Attorney Seeks Clarity in Availability of Bonus Depreciation Deduction in Gulf Zone

From: Nuzum, Robert [ rnuzum@bakerdonelson.com ]

I hope you survived the current legislative frenzy and the passage of H.R. 6111, The Tax Relief And Health Care Act Of 2006. In that regard, I was wondering if you could provide me with some guidance as to the relevant Parishes in Louisiana and Counties in Mississippi and Alabama that qualify as" specified portions of the GO Zone" under Section 120(a) of the Act ( soon to be IRC Section 1400N(d)(6)(C)).

There is a lot of uncertainty and rumor going around about which Parishes and Counties qualify as meeting the more than 60% damage test. As you can imagine, it is having a chilling effect on ongoing and new projects in the GO Zone. In Louisiana, for example, the rumor is that only Orleans Parish and St. Bernard Parish meet this test, and not St. Tammany Parish, Terrebonne Parish or Cameron Parish. For now, could you please send me whatever authority you have as to those areas that do and do not qualify? For the immediate future, the IRS and Treasury should seriously consider issuing guidance, such as a Notice, Revenue Procedure, or perhaps even a Revenue Ruling, specifically enumerating the qualifying Parishes and Counties.

As a member of the ABA Section Of Taxation Hurricane Katrina Task Force and a resident of Orleans Parish, I was pleased that Congress passed Section 120(a) of the Act, However, I sincerely believe that it is merely a" band-Aid" fix that will not greatly assist Louisiana, Mississippi or, to a lesser degree, Alabama recover from the devastation of Hurricanes Katrina and Rita. In particular, unless I am misreading Section 120(a) and new IRC Section1400N(d)(6)(D), although certain real and personal property can be placed in service through December 31, 2010 for buildings and until March 31, 2011 for personal property that is part of the building if such property is within a specified portion of the newly restricted GO Zone area, ANY EXPENDITURES FOR REAL OR PERSONAL INCURRED AFTER DECEMBER 31, 2010 for property that is placed in service before these applicable dates ARE INELIGIBLE FOR THE 50% BONUS DEPRECIATION. If my interpretation is correct, in effect the extension of the placed in service date is actually through December 31, 2009. At least, this is the rule for qualifying for the 50% bonus depreciation deduction, which is the objective of most taxpayers. This subpart in particular will cause unnecessary confusion and definitely will constitute a trap for the unwary.

I have numerous other comments and suggestions about Section 120(a), which I would be happy to discuss with you (* * * or * * *) at your convenience. Thanks again for the Treasury's support and assistance during these very difficult and trying times. As I mentioned to you while you were in New Orleans a couple of months ago, the ABA Tax Section Hurricane Katrina Task Force and the Louisiana Tax Section greatly appreciate all that the IRS and Treasury have done to make our recovery efforts more successful.

I wish you and your family a very Merry Christmas and a Happy Holiday Season.