Affiliated group received more time to elect out of bonus depreciation

Plain-English summary

An affiliated corporate group did not claim 50-percent bonus depreciation for any class of qualified property placed in service during the relevant year. Its timely consolidated return omitted the statement required to elect out of that deduction because the group's accounting firm failed to tell it about the statement. The firm discovered the omission shortly after filing and advised the group to seek relief. The IRS concluded that the regulatory-election relief requirements were satisfied and gave the group 60 days to make the elections on an amended return. The ruling did not decide whether any particular property qualified for bonus depreciation.

Ruling snapshot

• Question: Could the affiliated group receive more time to elect out of additional first-year depreciation for all classes of qualified property placed in service that year?
• Outcome: Approved. The IRS granted 60 days to make the elections by filing an amended return with the required statement.
• 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: 201426020
Third Party Communication: None
Release Date: 6/27/2014
Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
---------------------------------------------------- -----------------, ID No. ----------------
--------------------------------
Telephone Number:
----------------------
--------------------
---------------------------
Refer Reply To:
CC:ITA:7
PLR-148853-13
Date:
March 18, 2014

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

P = --------------------------------------
S1 = --------------------------------------------- S2 = --------------------------------------------- S3 = ----------------------------------------------------------- S4 = ---------------------------------------------- S5 = ------------------------------------------------ S6 = --------------------------------------------------------------- S7 = ---------------------------------------------------- S8 = ---------------------------------------------------------- A = -------------- Date1 = --------------------------

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

This letter responds to a letter dated November 14, 2013, and subsequent correspondence, submitted by P on behalf of itself and S1, S2, S3, S4, S5, S6, S7 and S8 (hereinafter, P, S1, S2, S3, S4, S5, S6, S7 and S8 will be collectively referred to as Taxpayer), requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make the election not to deduct the additional first year depreciation under § 168(k) of the Internal Revenue Code (Code) for all classes of qualified property placed in service in the taxable year ended Date1.

FACTS

P represents that the facts are as follows:

P is the common parent of an affiliated group of corporations, including S1, S2, S3, S4, S5, S6, S7 and S8. The affiliated group of corporations files consolidated

PLR-148853-13
2

federal income tax returns on a calendar year basis. Taxpayer is a global web services brand company. Taxpayer placed in service qualified property (as defined in
§ 168(k)(2)) during the taxable year ended Date1.

On P’s timely filed consolidated federal income tax return for the taxable year ended Date1, Taxpayer did not claim the additional first year depreciation deduction for all classes of qualified property it placed in service during the taxable year ended Date1. However, Taxpayer failed to attach to the return, as required by § 1.168(k)-1(e)(3)(ii) of the Income Tax Regulations, the election statement not to claim the additional first year depreciation deduction for all classes of qualified property Taxpayer placed in service for the taxable year ended Date1.

Taxpayer retained A, an accounting firm, to prepare its federal income tax return for the taxable year ended Date1. However, A failed to inform Taxpayer of the election statement. Shortly after the filing of the federal income tax return for the taxable year in issue, A discovered that it had failed to attach the election statement to Taxpayer’s federal tax return for such taxable year with respect to all classes of qualified property. Thereafter, A advised Taxpayer to file this request to correct the omission.

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 during the taxable year ended Date1.

LAW AND ANALYSIS

Section 168(k)(1) provides a 50-percent additional first year depreciation deduction for qualified property placed in service in taxable year ended Date1.

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) 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

PLR-148853-13
3

and Amortization,” and its instructions. The instructions to Form 4562 for the taxable year ended Date1 provide 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 elections not to deduct the additional first year depreciation under § 168(k) for all classes of property placed in service during the taxable year ended Date1 that qualify for additional first year depreciation. These elections must be made by P filing an amended federal tax return for that 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 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 during the taxable year ended Date1 is eligible for the additional first year depreciation deduction.

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.

PLR-148853-13
4

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 Industry Director, Large Business & International Division (LB&I).

Sincerely,

WILLE E. ARMSTRONG, JR.

WILLIE E. ARMSTRONG, JR.
Senior Technician Reviewer, Branch 7
Office of Associate Chief Counsel
(Income Tax and Accounting)

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