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Bank Has Questions on Proposed Bonus Depreciation Regs

AUG. 17, 2018

Bank Has Questions on Proposed Bonus Depreciation Regs

DATED AUG. 17, 2018
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From: Carlisle, James
To: Martin, Ellen
Cc: Leonard, Shelley
Subject: RE: 168(k)/leasing
Date: Friday, August 17, 2018 10:26:03 AM

Here you go:

1) IRC § 168(k)(9) excludes from the definition of qualified property for 100% bonus depreciation eligibility any equipment used in several specific trades or businesses. One category is Public Utility Property. The exclusion is by reference to IRC § 163(j)(7)(A), which defines those trades or businesses that are exempt from the new net interest expense limitations under § 163.

a. Public utilities are frequent users of lease financing, both for large assets such as electric generation stations and also much more commonly for shorter-lived assets such as service trucks, boom trucks, etc.

b. The core open question is whether an asset owned by a financial institution (and so used in its business of equipment financing) but leased to a public utility is still considered “public utility property.” Does the narrow definition of “use” (meaning a “depreciable interest”) set forth elsewhere in the proposed regulations also apply in this context.

c. Absent confirming guidance, lessees and lessors are uncertain about the bonus eligibility of property leased to a public utility entity.

2) In the preamble (Section 3(B)(ii) on page 13) to the proposed Regulations under IRC § 168(k), the Treasury Department and IRS request industry input, including tenor and rationale, on a potential safe harbor related to the maximum “look back” period for assessing whether a taxpayer previously had a depreciable interest in a given property. This request acknowledges that the “not previously used by” standard (IRC § 168(k)(2)(E) (ii)(I)) with respect to 100% bonus depreciation eligibility creates an implicit obligation on the taxpayer to indefinitely track all prior asset ownership in order to assess the proper depreciation for any piece of used equipment purchased.

a. Assets can change hands multiple times through their useful life, and many taxpayers, particularly financial institutions engaged in active leasing businesses, may therefore have occasion to acquire, lease/finance, sell, and later re-acquire a specific asset for valid commercial reasons.

b. The purpose of the “not previously used by” standard is presumably to prevent asset churning by taxpayers, which implicitly presumes a quick turn-around period so that use/control of the asset can be maintained.

c. A “look back” period of 2-3 years should be sufficient to prevent churning abuse while also eliminating the need to maintain indefinite records on prior asset ownership in order to remain tax compliant.

Thanks,

Jim

From: Ellen.Martin@treasury.gov [mailto:Ellen.Martin@treasury.gov]
Sent: Thursday, August 16, 2018 9:48 AM
To: Carlisle, James <james.carlisle@bankofamerica.com>
Cc: Shelley.Leonard@treasury.gov
Subject: RE: 168(k)/leasing

Jim,

Thank you for this. Would you mind providing more detail developing these issues and what you would like to discuss?

Thanks,

Ellen

From: Carlisle, James [mailto:james.carlisle@bankofamerica.com]
Sent: Wednesday, August 15, 2018 9:38 AM
To: Martin, Ellen <Ellen.Martin@treasury.gov>
Subject: RE: 168(k)/leasing

Thanks Ellen. We are working with our trades on written comments, but have a couple issues we would like to discuss in advance if possible:

  • Question whether lessors are eligible to claim 100% bonus depreciation when leasing to a public utility customer.

  • Potential safe harbor “look back” period for assessing whether a taxpayer previously had a depreciable interest in a given property.

A phone call would work well for us. Let me know if you need more information.

Jim

Jim Carlisle
Federal Government Relations
Bank of America
(O) (202) 661-7127
(C) (202) 213-5598 james.carlisle@bankofamerica.com

From: Ellen.Martin@treasury.gov [mailto:Ellen.Martin@treasury.gov]
Sent: Tuesday, August 14, 2018 1:59 PM
To: Carlisle, James <james.carlisle@bankofamerica.com>
Cc: Shelley.Leonard@treasury.govSubject: FW: 168(k)/leasing

Hi Jim,

Thank you for reaching out. We'd be happy to put you into our scheduling system for a phone call or meeting here at our offices (whichever you prefer). However, prior to doing so, could you please provide us with a paper outlining your comments/questions? Once provided, I can let you know what time is available to discuss.

Thanks,

Ellen

From: Vallabhaneni, Krishna
Sent: Monday, August 13, 2018 3:19 PM
To: Leonard, Shelley <Shelley.Leonard@treasury.gov>; Martin, Ellen <Ellen.Martin@treasury.gov>
Cc: West, Thomas <Thomas.West@treasury.gov>
Subject: Fwd: 168(k)/leasing

FYI.

Krishna P. Vallabhaneni
Deputy Tax Legislative Counsel
Office of Tax Policy
U.S. Department of the Treasury
Direct: +1.202.622.0835
Email: krishna.vallabhaneni@treasury.gov

From: Carlisle, James <james.carlisle@bankofamerica.com>
Date: August 13, 2018 at 1:37:02 PM EDT
To: Vallabhaneni, Krishna <Krishna.Vallabhaneni@treasury.gov>
Subject: 168(k)/leasing

Krishna — Congrats on getting out the proposed regulations. We very much appreciated you and your team making time earlier this year to discuss a couple of interpretive issues re: 168(k) and leasing. We have reviewed the proposed regulations and have a couple of follow-up questions. Would you have any time to discuss? Thanks, Jim

Jim Carlisle
Federal Government Relations
Bank of America
(O) (202) 661-7127
(C) (202) 213-5598
james.carlisle@bankofamerica.com

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