IRS grants extra time to opt out of bonus depreciation

Plain-English summary

The parent of a consolidated corporate group intended to elect out of additional first-year depreciation for qualified property placed in service during three tax years. The group did not claim the deduction, but it failed to attach the required election statement to its returns. The IRS granted 60 days to make the election for all qualifying property classes, with different filing procedures for closed and open tax years. For closed years, the adjusted basis had to reflect the depreciation reduction that would have applied if the election had been timely. The ruling did not decide whether any particular property qualified for the deduction.

Ruling snapshot

• Question: Could the corporate group receive extra time to make elections not to deduct additional first-year depreciation for three tax years?
• Outcome: Approved, 60-day extension granted subject to basis and filing conditions
• Key authorities: IRC § 168(k); 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: 201408016 Third Party Communication: None
Release Date: 2/21/2014 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
------------------------, ID No. ------------------
----------------------------------------------------
Telephone Number:
----------------------
------------------------- Refer Reply To:
------------------------------------------------------------ CC:ITA:7

• PLR-123944-13
  -------------------------------- Date:
  ------------------------------ November 19, 2013

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

Legend

P = -----------------------------------------------------------------------------------------------------------------
S1 = -----------------------------------------------------------------------------------------------------------------
S2 = -----------------------------------------------------------------------------------------------------------------
S3 = -----------------------------------------------------------------------------------------------------------------
Date1 = ----------------------------
Date2 = ----------------------------
Date3 = ----------------------------

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

    This letter responds to a letter dated April 24, 2013, and supplemental

correspondence, submitted by P on behalf of S1, S2, and S3 (hereinafter S1, S2, and
S3 will be collectively referred to as Taxpayer) requesting an extension of time pursuant
to §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations
to make the election under § 168(k)(2)(D)(iii) of the Internal Revenue Code not to
deduct the additional first year depreciation deduction under § 168(k)(1) and (k)(5) for
all classes of qualified property placed in service in taxable years ended Date1, Date2,
and Date3.

                                                 FACTS

PLR-123944-13 2

   Taxpayer represents that the facts are as follows:

    P is the parent of an affiliated group of corporations that includes S1, S2, and S3.

The affiliated group of corporations files consolidated federal income tax returns on a
fiscal-year basis.

    Taxpayer is a modular buildings supplier who provides mobiles offices, site

trailers, storage containers, and modular buildings for temporary and permanent
applications in North America.

   Taxpayer placed in service qualified property (as defined in § 168(k)(2)) during its

taxable years ended Date1, Date2, and Date3.

    On P’s timely filed consolidated federal income tax returns for its taxable years

ended Date1, Date2, and Date3, Taxpayer did not claim the additional first year
depreciation deduction under § 168(k)(1) or (k)(5) with respect to any qualified property
placed in service during each of these taxable years. However, Taxpayer inadvertently
failed to attach the election statement not to deduct the additional first year depreciation
for such property to the consolidated federal income tax returns for its taxable years
ended Date1, Date2, and Date3. Furthermore, the period of limitation on assessment
under § 6501(a) has expired for the taxable years ended Date1 and Date2. Taxpayer
has disposed of qualified property placed in service in taxable years ending Date1 and
Date2, and some of the dispositions occurred in a taxable year for which the period of
limitation on assessment under § 6501(a) has expired. However, Taxpayer represents
that the adjusted basis of the disposed property reflected the reduction in basis for the
greater of the depreciation allowed or allowable as if the election had been timely made
by Taxpayer.

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

minimum tax credits (and, if applicable, research credits) in lieu of the additional first
year depreciation deduction for any class of property placed in service by Taxpayer’s
taxable years ending Date1, Date2 or Date3.

                              RULING REQUESTED

  Taxpayer requests an extension of time pursuant to §§ 301.9100-1 through

301.9100-3 to make an election not to deduct the additional first year depreciation
deduction under § 168(k)(1) for all classes of qualified property placed in service by
Taxpayer in taxable years ended Date1, Date2, and Date3.

                               LAW AND ANALYSIS

PLR-123944-13 3

   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 § 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, 2011-16 I.R.B. at 665 (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 taxable
years ended Date1, Date2, and Date3, 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 §§ 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.
PLR-123944-13 4

    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.

   Section 301.9100-3(c)(1)(ii) provides, in relevant part, that the interests of the

Government are ordinarily prejudiced if the taxable year in which the regulatory election
should have been made or any taxable years that would have been affected by the
election had it been timely made are closed by the period of limitations on assessment
under § 6501(a) before the taxpayer’s receipt of a ruling granting relief under this
section.

                                  CONCLUSION

   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)(1) and (k)(5) for all
classes of property placed in service by Taxpayer during the taxable years ended
Date1, Date2, and Date3, that qualify for the additional first year depreciation deduction.
For the taxable years closed by the period of limitations on assessment under
§ 6501(a), the adjusted basis of the property as of the beginning of the first open year
must reflect the reduction in basis for the greater of the depreciation allowed or
allowable in the closed year(s) had the election been made timely by the taxpayer.

    For the taxable years closed by the period of limitations on assessment under

§ 6501(a), this election must be made by P filing a statement indicating that Taxpayer is
electing not to deduct the additional first year depreciation for all classes of property
placed in service during the taxable years ended Date1, and Date2, along with a copy of
this letter ruling, with the IRS Service Center(s) where Taxpayer filed its original federal
tax returns for such taxable years. For the open taxable year, this election must be
made by P filing an amended consolidated federal tax income tax return for 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 § 168). Specifically, no opinion is expressed
or implied on whether any item of depreciable property placed in service by Taxpayer
during the taxable years ended Date1, Date2, and Date3, is eligible for the additional
first year depreciation deduction.
PLR-123944-13 5

  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,

                                             Karla M. Meola

                                             KARLA M. MEOLA
                                             Assistant to the Branch Chief, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax and Accounting)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes