Consolidated group gets 60 days to opt out of bonus depreciation

Plain-English summary

A corporate parent and its twelve subsidiaries placed qualified property in service during the relevant year. Their timely consolidated return did not claim bonus depreciation for any property class, as intended, but the in-house return preparation process omitted the required election statement. The IRS found that the group satisfied the standards for discretionary filing relief. It granted 60 calendar days for the parent to file an amended consolidated return with a statement electing not to deduct bonus depreciation for all qualifying property classes placed in service during the year.

Ruling snapshot

• Question: Could an affiliated group perfect its intended election out of bonus depreciation after omitting the required statement from its consolidated return?
• 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: 201548007 Third Party Communication: None
Release Date: 11/27/2015 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
---------------------------------------------------- -----------------, ID No. ----------------
---------------- Telephone Number:
----------------------------- --------------------
---------------------------------- Refer Reply To:
CC:ITA:7
PLR-107055-15
Date:
August 24, 2015

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

P = -----------------------------------------
S1 = -------------------------------------------------------------
S2 = ------------------------------------------------
S3 = ----------------------------------------------
S4 = ----------------------------------------------------------------
S5 = ------------------------------------------------------
S6 = ----------------------------------------
S7 = ----------------------------------------------------------
S8 = -----------------------------------------------------------
S9 = ------------------------------------------------------------
S10 = -----------------------------------------------------------------
S11 = ---------------------------------------------------------------
S12 = ---------------------------------------------------------------------------
Date1 = --------------------------

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

   This letter responds to a letter dated February 4, 2015, and subsequent

correspondence, submitted by P on behalf of itself and S1, S2, S3, S4, S5, S6, S7, S8,
S9, S10, S11, and S12 (hereinafter, P, S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11,
and S12 will be collectively referred to as 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 (Code) for all classes of qualified property placed in service in the
taxable year ended Date1.

FACTS

     P represents that the facts are as follows:

PLR-107055-15 2

    P is the common parent of an affiliated group of corporations, including S1, S2,

S3, S4, S5, S6, S7, S8, S9, S10, S11, and S12. This affiliated group of corporations
files consolidated federal income tax returns with a 52-53 week taxable year ending on
the Saturday nearest to December 31. Taxpayer is a multi-industry company that is
engaged in aircraft, defense, industrial and finance businesses.

  P’s consolidated federal income tax returns are prepared in house. Taxpayer

placed in service qualified property (as defined in § 168(k)(2)) during the taxable year
ended Date1.

    On P’s timely filed consolidated federal income tax return for the taxable year

ended Date1, Taxpayer did not claim the additional first year depreciation deduction for
all classes of qualified property it placed in service during the taxable year ended Date1.
However, Taxpayer inadvertently failed to attach to the return, as required by §
1.168(k)-1(e)(3)(ii) of the Income Tax Regulations, the election statement not to claim
the additional first year depreciation deduction for all classes of qualified property
Taxpayer placed in service for the taxable year ended Date1.

RULING REQUESTED

  Taxpayer requests 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) for all classes of property
placed in service during the taxable year ended Date1, that qualify for additional first
year depreciation.

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 September 9, 2010, or after December 31, 2011 (or December 31, 2012, for
qualified property described in § 168(k)(2)(B) or (C)), and before January 1, 2015, and
(ii) placed in service by the taxpayer before September 9, 2010, or after December 31,
2011 (or December 31, 2012, for qualified property described in § 168(k)(2)(B) or (C)),
and 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, (or January 1, 2013, for qualified property described
in § 168(k)(2)(B) or (C)), and placed in service by the taxpayer after September 8, 2010,
and 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.
PLR-107055-15 3

   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 (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)(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. This election must be made by P filing an amended
PLR-107055-15 4

consolidated federal income 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. 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 deduction.

  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.

  We are sending a copy of this letter to the appropriate Industry Director, Large

Business & International Division (LB&I).

                                             Sincerely,

                                             KATHLEEN REED

                                             KATHLEEN REED
                                             Branch Chief, Branch 7
                                             Office of Associate Chief Counsel
                                             (Income Tax and Accounting)

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