REIT received 60 days to elect out of bonus depreciation

Plain-English summary

A real estate investment trust intended to elect out of additional first-year depreciation for its 5-year and 15-year property under Section 168(k)(7). Its return preparer did not claim bonus depreciation on Form 4562 but inadvertently omitted the separate election statement required with the timely filed return. The preparer later discovered the omission and notified the REIT. The IRS found that the requirements for discretionary filing relief were satisfied and granted 60 days to make the election. The REIT must file an amended Form 1120-REIT with a statement electing out for the relevant classes of qualified property.

Ruling snapshot

• Question: Could the REIT receive extra time to make a Section 168(k)(7) election for its 5-year and 15-year property?
• Outcome: approved, with a 60-day extension
• 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: 202419015                                             Third Party Communication: None
 Release Date: 5/10/2024                                       Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                               Person To Contact:
         ,                                                     -----------------------, ID No. -----------------
                                                               Telephone Number:
                                                               --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B07
                                                               PLR-121521-23
                                                               Date:
                                                               February 15, 2024




Re: Request for Extension of Time to Make the Election Under § 168(k)(7) Not to
Deduct Additional First Year Depreciation

Legend

 Symbol                    Identity
 Taxpayer                  -----------------------------
                           -----------------------
 The Taxable Year          --------------------------
 X                         ---------------------------------------------------
                           ------------------------------------
 Firm                      --------------------------------
 Date                      -----------------------
 Month                     ---------------


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

       This letter refers to a letter dated October 14, 2023, and subsequent
correspondence, submitted by your representative on behalf of 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 under § 168(k)(7) of the Internal
Revenue Code (Code) not to deduct additional first year depreciation under § 168(k) for
the 5-year and 15-year classes of qualified property placed in service by Taxpayer
during the Taxable Year. This letter ruling is being issued electronically, as permissible
under section 7.02(5) of Rev. Proc. 2023-1, 2023-1 I.R.B. 1, 35.

      Unless provided otherwise, all references in this letter ruling to § 168(k) refer 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). All references to § 1.168(k)-2 of the Income Tax

PLR-121521-23                                 2

Regulations refer to the final regulations under § 1.168(k)-2 published in the Federal
Register on November 10, 2020 (85 FR 71734).

                                          FACTS

       Taxpayer represents that the facts are as follows:

        Taxpayer, a limited liability company, is classified as a real estate investment
trust (REIT) for federal income tax purposes, and files a Form 1120-REIT, U.S. Income
Tax Return for Real Estate Investment Trusts (Form 1120-REIT) on a calendar year
basis. Taxpayer's overall method of accounting is an accrual method. Taxpayer is
engaged in the business of X. Taxpayer made an election to be treated as a real
property trade or business pursuant to § 163(j)(7)(B).

        During the Taxable Year, Taxpayer placed in service depreciable property that is
classified as (i) 5-year property and (ii) 15-year property that is qualified property under
§ 168(k)(2) of the Code.

       Taxpayer engaged Firm to prepare and file its federal income tax return for the
Taxable Year (the tax return for the Taxable Year). Taxpayer’s tax return for the
Taxable Year was timely filed on Date. On its tax return for the Taxable Year, Taxpayer
intended to make the election under § 168(k)(7) not to deduct the additional first year
depreciation for its 5-year and 15-year classes of property. Taxpayer did not deduct
additional first year depreciation under § 168(k)(1) for the 5-year and the 15-year
classes of property on its Form 4562, Depreciation and Amortization, for the Taxable
Year. However, Firm inadvertently failed to file the required election statement not to
deduct additional first year deprecation under § 168(k)(7) with the tax return for the
Taxable Year.

       During Month, Firm discovered that the § 168(k)(7) election statement not to
deduct additional first year depreciation for the classes of qualified property was not
attached to Taxpayer’s return for the Taxable Year. Firm notified Taxpayer that the
election not to deduct additional first year depreciation had not been properly made.

                                  RULING REQUESTED

      Accordingly, Taxpayer requests an extension of time under §§ 301.9100-1 and
301.9100-3 to make the election under § 168(k)(7) not to deduct additional first year
depreciation for its 5-year and 15-year classes of property that were placed in service
by Taxpayer during the Taxable Year.

                                  LAW AND ANALYSIS

       Sections 168(k)(1) allows, in the taxable year that qualified property is placed in
service, a 100-percent additional first year depreciation deduction for qualified property

PLR-121521-23                                 3

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

PLR-121521-23                                 4

                                      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 § 168(k)(7) election not to deduct the additional first year depreciation
under § 168(k) for the 5-year and 15-year classes of property placed in service by
Taxpayer during the Taxable Year. This election must be made by Taxpayer by filing an
amended Form 1120-REIT for the Taxable Year, 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 the Taxable Year.

       Additionally, 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.

       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).

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

                                           Sincerely,



                                           Elizabeth R. Binder
                                           Senior Counsel, Branch 7
                                           Office of Associate Chief Counsel
                                           (Income Tax and Accounting)

PLR-121521-23                                             5

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

cc:       --------------------------------
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