Dentist gets 60 days to opt out of bonus depreciation

Plain-English summary

An individual operating a dentistry business through a disregarded entity claimed 100 percent first-year bonus depreciation on all qualified property placed in service during a tax year. The outside return preparer had not discussed the option to elect out or its consequences. After filing, the taxpayer realized that the deduction affected other federal and state tax provisions and represented that no relevant facts had changed. The IRS granted 60 days to file an amended return electing out of additional first-year depreciation for all qualifying property classes from that year. It did not decide whether any particular asset actually qualified for bonus depreciation.

Ruling snapshot

• Question: Could the taxpayer make a late election not to claim 100 percent additional first-year depreciation for all property classes placed in service that year?
• Outcome: Approved, with 60 days to file the amended return and election statement
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e) and 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201448003 Third Party Communication: None
Release Date: 11/28/2014 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
------------------- -----------------, ID No. -----------------
------------------------- Telephone Number:
------------------------------------------ ---------------------
Refer Reply To:
CC:ITA:7
PLR-108462-14
Date:
August 28, 2014

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

Taxpayer = ---------------------------------------------
A = -------------------------------------------------------------------------------------------------
-------------------------
State = ------------
Date1 = --------------------------
Date2 = ------------------

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

  This letter responds to a letter dated January 15, 2014, and subsequent

correspondence, submitted by 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 100-percent additional first year depreciation under § 168(k) of the Internal
Revenue Code for all classes of qualified property placed in service in the taxable year
ended Date1.

FACTS

     Taxpayer represents that the facts are as follows:

    Taxpayer, an individual, is the sole member of A and has elected to file A as a

disregarded entity for federal income tax purposes. A is engaged in the trade or
business of providing family dentistry services in State. Taxpayer files federal income
tax returns on a calendar year basis. Taxpayer timely filed its federal income tax return
for the taxable year ended Date1 on Date2.

   Taxpayer used an outside tax return preparer to prepare its federal income tax

return for the taxable year ended Date1. Based on the advice of its tax return preparer,
Taxpayer did not make the election not to deduct the additional first year depreciation
PLR-108462-14 2

under § 168(k) for all qualifying property placed in service during the taxable year ended
Date1 on its federal income tax return for the taxable year ending on Date1. Taxpayer’s
tax return preparer never discussed the election or its ramifications, and failed to advise
Taxpayer of its available options when filing its federal income tax return for the taxable
year ended Date1. Taxpayer deducted the 100-percent additional first year
depreciation under § 168(k)(5) for all classes of qualified property placed in service in
the taxable year ended Date1.

     However, after filing this tax return, Taxpayer realized that it did not fully consider

the consequences of this election on other federal and state income tax provisions in
effect at the time of the due date for making the election, and no relevant facts have
changed since the due date for making the election. If Taxpayer had been aware of the
ramifications of the election, and knew all available options, Taxpayer would have
elected not to deduct the 100-percent additional first year depreciation under § 168(k)
for all classes of qualified property placed in service in the taxable year ended Date1.

RULING REQUESTED

   Accordingly, Taxpayer requests an extension of time pursuant to § 301.9100-3 of

the Procedure and Administration Regulations to make the election not to deduct the
100-percent additional first year depreciation under § 168(k) for all classes of qualified
property placed in service in the taxable year ended Date1.

LAW AND ANALYSIS

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

deduction for the taxable year in which qualified property qualifying for the 100-percent
additional first year depreciation is placed in service by a taxpayer.

    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 3.01 of Rev. Proc. 2011-26, 2011-16 I.R.B.
664 (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. See section 4.01 of
Rev. Proc. 2011-26.
PLR-108462-14 3

   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
year ended Date1 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 § 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 election
not to deduct the 100-percent additional first year depreciation under § 168(k) for all
classes of property placed in service by Taxpayer during the taxable year ended Date1
that qualify for the additional first year depreciation. This election must be made by
Taxpayer 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 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
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
PLR-108462-14 4

Taxpayer during the taxable year ended Date1 is eligible for the additional first year
depreciation deduction.

   We are sending a copy of this letter to the SB/SE Official.

  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.

                                             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 section 6110 purposes