REIT received more time to elect out of bonus depreciation

Plain-English summary

A real estate investment trust intended not to claim additional first-year depreciation for several classes of qualified property. Its return reflected no depreciation for that property, but the accounting firm inadvertently omitted the required election statement. The firm discovered the omission while preparing the following year's return. The IRS found that the late-election standards were satisfied and granted 60 days to make the Section 168(k)(7) election.

Ruling snapshot

• Question: Could the REIT receive more time to elect not to deduct bonus depreciation for specified property classes?
• Outcome: approved
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.168(k)-2, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224
 Index Number: 9100.00-00
                                                              Third Party Communication: None
                                                              Date of Communication: Not Applicable

 Number: 202423005
                                                              Person To Contact:
 Release Date: 6/7/2024
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                                                              PLR-119360-23
                                                              Date: March 5, 2024




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

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

      This letter refers to a letter dated September 19, 2023, and supplemental
information, submitted on behalf of Taxpayer by Taxpayer’s authorized representative,
requesting an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 of the
PLR-119360-23                                  2

Procedure and Administration Regulations to make the election under § 168(k)(7) of the
Internal Revenue Code not to deduct additional first year depreciation under § 168(k) for
certain 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) 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 to
§ 1.168(k)-2 of the Income Tax Regulations are treated as a reference to the final
regulations under § 1.168(k)-2 published in the Federal Register on November 10, 2020
(85 FR 71734).

                                           FACTS

        Taxpayer, a limited liability company, is treated as 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, on a calendar year basis (Form 1120).
Taxpayer’s overall method of accounting is the accrual method. Taxpayer’s Form 1120
for the Taxable Year was filed by the due date, Date1.

        Taxpayer engaged Firm to prepare and file its Form 1120 for the Taxable Year.
Taxpayer intended to make the election under § 168(k)(7) not to claim the additional
first year depreciation on the return for its 3-year, 5-year, 9-year, 10-year, and 20-year
year classes of qualified property (the qualified property) that Taxpayer placed in
service during the Taxable Year. Taxpayer communicated its desire to make the
§ 168(k)(7) election to Firm prior to Date 1. Taxpayer relied on Firm for advice to
comply with the procedural requirements to make the § 168(k)(7) election for the
Taxable Year and understood that Firm would take the appropriate steps to make the
election.

      Firm prepared Taxpayer’s Form 1120 and attached a Form 4562, Depreciation
and Amortization, for the Taxable Year. Taxpayer did not deduct any depreciation for
the qualified property that Taxpayer placed in service during Taxable Year on the Form
4562. Firm timely filed Taxpayer’s Form 1120 electronically with the attached the Form
4562 on or before Date1. However, the required § 168(k)(7) election statement was
inadvertently omitted from the filing.

       In Date2, while preparing Taxpayer’s Form 1120 for Year2, Firm discovered that
the election statement was inadvertently omitted from the Taxpayer’s Form 1120 for the
Taxable Year. Firm informed Taxpayer immediately of the failure to file the election
statement required to make the § 168(k)(7) election for the qualified property on the
Form 1120 for the Taxable Year.
PLR-119360-23                                  3



                                   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 under § 168(k) for
the qualified property that Taxpayer placed in service during the Taxable Year.

                                   LAW AND ANALYSIS

       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 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.
PLR-119360-23                                 4

       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.

        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 the qualified property that Taxpayer placed in service during the Taxable Year.

         A copy of this letter should be attached to the federal income tax return to which
it is relevant. 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.
PLR-119360-23                                             5

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 on file with this office, 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 director.

                                                    Sincerely,

                                                    Elizabeth R. Binder

                                                    ELIZABETH R. BINDER
                                                    Senior Counsel, Branch 7
                                                    Office of Associate Chief Counsel
                                                    (Income Tax & Accounting)


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

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