Company gets more time to elect out of bonus depreciation after preparer omitted the statement

Plain-English summary

Bonus depreciation (additional first-year depreciation under section 168(k)) lets a business immediately deduct a large percentage of the cost of certain new equipment instead of spreading it over years. A taxpayer can also elect not to take bonus depreciation for a whole class of property, which businesses sometimes prefer to keep deductions spread out. That election-out must be made by attaching a statement to a timely filed return. Here a consolidated corporate group intended, as in prior years, to elect out of bonus depreciation for its 5-year and 7-year property placed in service during the year, and its Form 4562 was prepared accordingly, but the preparer made a clerical error and failed to attach the required section 168(k)(7) election statement to the timely filed return. The mistake was found while preparing the next year's return. The group asked the IRS for relief under the section 301.9100 regulations, which allow extra time for a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted a 60-day extension to make the election by filing an amended consolidated return for that year with the required statement. The IRS gave no opinion on whether the property actually qualifies for bonus depreciation. This is a routine cure for a preparer's omission of an election statement.

Ruling snapshot

• Question: Should the corporate group get an extension of time under § 301.9100-3 to make a late election under § 168(k)(7) not to deduct bonus depreciation for its 5-year and 7-year property?
• Outcome: Approved (60-day extension, made by filing an amended consolidated return)
• Key authorities: IRC § 168(k)(1), (6), (7); Treas. Reg. §§ 1.168(k)-2(f), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202507009
Third Party Communication: None
Release Date: 2/14/2025
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:
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CC:ITA:B07
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PLR-110752-24
Date:
November 15, 2024

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

LEGEND:

P = ---------------------------------------------
S1 = --------------------------------------------------------
S2 = ------------------------------------------------------
Year1 = -------------------------------------------------
Year2 = -------------------------------------------------
Date1 = -----------------
Date2 = ---------------------
Date3 = -----------------------
Firm = ------------------------
X = ----------------------------------------------------

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

This letter ruling refers to a letter dated November 28, 2023, and subsequent correspondence, submitted on behalf of P, S1, and S2, by their authorized representative, requesting an extension of time to make the election not to deduct additional first year depreciation under § 168(k) of the Internal Revenue Code (Code) for certain qualified property placed in service during the Year1 taxable year. This request is made pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations. Hereinafter, P, S1, and S2 are collectively referred to as "Taxpayer". This letter ruling is being issued electronically as permissible under section 7.02(5) of Rev. Proc. 2024-1, 2024-1 I.R.B. 1, 34.

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

P represents that the facts are as follows:

P is the common parent of an affiliated group that includes S1 and S2. P and Taxpayer are engaged in the trade or business of X. P files a consolidated federal income tax return on a Form 1120, U.S. Corporation Income Tax Return, on a fiscal year basis. Taxpayer's overall method of accounting is an accrual method.

During theYear1 taxable year, Taxpayer placed in service 5-year and 7-year property that is qualified property under § 168(k)(1).

On Date1, Taxpayer engaged Firm to prepare and file its Form 1120 return for Year1 taxable year. Firm has provided tax return preparation services for Taxpayer its since Date2.

As in the previous years, Taxpayer intended to make the election under § 168(k)(7) not to claim the additional first year depreciation for the 5-year and 7-year property Taxpayer placed in service during the Year1 taxable year.

Firm prepared Parent's Form 1120 for the Year1 taxable year, including a Form 4562, Depreciation and Amortization (the "Year1 tax return"). On the Form 4562, Taxpayer did not claim the additional first year depreciation deduction for the 5-year and 7-year qualified property placed in service during Year1. Firm provided the Year1 tax return to Taxpayer for review prior to filing the Year1 tax return. Taxpayer relied on Firm's expertise to satisfy all requirements necessary to make the § 168(k)(7) election for the 5-year and 7-year qualified property placed in service during Year1. Firm electronically filed Taxpayer's Form 1120 timely, on Date3. However, due to a clerical error, Firm inadvertently failed to attach the required § 168(k)(7) statement to elect out of first-year additional depreciation for the 5-year and 7-year classes of property.

During the preparation of Parent's Year2 federal income tax return, Firm discovered that the § 168(k)(7) election statement for the 5-year and 7-year classes of property was not attached to the filed Year1 tax return. Firm notified Taxpayer that the § 168(k)(7) election statement was inadvertently omitted from the filed Year1 tax return.

RULING REQUESTED

Accordingly, Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 to make an election under § 168(k)(7) not to deduct the additional first year depreciation under § 168(k) with respect to its 5-year and 7-year classes of property placed in service by Taxpayer during Year1.

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.

Section 168(k)(6) provides that, in general, the applicable percentage 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)), is 100 percent.

Section 168(k)(7) provides that a taxpayer may elect not to deduct 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. 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 Year1 taxable year provides 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 of Internal Revenue will use to determine whether to grant an extension of time to make a regulatory election. Under § 301.9100-1(a), 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.

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 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by regulations published in the Federal Register, a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

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 5-year and 7-year class of qualified property placed in service by Taxpayer during the Year1 taxable year.

This election must be made by Taxpayer filing an amended consolidated federal income tax return for the Year1 taxable year, with a statement indicating that Taxpayer is electing not to deduct the additional first year depreciation for the 5-year and 7-year property placed in service by Taxpayer during the 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 whether any item of depreciable property placed in service by Taxpayer during the Year1 taxable year is eligible for the additional first year depreciation deduction under § 168(k).

The ruling contained in this letter is 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.

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.

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 operating division director.

Sincerely,

Elizabeth R. Binder

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

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

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