Guidance Issued on Making, Revoking Bonus Depreciation Elections

Guidance Issued on Making, Revoking Bonus Depreciation Elections

Internal Revenue Service

The IRS has issued guidance (Rev. Proc. 2019-33) that allows a taxpayer to make a late election, or to revoke an election, under <a href="/research/federal/usc26/168#cp0w-0000455" resolve="/lr/resolve//cp0w#cp0w-0000455">section 168(k)</a> for some property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its tax year that includes September 28, 2017. <a href="/research/federal/usc26/168#cp0w-0000807" resolve="/lr/resolve//cp0w#cp0w-0000807">Section 168(k)(5)</a> allows a taxpayer to elect to deduct additional first-year depreciation for any specified plant that is planted or grafted after September 27, 2017, and before 2027. Under <a href="/research/federal/usc26/168#cp0w-0000749" resolve="/lr/resolve//cp0w#cp0w-0000749">section 168(k)(7)</a>, a taxpayer may elect not to deduct the additional first-year depreciation for all qualified property that is in the same class of property and placed in service by the taxpayer in the same tax year. The Tax Cuts and Jobs Act added <a href="/research/federal/usc26/168#cp0w-0000858" resolve="/lr/resolve//cp0w#cp0w-0000858">section 168(k)(10)</a>, which allows a taxpayer to elect to deduct 50 percent, instead of 100 percent, additional first-year depreciation for all qualified property acquired and placed in service by specified dates. Proposed regulations (<a href="/lr/resolve//289zb">REG-104397-18</a>) under <a href="/research/federal/usc26/168#cp0w-0000455" resolve="/lr/resolve//cp0w#cp0w-0000455">section 168(k)</a> were issued in August 2018. Commentators requested relief to make late elections under <a href="/research/federal/usc26/168#cp0w-0000749" resolve="/lr/resolve//cp0w#cp0w-0000749">section 168(k)(7)</a> or <a href="/research/federal/usc26/168#cp0w-0000858" resolve="/lr/resolve//cp0w#cp0w-0000858">(10)</a> for property placed in service during the taxpayer’s tax year that includes September 28, 2017, because some taxpayers had already filed their federal tax returns for that tax year before the proposed regs were issued. Further, a taxpayer with an extended due date of September 15, 2018, or October 15, 2018, for its return for the tax year that includes September 28, 2017, may not have had enough time to analyze the proposed regs to make a timely election. As a result, Rev. Proc. 2019-33 provides procedures for making late elections, or revoking elections, under <a href="/research/federal/usc26/168#cp0w-0000807" resolve="/lr/resolve//cp0w#cp0w-0000807">section 168(k)(5)</a>, <a href="/research/federal/usc26/168#cp0w-0000749" resolve="/lr/resolve//cp0w#cp0w-0000749">(7)</a>, or <a href="/research/federal/usc26/168#cp0w-0000858" resolve="/lr/resolve//cp0w#cp0w-0000858">(10)</a> for property acquired by a taxpayer after September 27, 2017, and placed in service, planted, or grafted by the taxpayer during its tax year that includes September 28, 2017. Because of the administrative burden of filing amended returns, Treasury and the IRS have determined that it is appropriate to treat the making of late elections, or the revocation of elections, under <a href="/research/federal/usc26/168#cp0w-0000455" resolve="/lr/resolve//cp0w#cp0w-0000455">section 168(k)</a> as a change in method of accounting with a <a href="/research/federal/usc26/481#cnxq-0000002" resolve="/lr/resolve//cnxq#cnxq-0000002">section 481(a)</a> adjustment for a limited time. Rev. Proc. 2019-33 provides the procedures for a taxpayer to obtain automatic consent for a change in method of accounting to make the late elections or revoke them. <a href="/lr/resolve//281c3">Rev. Proc. 2018-31</a> is modified to include the accounting method change provided in Rev. Proc. 2019-33, which is effective July 31, 2019.

Related IRS <a href="/lr/resolve//29sp4">news release</a>.

The IRS has issued guidance (Rev. Proc. 2019-33) that allows a taxpayer to make a late election, or to revoke an election, under section 168(k) for some property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its tax year that includes September 28, 2017.

The IRS has issued guidance (Rev. Proc. 2019-33) that allows a taxpayer to make a late election, or to revoke an election, under section 168(k) for some property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its tax year that includes September 28, 2017. Section 168(k)(5) allows a taxpayer to elect to deduct additional first-year depreciation for any specified plant that is planted or grafted after September 27, 2017, and before 2027. Under section 168(k)(7), a taxpayer may elect not to deduct the additional first-year depreciation for all qualified property that is in the same class of property and placed in service by the taxpayer in the same tax year. The Tax Cuts and Jobs Act added section 168(k)(10), which allows a taxpayer to elect to deduct 50 percent, instead of 100 percent, additional first-year depreciation for all qualified property acquired and placed in service by specified dates. Proposed regulations (REG-104397-18) under section 168(k) were issued in August 2018. Commentators requested relief to make late elections under section 168(k)(7) or (10) for property placed in service during the taxpayer’s tax year that includes September 28, 2017, because some taxpayers had already filed their federal tax returns for that tax year before the proposed regs were issued. Further, a taxpayer with an extended due date of September 15, 2018, or October 15, 2018, for its return for the tax year that includes September 28, 2017, may not have had enough time to analyze the proposed regs to make a timely election. As a result, Rev. Proc. 2019-33 provides procedures for making late elections, or revoking elections, under section 168(k)(5), (7), or (10) for property acquired by a taxpayer after September 27, 2017, and placed in service, planted, or grafted by the taxpayer during its tax year that includes September 28, 2017. Because of the administrative burden of filing amended returns, Treasury and the IRS have determined that it is appropriate to treat the making of late elections, or the revocation of elections, under section 168(k) as a change in method of accounting with a section 481(a) adjustment for a limited time. Rev. Proc. 2019-33 provides the procedures for a taxpayer to obtain automatic consent for a change in method of accounting to make the late elections or revoke them. Rev. Proc. 2018-31 is modified to include the accounting method change provided in Rev. Proc. 2019-33, which is effective July 31, 2019.

Sec. 168 Accelerated cost recovery system

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Guidance Issued on Making, Revoking Bonus Depreciation Elections