months during Year1, and the units began to be amortized
under section 169 the month following the month that the unit was placed in service. S1
represents that it will claim 84-month amortization on the pollution control equipment
that is the subject of this letter ruling request. S1 has received the required state
certification for the pollution control equipment. At this time, S1 is not in receipt of a
copy of the federal certification.
PLR-125773-12 3

    For S1, P intended to make an election to deduct amortization under section 169

for the A on its timely filed consolidated federal income tax return for the taxable year
ended Date1. On such return, P claimed the section 169 amortization deduction, but P
did not identify the need to attach an election statement to the return for S1. P was
otherwise unaware of the necessity to file an election statement to properly claim the
section 169 deduction for S1. P’s failure to attach the section 169 election statement for
S1 as required by the regulations was simply an oversight.

    On P’s timely filed Year1 consolidated federal income tax return, S1, S2, S3, S4,

S5, S6, S7, S8, S9, S10, S11, S12, S13, S14, and S15 claimed (i) the 100-percent
additional first year depreciation under section 168(k)(5) for the components that are
described in section 3.02(2)(b) of Rev. Proc. 2011-26, and (ii) the 50-percent additional
first year depreciation under section 168(k)(1) for the corresponding larger self-
constructed properties that are described in section 3.02(2)(b) of Rev. Proc. 2011-26.
However, P inadvertently failed to attach the election statement required by section
3.02(2)(b) of Rev. Proc. 2011-26 with respect to the components to the Year1
consolidated federal income tax return for S1, S2, S3, S4, S5, S6, S7, S8, S9, S10,
S11, S12, S13, S14, and S15.

   S1 did not claim the 100-percent additional first year depreciation for the A on P’s

timely filed Year1 consolidated federal income tax return.

RULINGS REQUESTED

    S1 requests an extension of time pursuant to § 301.9100-3 of the Procedure and

Administration Regulations to make the election under section 169 to amortize certified
pollution control facilities with respect to the A that are placed in service in the taxable
year ended Date1, and S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14,
and S15 request an extension of time pursuant to § 301.9100-3 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 under section 168(k)(5) for certain components of
certain larger self-constructed properties placed in service in the taxable year ended
Date1.

LAW AND ANALYSIS

   Section 169(a) allows a taxpayer to elect to take a deduction for the amortization

of the amortizable basis of any certified pollution control facility (as defined in § 169(d)),
based on a period of 60 months. The 60-month period shall begin, as to any pollution
control facility, at the election of the taxpayer, with the month following the month in
which such facility was completed or acquired, or with the succeeding taxable year.

  Under section 169(b), the taxpayer makes the election to take the amortization

deduction and to begin the 60-month period with the month following the month in which
PLR-125773-12 4

the facility is completed or acquired, or with the taxable year succeeding the taxable
year in which such facility is completed or acquired, by filing with the Secretary, in such
manner, in such form, and within such time, as the Secretary may by regulations
prescribe, a statement of such election.

   Section 169(d)(1) defines a certified pollution control facility as a new identifiable

treatment facility which is used, in connection with a plant or other property in operation
before January 1, 1976, to abate or control water or atmospheric pollution or
contamination by removing, altering, disposing, storing, or preventing the creation or
emission of pollutants, contaminants, wastes, or heat.

    Additionally, under section 169(d)(1)(A), the State certifying authority having

jurisdiction with respect to such facility has certified the facility to the Federal certifying
authority as having been constructed, reconstructed, erected, or acquired in conformity
with the State program or requirements for abatement or control of water or atmospheric
pollution or contamination.

   Similarly, under section 169(d)(1)(B), the Federal certifying authority has certified

the facility to the Secretary as being in compliance with the applicable regulations of
Federal agencies and as being in furtherance of the general policy of the United States
for cooperation with the States in the prevention and abatement of water pollution under
the Federal Water Pollution Control Act, as amended (33 U.S.C. 466 et seq.), or in the
prevention and abatement of atmospheric pollution and contamination under the Clean
Air Act, as amended (42 U.S.C. 1857 et seq.).

   Finally, under section 169(d)(1)(C), the facility does not significantly increase the

output or capacity, extend the useful life, or reduce the total operating costs of such
plant or other property (or any unit therof), or significantly alter the nature of the
manufacturing or production process or facility.

   Under section 169(d)(4)(A), for purposes of section 169(d)(1), a new identifiable

treatment facility includes only tangible property (not including a building and its
structural components, other than a building which is exclusively a treatment facility)
which is of a character subject to the allowance for depreciation provided in section 167,
which is identifiable as a treatment facility. Additionally, the taxpayer must complete the
construction, reconstruction, or erection of this property after December 31, 1968, or
taxpayer must acquire this property after December 31, 1968, if the original use of the
property commences with the taxpayer and commences after such date. In applying
this section in the case of property the taxpayer constructs, reconstructs, or erects after
December 31, 1968, there shall be taken into account only that portion of the basis
properly attributable to construction, reconstruction, or erection after
December 31, 1968.
PLR-125773-12 5

   Under section 169(d)(4)(B), in the case of any facility described in

section 169(d)(1) solely by reason of section 169(d)(5), section 169(d)(4)(A) shall be
applied by substituting “April 11, 2005” for December 31, 1968” each place it appears
therein.

