IRS OKs changing some bonus depreciation elections

Tax Hot Topics newsletter The IRS has issued Rev. Proc. 2019-33 to allow taxpayers to make or revoke an additional first-year depreciation deduction election under Section 168(k), as modified by the Tax Cuts and Jobs Act. This procedure only applies to elections for a taxpayer’s year that includes Sept. 28, 2017.

The guidance comes after requests for relief from taxpayers, many of whom had already filed their federal income tax returns before the Section 168(k) proposed regulations were issued in August 2018, or did not have sufficient time to analyze the proposed regulations before the due date of the return. The revenue procedure also provides deemed elections to taxpayers that filed their federal income tax returns and treated qualified property consistent with one or more of the elections, but did not properly attach a statement on the originally filed return. This guidance resembles prior procedures issued because of similar situations, such as Rev. Procs. 2015-48 and 2016-48.

Additional first-year depreciation elections covered by the guidance include:

  • Section 168(k)(5), which provides an election to deduct the cost of a specified plant in the year in which the it is planted or grafted
  • Section 168(k)(7), which provides an election out of bonus depreciation for qualified property placed in service during the taxable year on a class-by-class basis
  • Section 168(k)(10), which provides an election to deduct 50%, instead of 100%, bonus depreciation for all qualified property acquired after Sept. 27, 2017, and placed in service in the year that includes Sept. 28, 2017

Generally, making a late election or revoking an election for bonus depreciation is not a change in method of accounting. However, because of the administrative burden of filing amended returns, the IRS has provided an option in these procedures for taxpayers to change the elections made or deemed to be made, as though it is a change in method of accounting including a Section 481(a) adjustment.

A taxpayer may make or revoke one or more late elections by either: (1) filing an amended return (or an administrative adjustment request for a partnership) before the taxpayer files its federal tax return for the year immediately following the year that included Sept. 28, 2017; or (2) attaching a Form 3115 to a timely filed federal tax return for the first, second, or third taxable year after the year that included Sept. 28, 2017. The procedure modifies Rev. Proc. 2018-31 by adding a new Section 6.18 to be used for making or revoking these elections in the time specified.

This procedure creates an opportunity for taxpayers to review the elections made, deemed to be made, or not made, and to consider making tax beneficial changes. Taxpayers that have not yet filed a tax return for the year immediately following the year that included Sept. 28, 2017, also have the flexibility to analyze the different tax consequences of either amending the originally filed return or filing a method change. Because of the rate reductions in the TCJA, some taxpayers may want to file an amended return to take advantage of the rate change.

Sharon Kay
Washington National Tax Office
T +1 202 861 4140

John Suttora
Managing Director
Washington National Tax Office
T +1 202 521 1523

Caleb Cordonnier
Washington National Tax Office
T +1 202 521 1555

Jason Seo
Senior Associate
Washington National Tax Office
T +1 202 521 1556

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