Late return receives relief for bonus depreciation opt-out

Plain-English summary

A buyer and seller agreed that a corporation being sold would elect out of bonus depreciation for property placed in service before closing. The seller was responsible for the corporation's return, but its accounting firm could not finish the return by the extended deadline because of complex accounting and staffing issues, and did not warn the seller in time to find another preparer. After requesting relief, the corporation filed the late return without claiming bonus depreciation and attached the required election statement. The IRS found that the regulatory-relief standards were met and extended the election deadline through the date the return was filed. The ruling did not extend the return-filing deadline or decide whether the assets were placed in service or otherwise eligible for bonus depreciation.

Ruling snapshot

• Question: May the corporation make a late election not to claim additional first-year depreciation for all qualified property classes?
• Outcome: Approved
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e), 301.9100-1, 301.9100-3; Rev. Proc. 2008-54

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201528030                                              Third Party Communication: None
Release Date: 7/10/2015                                        Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                               Person To Contact:
---------------                                                ----------------------, ID No. ----------------
------------------------------------------------------         Telephone Number:
-----------------------------------                            --------------------
-------------------------------------------------------        Refer Reply To:
------------------------------------------------------         CC:ITA:B07
                                                               PLR-140158-14
                                                               Date:
                                                               March 26, 2015




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

                                                      LEGEND

Taxpayer                   =                 --------------------------------------------------------------

Seller                     =                 ---------------------------------------------

Buyer                      =                 --------------------------------------------------

Property X                 =                 ------------------------------------------------------------

State Y                    =                 --------

State Z                    =                 ------------

Year 1                     =                 ------

Year 2                     =                 ------

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

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

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

Date 4                     =                 ---------------------

Date 5                     =                 --------------------
PLR-140158-14                                    2


Date 6                =             ---------------------------


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

        This letter responds to a letter dated October 16, 2014, in which Taxpayer
requests an extension of time pursuant to section 301.9100-3 of the Procedure and
Administration Regulations to make an election not to deduct additional first year
depreciation under section 168(k) of the Internal Revenue Code for all classes of
qualified property placed in service by Taxpayer in the taxable year ended Date 3 (the
Year 2 taxable year).

                                            FACTS

         Taxpayer represents the facts as follows:

      Taxpayer is an accrual method taxpayer that keeps its book and records on a
calendar year end. Effective Date 4, Taxpayer became a member of a group for which
Buyer files a consolidated U.S. Federal income tax return. Prior to this date Taxpayer
was owned by Seller and was required to file a separate U.S. Federal income tax return.

       Taxpayer is a State Z limited liability company that has elected to be treated as a
corporation for tax purposes effective Date 1. Its first tax return was for the Year 1
taxable year.

        Taxpayer, through its subsidiary limited liability companies that are disregarded
entities for U.S. tax purposes, owns and operates Property X, which is located in State
Y and reached commercial operation in Year 2. Property X is Taxpayer’s sole asset.

      On Date 2, Seller and Buyer entered into a purchase and sale agreement (P&S
Agreement) whereby Seller agreed to sell all of its ownership interests in Taxpayer to
Buyer. The closing of the transaction was effective on Date 3.

       Buyer and Seller agreed in the P&S Agreement that Taxpayer would elect out of
bonus depreciation under section 168(k) with respect to assets acquired during the tax
period ending on or prior to the closing date of Date 3.

      Under the P&S Agreement, Seller was responsible for preparing and filing the
Taxpayer’s Federal income tax return for the Year 2 taxable year. This return was due
on Date 5. Taxpayer timely filed for an extension to file this return such that the
extended due date was Date 6.
PLR-140158-14                                 3

         Seller engaged an accounting firm to prepare Taxpayer’s Federal income tax
return for the Year 2 taxable year. Due to complex accounting issues and internal
staffing issues at the accounting firm, the accounting firm was unable to prepare this
return by the extended due date of Date 6. This fact was not communicated to Seller in
time for Seller to engage a different tax preparer. Accordingly, Taxpayer did not timely
file its Federal income tax return for the Year 2 taxable year.

       After Taxpayer submitted this request for an extension of time to make the
election not to deduct additional first year depreciation, Taxpayer filed its Federal
income tax return for the Year 2 taxable year. On that return, Taxpayer did not deduct
additional first year depreciation for any property placed in service by Taxpayer during
the Year 2 taxable year. Taxpayer also attached a statement to that return 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.

                                  RULING REQUESTED

       Taxpayer requests an extension of time pursuant to section 301.9100-3 to make
the election not to deduct the additional first year depreciation deduction under section
168(k) for all classes of qualified property placed in service by Taxpayer during the
taxable year ended on Date 3.

                                  LAW AND ANALYSIS

       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 after
December 31, 2011 (after December 31, 2012, in the case of qualified property
described in section 168(k)(2)(B) or (C)), and placed in service by the taxpayer before
January 1, 2014 (before January 1, 2015, in the case of qualified property described in
section 168(k)(2)(B) or (C)).

        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 section 1.168(k)-1(e)(2) of the
Income Tax Regulations as meaning, in general, each class of property described in
section 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 section 1.168(k)-1 for “qualified property”
or for “30-percent additional first year depreciation deduction” apply for purposes of
section 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.
PLR-140158-14                                  4


        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 on Date 3, 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 sections 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 section 301.9100-2.

        Section 301.9100-3(a) provides that requests for relief under section 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 sections 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Taxpayer is granted an extension to the date on which Taxpayer filed its Federal
income tax return for the taxable year ending on Date 3, to make the election not to
deduct the additional first year depreciation under section 168(k) for all classes of
property placed in service by Taxpayer during that taxable year that qualify for the
additional first year depreciation deduction.

      This letter does not grant an extension of time for filing Taxpayer’s Federal
income tax return for the taxable year ending on Date 3.

        Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter under any provisions of the Code (including other subsections of
section 168). Specifically, no opinion is expressed or implied on whether Property X is
placed in service by Taxpayer during the Year 2 taxable year, or whether any item of
depreciable property placed in service by Taxpayer during the Year 2 taxable year is
eligible for the additional first year depreciation deduction.
PLR-140158-14                                5


       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.

      The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for ruling, it is subject to verification on examination.

      In accordance with the power of attorney, we are sending a copy of this letter to
Taxpayer’s authorized representative. We are also sending a copy of this letter to the
appropriate operating division director.

                                      Sincerely,

                                      /s/ Kathleen Reed

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

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



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