Affiliated group receives 60 days to elect out of bonus depreciation

Plain-English summary

An affiliated corporate group intended to elect out of the Section 168(k) additional first-year depreciation deduction for every class of qualified property it placed in service during a taxable year. Its timely consolidated return reflected that treatment, but the parent inadvertently omitted the required election statement and discovered the omission during a financial statement audit. The IRS found that the Section 9100 requirements were satisfied and granted 60 calendar days to make the election. The parent must file an amended consolidated return with a statement identifying the election and all affected property classes.

Ruling snapshot

• Question: Could the affiliated group receive extra time to file the statement electing out of additional first-year depreciation for all qualified-property classes?
• Outcome: Approved, with 60 calendar days to file an amended consolidated return and election statement.
• Key authorities: IRC § 168(k)(7); Treas. Reg. § 1.168(k)-2(f); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202132004 Third Party Communication: None
Release Date: 8/13/2021 Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
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------------------------------------ Telephone Number:
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----- Refer Reply To:
---------------------------------------- CC:ITA:B07
------------------------------ PLR-126246-20
Date:
May 14, 2021

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

LEGEND:

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

    This letter ruling responds to a letter dated September 24, 2020, and subsequent

correspondence, that was submitted by Parent on behalf of itself and its affiliated
entities, S1 through S45 (hereinafter Parent and S1 through S45 are collectively
referred to as “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
to not deduct additional first year depreciation under § 168(k) of the Internal Revenue
Code for all classes of qualified property placed in service by Taxpayer during its
taxable year ending on Date1. This letter ruling is being issued electronically in
accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be
mailed.
PLR-126246-20 3

    Unless provided otherwise, all references in this letter ruling to § 168(k) are

treated as a reference to § 168(k) as in effect after amendment by the Tax Cuts and
Jobs Act, Pub. L. 115-97, 131 Stat. 2054 (December 22, 2017). Further, all references
in this letter ruling to § 1.168(k)-2 of the Income Tax Regulations are treated as a
reference to the final regulations under § 1.168(k)-2 that were published on September
24, 2019, in the Federal Register (84 FR 50108). Pursuant to § 1.168(k)-2(h)(1)(i),
§ 1.168(k)-2 applies to qualified property under § 168(k)(2) that is placed in service
during or after the taxpayer’s taxable year that includes September 24, 2019.

                                       FACTS

   Parent represents that the facts are as follows:

   Parent is the common parent of an affiliated group of corporations, which

includes S1 through S45, that join in filing a consolidated federal income tax return.
Taxpayer’s annual accounting period is a 52- or 53-week fiscal year ending on the
Saturday closest to the last day of Month. Taxpayer’s overall method of accounting is
the accrual method. Taxpayer is a X.

    In its taxable year ending on Date1, Taxpayer placed in service qualified

property, as defined in § 168(k)(2). Taxpayer decided to make the election under §
168(k)(7) to forego the additional first year depreciation deduction for all classes of
qualified property placed in service during that taxable year.

   Parent timely filed its consolidated federal income tax return for the taxable year

ending on Date1, on Date2. This tax return properly reflected Taxpayer’s decision to
elect not to deduct additional first year depreciation for all classes of qualified property.
However, Parent inadvertently omitted the required election statement.

   After the filing of the consolidated federal income tax return for the taxable year

ending on Date1, and during Parent’s financial statement audit, Parent’s independent
financial auditors requested a copy of that tax return’s attachment reflecting the election
to not deduct the additional first year depreciation deduction. At that point, Parent
realized that such election statement was not included with its consolidated federal
income tax return for the taxable year ending on Date1.

                                RULING REQUESTED

    Parent requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3

of the Procedure and Administration Regulations to make the election under § 168(k)(7)
not to deduct the additional first year depreciation under § 168(k) for all classes of
qualified property placed in service by Taxpayer during the taxable year ending on
Date1.
PLR-126246-20 4

                                       LAW

   Section 168(k)(1) allows, for the taxable year in which qualified property is placed

in service, an additional first year depreciation deduction equal to the applicable
percentage of the adjusted basis of that qualified property.

    For qualified property acquired by a taxpayer after September 27, 2017,

§§ 168(k)(6)(A)(i) and (B)(i) provide that the applicable percentage is 100 percent for
qualified property placed in service by the taxpayer after September 27, 2017, and
before January 1, 2023 (before January 1, 2024, for qualified property described in
§ 168(k)(2)(B) and (C)).

    Section 168(k)(7) 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.
Section 1.168(k)-2(f)(1)(i) provides that if this election is made, the election applies to all
qualified property that is in the same class of property and placed in service in the same
taxable year, and no additional first year depreciation deduction is allowable for the
property placed in service during the taxable year in the class of property, except as
provided in § 1.743-1(j)(4)(i)(B)(1). The term "class of property" is defined in § 1.168(k)-
2(f)(1)(ii) as meaning, among other things, each class of property described in § 168(e)
(for example, 5-year property).

    Section 1.168(k)-2(f)(1)(iii)(A) 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 qualified property is placed in service
by the taxpayer.

    Section 1.168(k)-2(f)(1)(iii)(B) 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 Year taxable year 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(a), 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 a
regulatory election. Section 301.9100-2 provides automatic extensions of time for
making certain elections. Section 301.9100-3 provides rules for requesting extensions
of time for making regulatory elections that do not meet the requirements of § 301.9100-
2.
PLR-126246-20 5

    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.

                                   CONCLUSION

     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 an extension of 60 calendar days from the date of this letter ruling
to make the election not to deduct the additional first year depreciation under § 168(k)
for all classes of qualified property placed in service by Taxpayer during the taxable
year ending Date1. This election must be made by Parent filing an amended
consolidated federal income tax return for the taxable year ending Date1, with a
statement indicating that Taxpayer is electing not to deduct the additional first year
depreciation for all classes of qualified property placed in service by Taxpayer during
that taxable year.

   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 (1) whether any item of depreciable property placed in service
by Taxpayer during the taxable year ending Date1, is eligible for the additional first year
depreciation deduction under § 168(k), or (2) whether Taxpayer’s classification of any
item of depreciable property under § 168(e) or Rev. Proc. 87-56, 1987-2 C.B. 674, is
correct.

  The rulings contained in this letter are based upon information and

representations submitted by Parent 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.

    A copy of this letter ruling must be attached to any federal income tax return to

which it is relevant. Alternatively, a taxpayer filing its federal return electronically may
satisfy this requirement by attaching a statement to their return that provides the date
and control number of the letter ruling.

  This letter ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that this ruling may not be used or cited as precedent.
PLR-126246-20 6

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter ruling to Parent’s authorized representative. We are also sending a
copy of this letter ruling 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

cc: