Late elections out of bonus depreciation receive 60 days

Plain-English summary

A consolidated corporate group consistently calculated depreciation as though it had elected out of additional first-year depreciation for specified property classes across seven taxable years. Its timely returns omitted the required election statements, although it claimed 100 percent bonus depreciation for two excluded classes in one year. The IRS found that the discretionary-relief requirements were satisfied and granted 60 days to perfect the elections. For open years, the parent had to file amended consolidated returns with the election statements. For closed years, it had to file the statements with the IRS office where the original returns were filed.

Ruling snapshot

• Question: Could the corporate group make late elections not to claim additional first-year depreciation for specified property classes and years?
• Outcome: approved, with 60 days to file amended returns or election statements as applicable
• Key authorities: IRC § 168(k); Treas. Reg. §§ 1.168(k)-1(e) and 301.9100-1 through 301.9100-3; Rev. Procs. 2008-54 and 2011-26

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201649001                                             Third Party Communication: None
Release Date: 12/2/2016                                       Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                              Person To Contact:
-----------------------------                                 ----------------------, ID No. --------------------
-------------------------                                     ----------------------------------------------------
------------------------------                                Telephone Number:
                                                              ----------------------
Attn: -----------------------------------------------------   Refer Reply To:
------------------------------                                CC:ITA:B07
                                                              PLR-106847-16
                                                              Date: August 25, 2016




In re: Request For An Extension Of Time To Make the Election Not to Deduct the
Additional First Year Depreciation

LEGEND:

Parent = ------------------------------------------------------
S1= ------------------------------------------------------------------------------------
S2= --------------------------------------------------------------
S3= -----------------------------------------------------------------
S4= -----------------------------------------------------------
S5= -----------------------------------------------------------------------
State A = --------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Year 5 = -------
Year 6 = -------
Year 7 = -------
Business X = -------------------------------------------------------------------------------------------------
-------------

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

       This letter responds to a letter dated February 26, 2016, and supplemental
correspondence, submitted by Parent on behalf of itself and S1, S2, S3, S4, and S5
(hereinafter 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 deduction under §§ 168(k)(1)
and 168(k)(5) of the Internal Revenue Code for certain classes of qualified property
PLR-106847-16                                2

placed in service by Taxpayer during the taxable years Year 1, Year 2, Year 3, Year 4,
Year 5, Year 6, and Year 7.

       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

        Parent is a State A corporation and the common parent of an affiliated group of
corporations that includes S1, S2, S3, S4, and S5. The affiliated group of corporations
files a consolidated federal income tax return on a calendar-year basis. Taxpayer is
engaged in Business X. As of the date of filing this letter ruling request, Taxpayer’s
taxable year Year 1 is a taxable year for which the period of limitation on assessment
under § 6501(a) has expired.

       Taxpayer placed in service qualified property (as defined in § 168(k)(2)) that is 3-
year, 5-year, 7-year, or 15-year property during the taxable years Year 1, Year 2, Year
3, Year 4, Year 5, Year 6, and Year 7. For each of these taxable years, Taxpayer
decided to make the election under § 168(k)(2)(D)(iii) not to claim the additional first
year depreciation under §§ 168(k)(1) or 168(k)(5), as applicable, with respect to each
class of qualified property, except for 5-year and 7-year property placed in service
during Year 4.

       On Parent’s timely filed consolidated federal income tax returns for the taxable
years Year 1, Year 2, Year 3, Year 4, Year 5, Year 6, and Year 7, Taxpayer did not
deduct the additional first year depreciation for all classes of qualified property, except
for 5-year and 7-year property placed in service during Year 4 for which the 100-percent
additional first year depreciation was claimed. However, Taxpayer inadvertently failed
to attach to these returns the required election statement identifying the classes of
property subject to the election under § 168(k)(2)(D)(iii).

       For the placed-in-service year and each subsequent taxable year, Taxpayer
determined the depreciation deduction and the adjusted basis of the qualified property
at issue, except for 5-year and 7-year property placed in service during Year 4, as if the
election under § 168(k)(2)(D)(iii) had been made with respect to the classes of property
at issue.

RULING REQUESTED

       Taxpayer requests an extension of time pursuant to § 301.9100-3 to make the
election under § 168(k)(2)(D)(iii) to not deduct the additional first year depreciation
PLR-106847-16                                 3

under §§ 168(k)(1) or 168(k)(5), as applicable, for all classes of qualified property
placed in service by Taxpayer during the taxable years Year 1, Year 2, Year 3, Year 4,
Year 5, Year 6, and Year 7, except for 5-year and 7-year property placed in service
during Year 4.

LAW AND ANALYSIS

       Section 168(k)(1) allows, in the taxable year that qualified property is placed in
service, 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 168(k)(2)(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 168(k)(2)(C)) and before
January 1, 2015 (or January 1, 2016, for qualified property described in §§ 168(k)(2)(B)
or 168(k)(2)(C)) .

       Section 168(k)(5) provides a 100-percent additional first year depreciation
deduction in the placed-in-service year for qualified property acquired by a taxpayer
after September 8, 2010, and generally before January 1, 2012, and placed in service
by the taxpayer after September 8, 2010, and generally before January 1, 2012. 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, 2011-16 I.R.B. at 665 (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
years Year 1, Year 2, Year 3, Year 4, Year 5, Year 6, and Year 7 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.
PLR-106847-16                                 4


       Under § 301.9100-1, the Commissioner of Internal Revenue 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 by Taxpayer during the taxable years Year 1, Year 2, Year 3,
Year 4, Year 5, Year 6, and Year 7, that qualify for the additional first year depreciation
deduction, other than the 5-year and 7-year property placed in service in Year 4. This
election must be made by Parent: (i) filing an amended consolidated federal tax income
tax return for each such taxable year that is an open taxable year as of the date
provided in the preceding sentence, with a written statement indicating that Taxpayer is
electing not to deduct the additional first year depreciation and identifying the class(es)
of property for which the election is made; and (ii) filing such written statement with the
IRS office where Parent filed its original consolidated federal income tax return(s) for
any taxable year(s) at issue that is a closed taxable year(s) as of the date provided in
the preceding sentence.

        A copy of this letter ruling must be attached to any federal income tax return to
which it is relevant or to the written statement, as applicable. A copy is enclosed for that
purpose. Alternatively, a taxpayer filing its federal income tax return electronically may
satisfy this requirement by attaching a statement to the return that provides the date and
control number of the letter ruling.

       Except as specifically set forth above, no opinion is expressed or implied
concerning the federal 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 by
PLR-106847-16                                 5

Taxpayer during the taxable years at issue is eligible for the additional first year
depreciation deduction.

      The rulings contained in this letter are 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 rulings, it is subject to verification on
examination.

      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 Parent’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 & Accounting)


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