     Under section 169(d)(5)(A), in the case of any atmospheric pollution control

facility which is placed in service after April 11, 2005, and used in connection with an
electric generation plant or other property which is primarily coal fired, § 169(d)(1) shall
be applied without regard to the phrase “in operation before January 1, 1976.”

   Under section 169(d)(5)(B), in the case of a facility placed in service in

connection with a plant or other property placed in operation after December 31, 1975,
this section shall be applied by substituting “84” for “60” each place it appears in
section 169(a) and section 169(b).

   Under section 1.169-4(a)(1) of the Income Tax Regulations, a taxpayer making

the election under section 169(b) shall make the election by attaching a statement of
such election to its return for the taxable year in which falls the first month of the 60-
month amortization so elected. Such statement must include the information specified
in section 1.169-4(a)(1)(i) through (ix). Specifically, section 1.169-4(a)(1)(ix)(b)
requires, in part, that if the facility has not been certified by the Federal certifying
authority, the statement of election must include a statement that application has been
made to the proper State certifying authority together with a copy of such application
and a copy of the application filed, or to be filed, with the Federal certifying authority.

    Section 1.169-3(a) provides, in part, that the amortizable basis of a certified

pollution control facility for the purpose of computing the amortization deduction under
section 169 is the adjusted basis of the facility for purposes of determining gain (see
part II (section 1011 and following), subchapter O, chapter 1 of the Code), in
conjunction with paragraphs (b), (c), and (d) of section 1.169-3.

    Section 1.169-3(a) provides, in part, that before computing the amortization

deduction allowable under section 169, the adjusted basis for purposes of determining
gain for a facility that is placed in service by a taxpayer after September 10, 2001, and
that is qualified property under section 168(k)(2) or section 1.168(k)-1 or 50-percent
bonus depreciation property under section 168(k)(4) or section 1.168(k)-1 must be
reduced by the amount of the additional first year depreciation deduction allowed or
allowable, whichever is greater, under section 168(k), for the facility.

   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
PLR-125773-12 6

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 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
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.
PLR-125773-12 7

   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.

   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, S1 is
granted 60 calendar days from the date of this letter to make the election under section
169 for the certified pollution control facilities with respect to the A that are placed in
service by S1 in the taxable year ended Date1. This election must be made by P filing
PLR-125773-12 8

an amended consolidated federal tax return for the taxable year in which falls the first
month of the 84-month amortization period elected by S1. The election must comply
with the requirements of section 1.169-4(a)(1), including the information required by
section 1.169-4(a)(1)(i) through (ix).

    Further, S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14, and S15

are 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 under section 168(k)(5) for components (i) that are described in
section 3.02(2)(b) of Rev. Proc. 2011-26 of larger self-constructed properties that are
described in section 3.02(2)(b) of Rev. Proc. 2011-26 and (ii) that are placed in service
by, respectively, S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14, and S15
in the taxable year ended Date1. This election must be made by P filing an amended
consolidated federal tax return for that taxable year, with a statement indicating that S1,
S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14, and S15 are making the
election provided in section 3.02(2)(b) of Rev. Proc. 2011-26 for the taxable year ended
Date1, and indicating whether each such company is making this election for all or only
for some of the components described in section 3.02(2)(b) of Rev. Proc. 2011-26.

   If the period of limitations on assessment under section 6501(a) for the taxable

year in which the section 169 election with respect to the A should have been made or
for any taxable year that would have been affected by such election had it been timely
made will expire before P has filed the certifications from the Federal certifying authority
with the appropriate Internal Revenue Service official in the operating division that has
examination jurisdiction over P’s federal tax returns, P must consent under section
6501(a) to an extension of the period of limitations on assessment for such taxable
years.

     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 the
facilities subject to this letter ruling are certified pollution control facilities as defined in
section 169(d) or whether the facilities subject to this letter ruling qualify for 60 or 84
month amortization periods. Further, no opinion is expressed or implied on whether any
item of depreciable property placed in service by S1, S2, S3, S4, S5, S6, S7, S8, S9,
S10, S11, S12, S13, S14, or S15 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 whether any component or
larger self-constructed property placed in service by S1, S2, S3, S4, S5, S6, S7, S8, S9,
S10, S11, S12, S13, S14, or S15 in the taxable year ended Date1, is described in
section 3.02(2)(b) of Rev. Proc. 2011-26.
PLR-125773-12 9

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

ruling to P’s authorized representatives. We are also sending a copy of this letter ruling
to the appropriate operating division director.

  This letter 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