PLR 1341020: IRS grants late election relief for forgoing bonus depreciation

Plain-English summary

The IRS granted an affiliated group 60 days to make a late election not to deduct additional first-year depreciation under sections 168(k)(1) and 168(k)(5). The taxpayer had filed timely returns without claiming the deduction but had inadvertently omitted the required election statements. The IRS allowed the election by amended consolidated returns for the relevant years. The ruling did not decide whether particular property was otherwise eligible for bonus depreciation.

Ruling snapshot

• Question: Could the taxpayer make a late election not to deduct additional first-year depreciation?
• Outcome: Approved
• Key authorities: IRC §§ 168(k) and 6110(k)(3); Treas. Reg. §§ 1.168(k)-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201341020 Third Party Communication: None
Release Date: 10/11/2013 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
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Telephone Number:
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------------------------------------------------------------ Refer Reply To:
---------------- CC:ITA:7
----------------------------------------------------- PLR-105874-13
------------------------ Date:
-------------------------------- July 03, 2013

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

Legend

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PLR-105874-13 2

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

   This letter responds to a letter dated February 6, 2013, and supplemental

correspondence, submitted by P on behalf of itself and S1, S2, S3, S4, S5, S6, S7, S8,
S9, S10, S11, S12, and S13 (hereinafter P, S1, S2, S3, S4, S5, S6, S7, S8, S9, S10,
S11, S12, and S13 will be collectively referred to as Taxpayer) requesting an extension
of time pursuant to section 301.9100-3 of the Procedure and Administration Regulations
to make the election not to deduct the additional first year depreciation deduction under
section 168(k)(1) and (k)(5) of the Internal Revenue Code for all classes of qualified
property placed in service by Taxpayer during the taxable years ended Date 1 (the
Year1 taxable year), and Date2 (the Year2 taxable year).

                                               FACTS

    P represents that the facts are as follows:

  P is the domestic parent of an affiliated group of corporations that includes S1,

S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, and S13. The affiliated group of
corporations files consolidated federal income tax returns on a calendar-year basis.

    Taxpayer is a global power company that owns a portfolio of electricity

generation and distribution businesses. Taxpayer owns and/or operates power plants
to (1) generate and sell power to wholesale customers such as utilities and other
intermediaries, and (2) generate, distribute, transmit, and sell electricity to end-user
customers in the residential, commercial, industrial, and governmental sectors within a
defined service area.

   Taxpayer placed in service qualified property (as defined in section 168(k)(2))

during the taxable years ended Date1, and Date2.
PLR-105874-13 3

  On P’s timely filed Year1 and Year2 consolidated federal income tax returns,

Taxpayer did not claim the additional first year depreciation deduction under section
168(k)(1) or (k)(5) for all classes of qualified property placed in service during Year1 or
Year2. However, Taxpayer inadvertently failed to attach the election statement not to
deduct the additional first year depreciation for such property to the Year1 and Year2
consolidated federal income tax returns.

   Taxpayer did not make the election under section 168(k)(4) to accelerate

alternative minimum tax credits in lieu of the additional first year depreciation deduction
with respect to its extension property as defined in section 168(k)(4)(H)(iii) or its round
two extension property as defined in section 168(k)(4)(I)(iv).

                              RULING REQUESTED

   Taxpayer requests an extension of time pursuant to section 301.9100-3 to make

the election not to deduct the additional first year depreciation deduction under section
168(k)(1) and (k)(5) for all classes of qualified property placed in service by Taxpayer
during the Year1 and Year2 taxable years.

                              LAW AND ANALYSIS

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

in the placed-in-service year for qualified property acquired by a taxpayer after
December 31, 2007, and before September 9, 2010, or acquired by a taxpayer
generally after December 31, 2011, and placed in service by the taxpayer generally
before January 1, 2014.

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

deduction in the placed-in-service year for qualified property acquired by a taxpayer
after September 8, 2010, and generally before January 1, 2012, and placed in service
by the taxpayer after September 8, 2010, and generally before January 1, 2012. See
section 3 of Rev. Proc. 2011-26, 2011-16 I.R.B. 664, 665.

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

additional first year depreciation for any class of property placed in service during the
taxable year. The term "class of property" is defined in section 1.168(k)-1(e)(2) of the
Income Tax Regulations as meaning, in general, each class of property described in
section 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, 2011-16 I.R.B. at 665 (rules
similar to the rules in section 1.168(k)-1 for "qualified property" or for "30-percent
additional first year depreciation deduction" apply for purposes of section 168(k) as
currently in effect).
PLR-105874-13 4

   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 ended Date1, and Date2, 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 section 301.9100-1, the Commissioner has discretion to grant a

reasonable extension of time under the rules set forth in sections 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 section 301.9100-2.

    Section 301.9100-3(a) provides that requests for relief under section 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 sections 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 section 168(k)(1) and (k)(5) for
all classes of property placed in service by Taxpayer during the taxable years ended
Date1, and Date2, that qualify for the additional first year depreciation deduction. This
election must be made by P filing an amended consolidated federal tax income tax
return for each such 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 section 168). Specifically, no opinion is
expressed or implied on whether any item of depreciable property placed in service by
PLR-105874-13 5

Taxpayer during the taxable years ended Date1, and Date 2, is eligible for the additional
first year depreciation deduction.

  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.

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

Taxpayer’s authorized representatives. 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)