Group may make late elections out of bonus depreciation

Plain-English summary

An affiliated group did not claim additional first-year depreciation for any class of qualified property placed in service during two tax years. Its consolidated returns reflected that treatment, but the group failed to attach the statements required to elect out of bonus depreciation under IRC § 168(k). The IRS found that the group met the standards for discretionary relief. It granted 60 days to file amended consolidated returns with statements electing out for all qualifying property classes in each affected year.

Ruling snapshot

• Question: May the group make late elections not to deduct additional first-year depreciation for all qualified property classes in two tax years?
• Outcome: Approved, with 60 days to file amended consolidated returns and election statements
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e), 301.9100-1, and 301.9100-3; Rev. Procs. 2008-54 and 2011-26

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201447010 Third Party Communication: None
Release Date: 11/21/2014 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:

--------------------------------, ID No. ----------

------------------

Telephone Number:

----------------------

Refer Reply To:

CC:ITA:B07
PLR-106885-14
Date:
August 13, 2014

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

Legend

Parent = --------------------------------------------

S1 = ------------------------------------------------------------------------

S2 = ---------------------------------------------------------

S3 = ------------------------------------------------------------------

S4 = -------------------------------------------------

S5 = --------------------------------------------------

S6 = -----------------------------------------------------

S7 = -------------------------------------------------------

S8 = ----------------------------------------------

S9 = ---------------------------------------------------

Date 1 = ----------------------

Date 2 = ----------------------

Date 3 = ----------------------

PLR-106885-14 2

A = ----------------

B = -------

C = -------

D = ---------------------------------------------------------------------------------------------------------------

E = ------------------------------

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

This letter responds to a letter dated February 18, 2014, submitted by Parent on
behalf of itself and S1, S2, S3, S4, S5, S6, S7, S8, and S9 (hereinafter “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 for all classes of qualified
property placed in service by Taxpayer during the taxable years ended Date 1 (the B
taxable year) and Date 2 (the C taxable year).

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer is an affiliated group that joins in filing a consolidated federal income
tax return on a fiscal year basis ending on A. Taxpayer timely filed its consolidated
federal income tax returns for the B and C taxable years. The period of limitation on
assessment under § 6501(a) for the B and C taxable years have not expired as of the
date of this letter.

Taxpayer is in the business of D. Taxpayer placed in service qualified property
(as defined in § 168(k)(2)) during the B and C taxable years.

On each of the consolidated federal income tax returns for the B and C taxable
years, Taxpayer did not claim the additional first year depreciation deduction for any
classes of qualified property placed in service by Taxpayer during each of those taxable
years. Taxpayer, however, inadvertently failed to attach the election statement not to
claim the additional first year depreciation deduction for all classes of qualified property
placed in service by Taxpayer, as required by § 1.168(k)-1(e)(3)(ii) of the Income Tax
Regulations, to the consolidated federal income tax returns for the B and C taxable

PLR-106885-14 3

years. For the B and C taxable years, Taxpayer’s consolidated federal income tax
returns were prepared in house.

While preparing Taxpayer’s tax return for the taxable year ended Date 3,
Taxpayer discovered that they had failed to attach the election statements to the
consolidated federal income tax returns for the B and C taxable years with respect to all
classes of qualified property. Thereafter, Taxpayer contacted E for advice to correct the
failure to attach the required election statement. E advised Taxpayer to file this request.

RULING REQUESTED

Taxpayer requests a ruling pursuant to § 301.9100-3 of the Procedure and
Administration Regulations that it be granted an extension of time 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 during the B and C taxable years.

LAW AND ANALYSIS

Section 168(k)(1) provides a 50-percent additional first year depreciation
deduction for the placed-in-service year for qualified property (i) acquired by a taxpayer
after December 31, 2007, and before September 9, 2010, or acquired by a taxpayer
generally after December 31, 2011, and (ii) placed in service by the taxpayer before
January 1, 2014 (or January 1, 2015, for qualified property described in § 168(k)(2)(B)
or (C)).

Section 168(k)(5) provides a 100-percent additional first year depreciation
deduction for 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 before January 1, 2012 (or January 1, 2013, for qualified property
described in § 168(k)(2)(B) or (C)). 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) 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)(1) provides that the election not to deduct additional first
year depreciation for a class of property applies to all qualified property that is in that
class of property and placed in service in the same taxable year.

PLR-106885-14 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 A, B, and
C taxable years 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
(including extensions) 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.

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) for all classes of
property placed in service by Taxpayer during the B and C taxable years that qualify for
the additional first year depreciation deduction. This election must be made by
Taxpayer filing amended consolidated federal income tax returns for such taxable
years, with a statement indicating that Taxpayer is electing not to deduct the additional
first year depreciation for all classes of property placed in service by Taxpayer 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

PLR-106885-14 5

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 B and C taxable years is eligible for the additional first year
depreciation deduction.

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).

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 yours,

WILLIE E. ARMSTRONG, JR.

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

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