Dairy farmer may revoke bonus depreciation opt-out

Plain-English summary

A dairy farmer elected not to claim the 50 percent additional first-year depreciation deduction for all classes of qualified property placed in service during a tax year. After the return was filed, the farmer learned that a bank had overstated the interest paid, causing taxable income to be underreported. The tax preparer represented that, without the bank's error, the farmer would have been advised to claim the additional depreciation. Because the election could be revoked only with prior written IRS consent, the farmer requested a ruling. The IRS allowed the revocation and gave the farmer 60 days to file the required statement with an amended return, but did not rule that any particular property qualified for the deduction.

Ruling snapshot

• Question: Could the farmer revoke an election not to deduct additional first-year depreciation under IRC § 168(k)?
• Outcome: Approved, with a 60-day deadline to file the revocation statement and amended return
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-1(e)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201507022 Third Party Communication: None
Release Date: 2/13/2015 Date of Communication: Not Applicable
Index Number: 168.36-00
Person To Contact:
-------------------------------------------- -----------------, ID No. ----------------
----------------------------- Telephone Number:
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Refer Reply To:
CC:ITA:7
PLR-126123-14
Date:
November 03, 2014

Re: Request to revoke the election not to deduct the additional first year depreciation

Taxpayer = -------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
A = --------------------------
B = ------

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

   This letter responds to a letter dated May 6, 2014, and supplemental

correspondence, submitted by you, requesting the consent of the Commissioner of
Internal Revenue to revoke Taxpayer’s election not to deduct the additional first year
depreciation made on its B federal tax return for the taxable year ended A (the “B
taxable year”).

FACTS

     Taxpayer represents that the facts are as follows:

   Taxpayer, a calendar year taxpayer, owns and operates a dairy farm. For the

federal tax return timely filed for the B taxable year, Taxpayer made an election not to
deduct the additional first year depreciation under section 168(k) of the Internal
Revenue Code (the “Code”) for all classes of qualified property placed in service during
that taxable year. Taxpayer is a cash basis taxpayer.

  Taxpayer hired a tax preparer to prepare its B federal tax return for the taxable

year ended A. During the preparation of this tax return, the tax preparer discussed with
Taxpayer whether to claim the additional first year depreciation deduction for qualified
property placed in service during B in light of the losses on the farming business. As a

PLR-126123-14 2

result of this discussion, Taxpayer advised the tax preparer to not deduct the additional
first year depreciation for all classes of qualified property placed in service during the B
taxable year. Subsequent to filing Taxpayer’s B federal tax return, it was discovered
that such tax return was prepared incorrectly because certain information received from
a bank, specifically the amount of interest paid by Taxpayer, was overstated by the
bank. Thus, Taxpayer’s taxable income for the B taxable year was under-reported. If
not for this error by the bank, Taxpayer’s tax preparer would have advised Taxpayer to
deduct the additional first year depreciation for all classes of qualified property placed in
service during the B taxable year.

RULING REQUESTED

   Consequently, Taxpayer requests to revoke the election not to deduct any

additional first year depreciation made on its B federal tax return for the taxable year
ended A.

LAW AND ANALYSIS

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

deduction for the taxable year in which qualified property is placed in service by a
taxpayer.

   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) of
the Income Tax Regulations.

    Section 1.168(k)-1(e)(7)(i) provides that an election not to deduct the additional

first year depreciation for a class of property that is qualified property placed in service
during the taxable year is revocable only with the prior written consent of the
Commissioner of Internal Revenue. To seek the Commissioner’s consent, the taxpayer
must submit a request for a letter ruling.

CONCLUSIONS

   Based solely on the facts and representations submitted, we conclude that a

revocation of Taxpayer’s election not to deduct any additional first year depreciation
under § 168(k)(1) for all classes of qualified property placed in service by Taxpayer in
the taxable year ended A, is permitted under § 1.168(k)-1(e)(7)(i). Accordingly,
Taxpayer is granted 60 calendar days from the date of this letter to revoke its election
not to deduct the additional first year depreciation for all classes of qualified property
placed in service by Taxpayer in the taxable year ended on A. The revocation must be
made in a written statement filed with Taxpayer’s amended federal tax return for the

PLR-126123-14 3

taxable year ended on A. In addition, a copy of this letter must be attached to such
amended return. A copy is enclosed for that purpose.

   Except as specifically ruled upon above, no opinion is expressed or implied

concerning the 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 Taxpayer in the taxable year ended A, is eligible for the additional first year
depreciation deduction, under § 168(k).

  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.

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

Taxpayer’s authorized representative. We also are sending a copy of this letter to the
appropriate operating division director.

                                      Sincerely,

                                      Kathleen Reed

                                      Kathleen Reed
                                      Branch Chief, Branch 7
                                      Office of Associate Chief Counsel
                                      (Income Tax and Accounting)

Enclosures (2)
6110 copy
copy for amended return