Consolidated group may revoke bonus depreciation opt-out

Plain-English summary

A consolidated group engaged in the coal business placed five-year and seven-year qualified property in service. On its timely return, it elected not to claim the 50 percent additional first-year depreciation deduction for all property classes and also made an election involving round 4 extension property. The group's tax department had not known the ordering rules that applied to those elections. Because an election out of additional first-year depreciation can be revoked only with IRS consent, the group requested a ruling. The IRS granted 60 days to revoke the election through a written statement attached to an amended consolidated return, without deciding whether any property actually qualified for the deduction or related refundable credits.

Ruling snapshot

• Question: Could the consolidated group revoke its election not to claim additional first-year depreciation?
• Outcome: Approved, with 60 days to file the revocation on an amended return.
• Key authorities: IRC § 168(k); Treas. Reg. § 1.168(k)-1(e)(7)(i); Rev. Proc. 2008-65.

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201636001                                              Third Party Communication: None
Release Date: 9/2/2016                                         Date of Communication: Not Applicable
Index Number: 168.36-00
                                                               Person To Contact:
------------------------                                       --------------------------, ID No. ------------
------------------------------------------------------------   Telephone Number:
------------                                                   --------------------
----------------------------------------                       Refer Reply To:
---------------------------------------------                  CC:ITA:B07
--------------------------                                     PLR-100057-16
                                                               Date:
                                                               June 06, 2016




                  Re: ---------------------------------------------------------------------------------------------
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PLR-100057-16                                           2

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

       This letter ruling responds to a letter dated December 23, 2015, submitted by P
on behalf of itself and S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12, S13, S14,
S15, S16, S17, S18, S19, S20, S21, S22, S23, S24, S25, S26, S27, S28, S29, S30,
S31, S32, and S33 (hereinafter P, S1, S2, S3, S4, S5, S6, S7, S8, S9, S10, S11, S12,
S13, S14, S15, S16, S17, S18, S19, S20, S21, S22, S23, S24, S25, S26, S27, S28,
S29, S30, S31, S32, and S33 will be collectively referred to as Taxpayer), requesting
the consent of the Commissioner of Internal Revenue to revoke Taxpayer’s election not
to deduct the additional first year depreciation provided by § 168(k) of the Internal
Revenue Code for all classes of qualified property placed in service by Taxpayer during
the taxable year ended A (the “B taxable year”).

       All references in this letter ruling to § 168(k) are treated as a reference to §
168(k) as in effect on the day before the date of the enactment of the Protecting
Americans from Tax Hikes Act of 2015 (PATH Act), enacted as part of the Consolidated
Appropriations Act, 2016, Division Q, Pub. L. 114-113, 129 Stat. 2242 (December 18,
2015).

                                                   FACTS

        Taxpayer represents that the facts are as follows:

     Taxpayer files a consolidated federal income tax return on a calendar year basis.
Taxpayer’s overall method of accounting is the accrual method.

       Taxpayer is primarily engaged in the business of extracting, processing, and
marketing steam and metallurgical coal from surface and deep mines. During the B
taxable year, Taxpayer placed in service qualified property (as defined in § 168(k)(2)
before the application of § 168(k)(2)(D)(iii)). The qualified property is 5-year and 7-year
property, which also is round 4 extension property (as defined in § 168(k)(4)(K)(iii) and
in section 4.01 of Rev. Proc. 2015-48, 2015-40 I.R.B. 469).
PLR-100057-16                                 3


        Taxpayer’s tax department prepared its consolidated federal income tax return
for the B taxable year. On its timely filed consolidated federal income tax return for the
B taxable year, Taxpayer made (i) an election under § 168(k)(2)(D)(iii) not to claim the
50-percent additional first year depreciation deduction for all classes of qualified
property placed in service during the B taxable year, and (ii) an election to apply §
168(k)(4) for round 4 extension property. Taxpayer’s tax department was not aware of
the ordering rules for applying elections under § 168(k), as provided by section 4.04 of
Rev. Proc. 2008-65, 2008-44 I.R.B. 1082, which was issued before the B taxable year.

                                 RULING REQUESTED

       Taxpayer requests consent to revoke its election not to deduct any additional first
year depreciation for all classes of qualified property placed in service during the
taxable year ended A.

                                  LAW AND ANALYSIS

       Section 168(k)(1) provides a 50-percent additional first year depreciation
deduction for the placed-in-service year for qualified property (i) acquired by a taxpayer
after December 31, 2007, and before September 9, 2010, or acquired by a taxpayer
generally after December 31, 2011, and (ii) placed in service by the taxpayer before
September 9, 2010, or generally after December 31, 2011, and before January 1, 2015.

        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 (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)(7)(i) provides that an election not to deduct the additional
first year depreciation for a class of property that is qualified property, once made, may
be revoked only with the written consent of the Commissioner of Internal Revenue. To
seek the Commissioner’s consent, the taxpayer must submit a request for a letter ruling.

                                      CONCLUSION

       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
PLR-100057-16                                4

not to deduct any 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 consolidated federal income
tax return for the 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 § 168). Specifically, no opinion is
expressed or implied on (1) whether any item of depreciable property placed in service
by Taxpayer in the taxable year ended on A, is eligible for the additional first year
depreciation deduction under § 168(k)(1) or is round 4 extension property for purposes
of § 168(k)(4), or (2) whether Taxpayer’s determination of the refundable tax credits
under § 168(k)(4) is proper.

      This letter 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 representatives. We are also sending a copy of this letter to the
appropriate operating division director.



                                      Sincerely,

                                      Kathleen Reed

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

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