Tax News

CCH (cch.taxgroup.com) reports:

  An IRS revenue procedure provides guidance on the election by corporations not to claim the 50-percent additional depreciation allowance (bonus depreciation) (Code Sec. 168(k)) on property acquired after March 31, 2008 (eligible qualified property), and instead to claim accelerated research and/or alternative minimum tax (AMT) credit carryforwards from tax years that began before January 1, 2006. The guidance specifically deals with the special elections for "extension property" contained in Code Sec. 168(k)(4)(H). The guidance covers property eligible for the elections, the time and manner for making elections, and the computation of the bonus depreciation amount (i.e., the amount by which the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations are increased if the elections are or are not made.

  CCH Comment. Extension property is property that is eligible for bonus depreciation solely by reason of the extension of the bonus depreciation provision by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Thus, extension property generally consists of property placed in service in 2009 that is eligible for bonus depreciation.

  The special rules for extension property allow a corporation that made the Code Sec. 168(k)(4) election in its first tax year that ended after March 31, 2008, with respect to bonus depreciation property placed in service after that date to elect not to have the election apply to extension property. If the corporation does not elect to exclude extension property, then a "bonus depreciation amount" is computed separately for bonus depreciation property which is extension property and for bonus depreciation property which is not extension property.

  CCH Comment. The amount of additional research credit and/or AMT credit that a corporation may claim if it elects to forgo bonus depreciation is determined by increasing the Code Sec. 38(c) business credit and Code Sec. 53(c) AMT credit limitations by the bonus depreciation amount for the tax year.

  The second special rule for extension property allows a corporation that did not make a Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, to make the election for its first tax year ending after December 31, 2008. If this election is made a bonus depreciation amount is only computed with respect to extension property.

  Definitions relating to extension property . Under the guidance, eligible qualified property is not extension property if:

  --The eligible qualified property is acquired by the taxpayer after March 31, 2008, and placed in service by the taxpayer before January 1, 2009;

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010; or

  --The eligible qualified property meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010.

  Extension property is eligible qualified property that:

  --Is acquired by the taxpayer after March 31, 2008, is placed in service by the taxpayer after December 31, 2008, and before January 1, 2010, and is not described in items (2) and (3) above;

  --Meets the requirements of Code Sec. 168(k)(2)(, is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011; or

  --Meets the requirements of Code Sec. 168(k)(2)(C), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer after December 31, 2009, and before January 1, 2011.

  Election not to apply the Code Sec. 168(k)(4) election to extension property. The election not to apply the Code Sec. 168(k)(4) election to extension property must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. If a corporation has already filed that return and did not make the election not to apply the Code Sec. 168(k)(4) election to extension property it may make a late election by following the procedures contained in Sec. 4.04 of Rev. Proc. 2009-33. The corporation must attach a statement indicating that is is making the election not to apply its Code Sec. 168(k)(4) election to extension property. Separate written notification of the election must be made to any partnership in which the corporation is a partner on or before the due date (including extensions) of the corporation's return for its first tax year ending after December 31, 2008, or by the date it files its return containing a late election.

  If all members of a controlled group are members of an affiliated group that files a consolidated return, the common parent of the consolidated group makes the election for the group on the consolidated return. Special rules apply when separate federal income tax returns are filed by some or all members of a controlled group.

  If a corporation that made the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, elects not to have that election apply to extension property, the election will exclude extension property placed in service in its first tax year ending after December 31, 2008 and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the election not to apply the Code Sec. 168(k)(4) election to extension property for that tax year if it wishes to apply such election to extension property placed in service in a subsequent tax year.

  Bonus depreciation amount for extension property. If a corporation does not elect to not to apply its Code Sec. 168(k)(4) election to extension property, a separate bonus depreciation amount is computed for eligible qualified property that is not extension property (non-extension property) and eligible qualified proeprty that is extension property (extension property). In general, the computation rules described in
Rev. Proc. 2008-65, I.R.B. 2008-44, 1082, are used to determine these amounts by applying the rules separately to non-extension and extension property. The maximum bonus depreciation amounts is limited to $30 million for non-extension property and $30 million for extension property. Similar rules apply to controlled groups except that the computation rules described in Rev. Proc. 2009-16, I.R.B. 2009-6, 449, for controlled groups are used.

