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21.7.4  Income Taxes/Information Returns (Cont. 5)

21.7.4.4 
Income and Information Returns Procedures

21.7.4.4.18  (04-21-2015)
First-Year Bonus Depreciation and IRC 179 Expense

  1. Under IRC 168(k)(1), IRC 168(l)(1), IRC 168(m)(1), IRC 168(n)(1), IRC 1400L(b)(1) and IRC 1400N(d)(1), taxpayers may claim an additional first-year depreciation or bonus depreciation. See various subsections in this IRM for information on additional first-year depreciation and bonus depreciation under these sections of the Code.

  2. Taxpayers may elect under IRC 179 to expense the cost of qualifying property, rather than to recover their cost through depreciation deductions. See the various subsections in this IRM for the maximum dollar amount under IRC 179(b)(1) that a taxpayer may expense, and for the dollar limitation under IRC 179(b)(2) that the aggregate cost cannot exceed without reducing the amount that can be expensed under IRC 179(b)(1).

21.7.4.4.18.1  (10-01-2016)
The Job Creation and Workers Assistance Act of 2002, P.L. 107-147 - Additional First-Year Depreciation - New York Liberty Zone IRC 168(k)

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Job Creation and Workers Assistance Act of 2002, P.L. 107-147 - Additional First-Year Depreciation - New York Liberty Zone IRC 168(k).

21.7.4.4.18.1.1  (10-01-2016)
The Job Creation and Workers Assistance Act of 2002, P.L. 107-147 - Additional First-Year Depreciation - New York Liberty Zone IRC 1400L

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Job Creation and Workers Assistance Act of 2002, P.L. 107-147 - Additional First-Year Depreciation - New York Liberty Zone IRC 1400L.

21.7.4.4.18.1.2  (04-21-2015)
Election Not to Deduct

  1. A taxpayer may make an election not to deduct the additional first-year depreciation. In general, an election not to deduct the additional first-year depreciation for any class of qualified property or NYLZ property must be made by the due date (including extensions) of the federal tax return for the taxable year in which the qualified property or NYLZ property is placed in service by the taxpayer. The taxpayer can elect not to deduct the additional first-year depreciation by:

    1. Filing a timely federal tax return and attaching a statement that they are not claiming the allowance, or

    2. If they have already filed, filing an amended return within six months from the due date of the timely filed return (excluding extensions)

  2. An automatic six month extension from the due date of the return (excluding extensions) is granted to make the election NOT to deduct the additional first-year depreciation, provided the taxpayer timely filed their federal tax return for the placed-in-service year and the taxpayer satisfies the requirement in regulation section 301.9100-2(c) and (d).

  3. If a taxpayer does not make the election not to deduct the additional first-year depreciation, the amount of depreciation allowable for that property must be determined for the placed-in-service year and all subsequent years by taking into account the additional first-year depreciation deduction.

21.7.4.4.18.2  (10-01-2016)
The Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 - Bonus First-Year Depreciation

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 - Bonus First-Year Depreciation

21.7.4.4.18.3  (10-01-2016)
Gulf Opportunity Zone Act of 2005, P.L. 109-135

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Gulf Opportunity Zone Act of 2005, P.L. 109-135.

21.7.4.4.18.3.1  (10-01-2016)
Gulf Opportunity Zone Act of 2005, Additional First-Year Depreciation

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Gulf Opportunity Zone Act of 2005, Additional First-Year Depreciation.

21.7.4.4.18.3.2  (10-01-2016)
Gulf Opportunity Zone Act of 2005 - Low-Income Housing Credit

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Gulf Opportunity Zone Act of 2005 - Low-Income Housing Credit.

21.7.4.4.18.3.3  (10-01-2016)
Gulf Opportunity Zone Act of 2005 - New Markets Credit, Form 8874

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Gulf Opportunity Zone Act of 2005 - New Markets Credit, Form 8874.

21.7.4.4.18.3.4  (10-01-2016)
Gulf Opportunity Zone Act of 2005 - Bonus First-Year Depreciation

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Gulf Opportunity Zone Act of 2005 - Bonus First-Year Depreciation.

