S corporation gets 60 days to make a late election opting out of bonus depreciation after its tax firm forgot to attach the statement

Plain-English summary

Bonus depreciation (the "additional first year depreciation" under Section 168(k)) normally lets
a business deduct 100% of the cost of qualifying property in the year it is placed in service. Some
taxpayers would rather not take it, and Section 168(k)(7) lets them elect out for a whole class of
property, but the election must be attached to a timely filed return. Here an S corporation
intended to elect out, and in fact did not claim any bonus depreciation on its Form 4562, but its
outside tax firm made an error and failed to attach the required election statement to the timely
return. The firm caught the mistake after the due date, and on every later return the company
kept depreciating the property as if the election had been made. The company asked the IRS for
late relief under the Section 301.9100-3 regulations. The IRS found it acted reasonably and in
good faith and granted a 60-day extension to make the election by filing an amended return with
the required statement. The IRS did not rule on whether any particular property actually qualifies
for bonus depreciation.

Ruling snapshot

• Question: May an S corporation get an extension of time to make a late § 168(k)(7) election not to deduct bonus depreciation, where its tax firm failed to attach the election statement?
• Outcome: approved (60-day extension to elect on an amended return)
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.168(k)-2(f)(1), 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202309005                                              Third Party Communication: None
 Release Date: 3/3/2023                                         Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                                Person To Contact:
 ------------------------------------------------------------   -----------------------, ID No. -------------------
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 -------------------------------------                          Telephone Number:
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 ------------------------------                                 Refer Reply To:
                                                                CC:ITA:B07
                                                                PLR-111210-22
                                                                Date:
                                                                December 5, 2022




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

Legend:

 Symbol                     Identity                                                   EIN #
 Taxpayer                   -------------------------------------                      ----------------
 Taxable Year               ------------------------------------------------------
                            -------
 Activity                   ------------------------------------------------------
                            ---------------------------------------
 Firm                       -------------------


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

       This letter responds to a letter dated May 31, 2022 and subsequent
correspondence submitted by your authorized representative on behalf of Taxpayer. In
such letter and subsequent correspondence, Taxpayer requests the consent of the
Commissioner of Internal Revenue (Commissioner) to grant 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) of the Internal Revenue Code for all classes of qualified property placed
in service during Taxable Year. This letter ruling is being issued electronically as
permissible under section 7.02(5) of Rev. Proc. 2022-1, 2022-1 I.R.B. 1, 35.

                                           FACTS

       Taxpayer represents that the facts are as follows:

      Taxpayer, an S corporation, files a Form 1120-S, U.S. Income Tax Return for an
S Corporation, on a calendar-year basis. Taxpayer's overall method of accounting is an
accrual method. Taxpayer's primary trade or business consists of Activity.

       Taxpayer engaged Firm, an outside tax consulting firm, to prepare and file its
Federal income tax return for Taxable Year. Taxpayer, with the assistance of Firm,
timely filed its Federal income tax return for Taxable Year.

        Taxpayer intended to make the election under § 168(k)(7) to not claim
the additional first year deduction for all classes of qualified property that Taxpayer
placed in service during Taxable Year. Further, Taxpayer did not claim the additional
first year depreciation deduction for any qualified property placed in service during
Taxable Year on Taxpayer's Form 4562, Depreciation and Amortization.

       However, due to Firm's error, Taxpayer inadvertently failed to attach the election
not to deduct additional first year depreciation to its Federal income tax return for
Taxable Year. Firm discovered the missed election after the due date of Taxpayer's
return for Taxable Year.

       On all Federal income tax returns filed after Taxable Year, Taxpayer determined
the depreciation deduction under Section 168 for all classes of qualified property placed
in service during Taxable Year as if Taxpayer had made a timely election not to deduct
the additional first year depreciation.

                                  RULING REQUESTED

      Accordingly, Taxpayer requests an extension of time under §§ 301.9100-1 and
301.9100-3 to file the election not to deduct the additional first year depreciation
deduction under § 168(k)(7) for all classes of property that are qualified property under
§ 168(k) and were placed in service by Taxpayer during Taxable Year.

                                   LAW AND ANALYSIS

       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.

       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 301.9100-1(c) provides that the Commissioner has the discretion to grant
a reasonable extension of time under the rules in §§ 301.9100-1(c) and 301.9100-3 to
make certain regulatory elections. Section 301.9100-1(b) defines a regulatory election
as an election with a due date prescribed by regulations published in the Federal
Register, or in a revenue ruling, revenue procedure, notice, or announcement published
in the Internal Revenue Bulletin.

       The requested election not to deduct additional first year depreciation is a
regulatory election as defined under § 301.9100-1(b) because the due date of the
election is prescribed in § 1.168(k)-2(f)(1)(iii)(A). Furthermore, Taxpayer's request must
be analyzed under the requirements of § 301.9100-3 because the automatic provisions
of § 301.9100-2 are not applicable.

        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

       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 under § 168(k)(7) not to deduct the additional first year
depreciation for all classes of property placed in service by Taxpayer during Taxable
Year, that qualify for the additional first year depreciation deduction. This election must
be made by Taxpayer filing an amended Federal tax return for Taxable Year, with a
statement indicating that Taxpayer is electing not to deduct the additional first year
depreciation for all classes of property placed in service 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 by
Taxpayer during the Taxable Year is eligible for the additional first year depreciation
deduction under § 168(k).

      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
                                          Senior Technician Reviewer, Branch 7
                                          Office of Associate Chief Counsel (Income Tax
                                          and Accounting)

Enclosures (2):

    copy of this letter
    copy for section 6110 purposes


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