Equipment-leasing partnership gets extra time to elect out of bonus depreciation after a software switch delayed its return

Plain-English summary

Businesses that buy qualifying property can take a large "bonus depreciation"
deduction (100% first-year write-off) under Section 168(k), but they can also
elect not to take it for a class of property, which is sometimes better for tax
planning. That election must normally be made on a timely filed return. Here an
equipment-leasing partnership meant to elect out, but a mid-year switch to new
lease-tracking software delayed the data it needed, so its Form 1065 was filed
late (the election statement was attached, just not on time). The partnership
asked the IRS for an extension under the Section 301.9100-3 relief rules. The IRS
found the partnership acted reasonably and in good faith and granting relief would
not prejudice the government, so it treated the election on the late-filed return
as timely. The IRS did not extend the return's filing deadline itself and took no
position on whether any specific property actually qualified for bonus
depreciation.

Ruling snapshot

• Question: Should the partnership get an extension under Section 301.9100-3
  to make the Section 168(k)(7) election not to claim bonus depreciation on its
  late-filed return?
• Outcome: Approved (election treated as timely made)
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.168(k)-2(f),
  301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202210013                                             Third Party Communication: None
 Release Date: 3/11/2022                                       Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                               Person To Contact:
                                                               --------------------------, ID No. ----------------
                                                               Telephone Number:
                                                               --------------------
                                                               Refer Reply To:
 --------------------------------                              CC:ITA:B07
 ----------------------------------                            PLR-114778-21
 -------------------------                                     Date:
 -------------                                                 December 10, 2021
 --------------------------




Re: Request for extension of time to make the election not to deduct the additional first
year depreciation

Legend

Taxpayer              =       -----------------------------------------------------------
Firm                  =       ------------------
Taxable Year          =       ------------------------------------------
Date1                 =       ---------------------------
Date2                 =       ------------------------



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

       This letter ruling responds to a letter dated April 8, 2021, submitted by your
authorized representative on behalf of Taxpayer. In that letter, Taxpayer requests the
consent of the Commissioner of Internal Revenue (Commissioner) to grant an extension
of time pursuant to §§ 301.9100 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) of the Internal Revenue Code for all classes of qualified property placed
in service by Taxpayer during the Taxable Year. This letter ruling is being issued
electronically in accordance with section 7.02(5) of Rev. Proc. 2021-1, 2021-1 I.R.B. 1,

35. A paper copy will not be mailed.

      All references in this letter ruling to § 168(k) refer to § 168(k) as in effect on the
day before the date of the enactment of the Taxpayer Certainty and Disaster Tax Relief
PLR-114778-21                                 2

Act of 2020, enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub.
L. No. 116-260, 134 Stat. 1182 (December 27, 2020).

                                             FACTS

       Taxpayer represents that the facts are as follows:

      Taxpayer, a partnership, files a Form 1065, U.S. Return of Partnership Income,
on a calendar year basis. Taxpayer's overall method of accounting is an accrual
method. Taxpayer's primary trade or business is equipment leasing.

      Taxpayer engaged Firm to prepare and file its Federal income tax return for the
Taxable Year. Taxpayer intended to make the election under § 168(k)(7) to not claim
the additional first year deduction for certain classes of qualified property that Taxpayer
placed in service during the Taxable Year. The due date of Taxpayer's Form 1065 for
the Taxable Year, with extensions, was Date1.

        Taxpayer uses lease tracking software to generate reports necessary to prepare
its financial statements, a required external audit, and its Federal income tax return. In
the Taxable Year, Taxpayer needed to change from its then current lease tracking
software to a new leasing software program with a different provider. Due to
unforeseen circumstances, including delays in converting from the old software program
to the new software program, Taxpayer was not able to provide Firm the information
necessary to complete the preparation of Taxpayer's Federal income tax return for
Taxable Year by the due date, Date1. Instead, Firm filed Taxpayer's Form 1065 for the
Taxable Year, on Date2, which is after the due date. On the Form 4562, Depreciation
and Amortization, attached to its late-filed Form 1065, Taxpayer did not deduct any
additional first year depreciation for property placed in service by Taxpayer during the
Taxable Year. The late-filed Form 1065 also included the election statement not to
claim the additional first year depreciation for all property placed in service by Taxpayer
during the Taxable Year, that would otherwise qualify for the additional first year
depreciation deduction under § 168(k) and that is in the following classes of property: 3-
year property, 5-year property, 7-year property, 15-year property, and computer
software for which a deduction is allowable under § 167(a), and qualified improvement
property.
                                       RULING REQUESTED

       Accordingly, 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
under § 168(k)(7) not to deduct the additional first year depreciation for all classes of
property that are qualified property under § 168(k) and placed in service by Taxpayer
during the Taxable Year.


                                      LAW AND ANALYSIS
PLR-114778-21                                 3

       Sections 168(k)(1) and (6) allow, in the taxable year that qualified property is
placed in service, a 100-percent additional first year depreciation deduction for qualified
property acquired by the taxpayer after September 27, 2017, and placed in service by
the taxpayer after September 27, 2017, and before January 1, 2023 (or before January
1, 2024 for qualified property described in § 168(k)(2)(B) or (C)).

        Section 168(k)(7) provides that a taxpayer may make an election not to deduct
the additional first year depreciation for any class of property that is qualified property
placed in service during the taxable year (the § 168(k)(7) election). Section 1.168(k)-
2(f)(1)(i) of the Income Tax Regulations provides that the § 168(k)(7) election applies to
all qualified property that is in the same class of property and placed in service in the
same taxable year. Section 1.168(k)-2(f)(1)(ii) defines "class of property" for purposes
of the § 168(k)(7) election as meaning each class of property described in § 1.168(k)-
2(f)(1)(ii)(A)-(G).

       Section 1.168(k)-2(f)(1)(iii)(A) provides that the § 168(k)(7) 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)-2(f)(1)(iii)(B) provides that the § 168(k)(7) 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, 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.

       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 that granting
relief will not prejudice the interests of the Government.

                                          CONCLUSION
PLR-114778-21                                 4

       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 time to make the election under § 168(k)(7) not to
deduct the additional first year depreciation for all classes of property placed in service
by Taxpayer during the Taxable Year, that qualify for the additional first year
depreciation deduction. In this regard, we will consider the § 168(k)(7) election made by
Taxpayer on its Form 1065 for the Taxable Year, filed on Date2, to be timely made.

       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 by
Taxpayer during the Taxable Year, is eligible for the additional first year depreciation
deduction under § 168(k).

      Further, this letter ruling does not grant any extension of time for filing Taxpayer's
Form 1065 for the Taxable Year.

      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 Taxpayer's authorized representatives. We are also sending a copy of this
letter ruling to the appropriate IRS operating division official.

                                          Sincerely,



                                          EVAN K. HEWITT
                                          Assistant to the Branch Chief, Branch 7
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)


Enclosures (2):

copy of this letter
copy for section 6110 purposes


cc: