Airline group receives more time to elect out of bonus depreciation

Plain-English summary

An airline consolidated group decided not to claim 50 percent additional first-year depreciation for specified five-year and seven-year property. Its timely return consistently omitted the bonus depreciation deduction, but the parent inadvertently failed to attach the required election statement. The IRS found that the group satisfied the requirements for regulatory election relief. It granted 60 days to file an amended consolidated return with a statement electing out for the identified property classes.

Ruling snapshot

• Question: Could the airline group make a late election not to deduct bonus depreciation for specified property classes?
• Outcome: Approved, with 60 days to file an amended return and election statement.
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201638001                                              Third Party Communication: None
Release Date: 9/16/2016                                        Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                               Person To Contact:
--------------------------                                     -------------------------, ID No. -----------------
----------------------                                         -----------------------------------------------------
--------------------------------------                         Telephone Number:
------------------------------------                           --------------------
-----------------------------------------------                Refer Reply To:
                                                               CC:ITA:7
                                                               PLR-100402-16
                                                               Date:
                                                               June 20, 2016




Re:

P                 =        ----------------------------------------------------------------
S1                =        -------------------------------------------------------
S2                =        ---------------------------------------------
S3                =        -------------------------------------------------------
S4                =        ------------------------------------------------------------
S5                =        ------------------------------------------------
Firm              =        -------------------------
Date              =        --------------------------

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

       This letter responds to a letter dated December 28, 2015, and subsequent
correspondence, submitted by P on behalf of S1, S2, S3, S4, and S5 (hereinafter, S1,
S2, S3, S4, and S5 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 for certain classes of qualified property placed in service in
the taxable year ended Date.

       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
PLR-100402-16                                 2


       P represents that the facts are as follows:

         P is the common parent of an affiliated group of corporations, including wholly-
owned subsidiaries, S1, S2, S3, S4, and S5, that files consolidated federal income tax
returns with a taxable year ending December 31. Taxpayer’s primary business activity
is airline transportation.

       During the taxable year ended Date, S1, S2, S3, and S4 placed in service 5-year
and 7-year property, and S5 placed in service 5-year property. These 5-year property
and 7-year property are qualified property (as defined in § 168(k)(2)). After consulting
with Firm, P decided to make the election under § 168(k)(2)(D)(iii) not to claim the 50-
percent additional first year depreciation for these classes of property and for Taxpayer.

        On P’s timely filed consolidated federal income tax return for the taxable year
ended Date, Taxpayer did not claim the additional first year depreciation deduction for
the following qualified property: 5-year property placed in service by Taxpayer, and 7-
year property placed in service by S1, S2, S3, and S4, during the taxable year ended
Date. However, P and Taxpayer inadvertently failed to attach to such 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 such classes of qualified
property.

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 the following classes of
property that qualify for additional first year depreciation: 5-year property placed in
service by Taxpayer, and 7-year property placed in service by S1, S2, S3, and S4,
during the taxable year ended Date.
       .
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 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).
PLR-100402-16                                 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 (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 Date, 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 the following
classes of property that qualify for additional first year depreciation: 5-year property
placed in service by Taxpayer, and 7-year property placed in service by S1, S2, S3, and
S4, during the taxable year ended Date. This election must be made by P filing an
PLR-100402-16                                 4

amended 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
5-year property placed in service by Taxpayer, and for 7-year property placed in service
by S1, S2, S3, and S4, 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 Date, is eligible for the additional first year depreciation
deduction.

      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
ruling to P’s authorized representative. We also are sending a copy of this letter ruling
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):
      copy of this letter
      copy for section 6110 purposes