Taxpayer receives 60 days to elect out of bonus depreciation

Plain-English summary

A foreign corporate taxpayer placed qualified property in service but filed its income tax return late after an unusual series of events prevented a timely extension request. Its late return included a statement electing out of additional first-year depreciation under section 168(k). The IRS found that the taxpayer satisfied the standards for regulatory-election relief. It granted 60 days to make the election by filing an amended return with the required statement, but did not extend the deadlines for the original return or extension form.

Ruling snapshot

• Question: May the taxpayer receive extra time to elect out of section 168(k) additional first-year depreciation?
• Outcome: Approved
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201537017
Third Party Communication: None
Release Date: 9/11/2015
Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
----------------------------------------------------- ------------------, ID No. ------------------
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Telephone Number:
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Refer Reply To:
CC:ITA:7
PLR-146119-14
Date:
June 03, 2015

Re: --------------------------------------------------------------------------------------------------------------
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Taxpayer = --------------------------------------------------------------- A = ------------ Date1 = ---------------------------

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

This ruling responds to a letter dated December 18, 2014, submitted by Taxpayer requesting an extension of time pursuant to §§ 301.9100-1 and 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 qualified property placed in service in the taxable year ended Date1.

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer is the common parent of a multinational group of companies, and it files Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, on a calendar- year basis. The multinational group designs, manufactures and distributes A via wholesale, retail, and e-commerce throughout the world. Taxpayer placed in service qualified property (as defined in § 168(k)(2)) during the taxable year ended Date1.

Due to an unusual series of events, Taxpayer failed to file timely a Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, requesting an extension of time to file Form 1120-F for the taxable year ended Date1. As a result, Taxpayer filed untimely Form 1120-F, including the election statement not to claim the additional first year depreciation
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deduction under § 168(k)(1) or § 168(k)(5) for qualified property placed in service during the taxable year, for the taxable year ended Date1.

Taxpayer was not aware that its Form 7004 had not been filed timely until it received a notice from the Internal Revenue Service indicating that Taxpayer did not timely file Forms 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, for the taxable year ended Date1. Upon receiving this notice, Taxpayer promptly filed this request to obtain an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 to file the election not to deduct the additional first year depreciation under §§ 168(k)(1) and 168(k)(5).

RULING REQUESTED

Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 to file the election not to deduct the additional first year depreciation under § 168(k)(1) and § 168(k)(5) for all 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 (i) acquired by a taxpayer after December 31, 2007, and before January 1, 2015, and (ii) placed in service by the taxpayer before January 1, 2015 (or January 1, 2016, 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 qualified property acquired by a taxpayer after September 8, 2010, and 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) of the Income Tax Regulations 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 (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.
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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 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 election 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. The 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 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 during the taxable year ended Date1 is eligible for the additional first year depreciation
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deduction. Also, we emphasize that this letter ruling does not grant any extension of time for the filing of Taxpayer’s Form 7004 or its Form 1120-F for the taxable year ended Date1.

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 are also sending a copy of this letter to the appropriate Industry Director, Large Business & International Division (LB&I).

Sincerely,

WILLIE 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