  Election to apply Code Sec. 168(k)(4) election only to extension property. A corporation that did not make the Code Sec. 168(k)(4) election for its first tax year ending after March 31, 2008, may make the election to apply the election only to extension property (the "extension property election").

  The extension property election must be made by the due date (including extensions) of the income tax return for the corporation's first tax year ending after December 31, 2008. A late election may be made by a corporation that filed its return for its first tax year ending after December 31, 2008, pursuant to section 6.06 of this Rev. Proc. 2009-33.

  A C corporation makes the election by:

  --Claiming the refundable AMT and/or research credit on the appropriate line of Form 1120, U.S. Corporation Income Tax Return, for the its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, the Form 3800, General Business Credit, or Form 8827, Credit for Prior Year Minimum Tax --Corporations, or both, as applicable, for its first tax year ending after December 31, 2008;

  --Filing, with the Form 1120, Form 4562, Depreciation and Amortization (Including Information on Listed Property), for its first tax year ending after December 31, 2008, indicating that it used the straight-line method and did not claim the bonus depreciation deduction for any extension property; and

  --Providing written notification to any partnership in which it is a partner that it is making the Code Sec. 168(k)(4) extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it files its income tax return containing a late election.

  An S corporation makes the election by:

  Making appropriate adjustments to the appropriate line of the Form 1120S, U.S. Income Tax Return for an S Corporation, for its first tax year ending after December 31, 2008, to reflect the results from making the extension property election;

  Attaching a statement to the return indicating that it is making the extension property election and a statement showing the computation of the increases to the business credit and AMT credit limitations that result from making the election;

  Filing, with the Form 1120S, Form 4562 indicating that the taxpayer used the straight-line method and did not claim the bonus depreciation deduction for all extension property; and

  Providing written notification to any partnership in which it is a partner that it is making the extension property election on or before the due date (including extensions) of its federal income tax return for its first tax year ending after December 31, 2008, or by the date it filed its income tax return containing a late election.

  If the extension property election is made, it applies to all extension property placed in service by the corporation in the its first tax year ending after December 31, 2008, and in any subsequent tax year. Even if the corporation does not place any extension property in service in its first tax year ending after December 31, 2008, it must make the extension property election for that tax year if it wishes to apply the election to extension property placed in service in a subsequent tax year.

  If all members of a controlled group are members of a consolidated group, the common parent makes the extension property election. If a controlled group includes members of a consolidated group, the consolidated group is treated as a single member of the controlled group and the election is made by the common parent. Special election procedures apply to a member of a controlled group that makes the extension property election. The guidance also explains the manner of determining the members of a controlled group for the first tax year ending after December 31, 2008 and subsequent tax years.

  The bonus depreciation amount is generally computed in the manner provided in Rev. Proc. 2008-65 by only taking into account extension property. S corporations will generally follow the rules previously issued for S corporations in Rev. Proc. 2009-16. If a corporation making the extension property eletion is a partner in a partnership, the partnership must provde the corporation with sufficient information to determine its appropriate distributive share of partnership items relating to any extension property placed in service during the tax year.

 
Code Sec. 168(k)(4) election by corporation with short succeeding tax year. The new guidance also modifies section 3.02(1)(a)(ii) of Rev. Proc. 2009-16 to address how a corporation whose first tax year ending after March 31, 2008, ends before December 31, 2008, makes the Code Sec. 168(k)(4) election when the corporation's succeeding tax year is a short tax year. That section generally provides that if a taxpayer's first tax year ending after March 31, 2008, ends before December 31, 2008, the corporation must file an amended federal income tax return on or before the due date (without regard to extensions) of the corporation's original federal income tax return for the succeeding tax year in order to claim the refundable credit resulting from a Code Sec. 168(k)(4) election. The modified guidance provides that if the succeeding tax year is a short tax year, the amended return must be filed on or before the earlier of (1) 30 days after the due date (excluding extensions) of the corporation's income tax return for its first tax year ending after March 31, 2008 or (2) 180 days after the due date (excluding extensions) of the corporation's income tax return for the succeeding tax year.

Rev. Proc. 2009-33, 2009FED ¶46,419

Other References:

 
Code Sec. 168

  CCH Reference - 2009FED ¶11,279.058

  CCH Reference - 2009FED ¶11,279.19

  Tax Research Consultant

  CCH Reference - TRC DEPR: 3,600

  CCH Reference - TRC DEPR: 3,606