Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has provided additional guidance to clarify the rules regarding the effects of making the Code Sec. 168(k)(4) election not to claim bonus depreciation, the time and manner for making the election, the allocation of the credit limitation increases among the members of a controlled group, the effect of the election on partnerships with corporate partners that make the election, the applicability of this election for S corporations, and the election under Act §3081(b) of the Housing and Economic Recovery Act of 2008 (P.L. 110-289) by certain automotive partnerships. Except for these certain automotive partnerships, only a corporation may elect to apply Code Sec. 168(k)(4). This guidance supplements earlier guidance contained in Rev. Proc. 2008-65, I.R.B. 2008-44, 1082.

  The election is made by the taxpayer for its first tax year ending after March 31, 2008, and applies to all eligible qualified property placed in service by the taxpayer in the taxpayer's first tax year ending after March 31, 2008, and in any subsequent tax year. When the election is made, the corporation forgoes the 50 percent additional first year depreciation deduction and instead increases the limitations under both the general business credit (Code Sec. 38(c)) and the alternative minimum tax (Code Sec. 53(c)). This will enable a corporation to claim unused credits from tax years beginning prior to 2006 that are allocable to research expenditures or AMT liabilities. The guidance clarifies that --to the extent that a corporation is allowed the business or AMT credit in an amount allocable to the aggregate increases in the credit limitation as a result of the Code Sec. 168(k)(4) election --any such amounts will be treated as overpayment (within the meaning of Code Sec. 6401(b)) and refundable to the taxpayer.

  The guidance clarifies that generally a corporate taxpayer must make the election by the due date, including extensions, of its federal income tax return for its first tax year ending after March 31, 2008, even if the taxpayer does not place in service any eligible qualified property during the first tax year ending after that date. Special rules are included for taxpayers whose first tax year ending after March 31, 2008, ends before December 31, 2008.

  The guidance also describes the necessity for an electing taxpayer to allocate the bonus depreciation amount between the business credit limitation under Code Sec. 38(c) and the AMT credit limitation under Code Sec. 53(c). Different allocations may be used for different tax years.

  In addition, the guidance clarifies that an S corporation is allowed to make this election, but any increases in the business or AMT credit limitations that result from the election must be applied at the corporate level, and not at the shareholder level.

Rev. Proc. 2009-16, 2009FED ¶46,255

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