21.7.4.4.18.3.5  (02-15-2011)
Form 3468, Gulf Opportunity Zone Act of 2005 - Investment Credit

  1. The Gulf Opportunity Zone Act of 2005, P.L. 109-135, increased the rehabilitation credit for certain properties located in the Gulf Opportunity Zone for qualified expenditures paid or incurred after August 27, 2005, and before January 1, 2009. (See Notice 2006-38, 2006-16 I.R.B. 777, for more information.)

  2. Division C, Title III, section 320, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the credit for one year for taxable years beginning on January 1, 2009, and on or before December 31, 2009.

  3. Under the present law, a 20 percent credit is provided for qualified rehabilitation expenditures with respect to a certified historic structure. A certified historic structure is any building that is listed on the National Register, or that is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary of Treasury as being of historic significance to the district. In addition, a 10 percent credit is available for qualified rehabilitation expenditures with respect to a qualified rehabilitated building, which generally means a building that was first placed in service before 1936.

  4. The provision increases the credit from 20 percent to 26 percent for qualified rehabilitation expenditures with respect to a certified historic structure and from 10 percent to 13 percent for qualified rehabilitation expenditures with respect to a building that is not a certified historic structure.

  5. On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, was signed into law. Section 762 of the act extended the investment credit for two years for qualified rehabilitation expenditures mentioned in paragraph (4) directly above, and is effective for taxable years beginning after December 31, 2009 and on or before December 31, 2011.

  6. See IRM 21.7.4.4.8.3.1, Investment Credit, Form 3468, for more information on claiming the credit. Also, see Form 3468 and the Instructions for Form 3468 for more specific information.

21.7.4.4.18.4  (02-28-2013)
Tax Relief and Health Care Act of 2006, P.L. 109-432, Qualified Cellulosic Biomass Ethanol Plant Property - Additional First-Year Depreciation

  1. Section 209, of the Tax Relief and Health Care Act of 2006, P.L. 109-432, adds IRC 168(I) allows a taxpayer to claim a 50 percent additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified cellulosic biomass ethanol plant property (defined in IRC 168(I)(2)). The additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service.

  2. In order for property to qualify for the additional first-year depreciation deduction, it must be qualified cellulosic biomass ethanol plant property, which is depreciable property that meets the following conditions:

    • The property must be acquired by purchase (as defined in IRC 179(d)) by the taxpayer after December 20, 2006 and placed in service by the taxpayer before January 1, 2013. (Property does not qualify if a written binding contract for acquisition of such property was in effect on or before December 20, 2006.)

    • The original use of the property must begin with the taxpayer on or after December 20, 2006 (the date of enactment of the provision).

    • The property is used in the United States solely to produce cellulosic biomass ethanol.

  3. Property that is manufactured, constructed, or produced by the taxpayer for use by the taxpayer, qualifies if the taxpayer begins the manufacture, construction, or production after December 20, 2006 and the property is placed in service before January 1, 2013. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  4. Cellulosic biomass ethanol is ethanol produced by hydrolysis of lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, such as; sugar cane, corn stalks, and switchgrass.

  5. See the following subsections IRM 21.7.4.4.18.4.1 and IRM 21.7.7.18.4.2 for extensions and modifications to the deductions.

21.7.4.4.18.4.1  (01-27-2011)
Emergency Economic Stabilization Act of 2008, P.L. 110-343, Qualified Cellulosic Biofuel Plant Property - Additional First-Year Depreciation

  1. Division B, Title II, section 201, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, amended IRC 168(I) to change the definition of what property qualifies for this 50 percent additional first-year depreciation deduction. The property that now qualifies is qualified cellulosic biofuel plant property, which is determined under the rules listed in paragraphs (2) through (4) in the subsection directly above, except that, in general, the term "qualified cellulosic biomass ethanol property" is changed to "qualified cellulosic biofuel plant property" , and the term "cellulosic biomass ethanol" is changed to "cellulosic biofuel" .

  2. Cellulosic biofuel is any liquid fuel that is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. The provision is effective for qualified property placed in service after October 3, 2008, in taxable years ending after this date and which is placed in service by the taxpayer on or before December 31, 2012.

21.7.4.4.18.4.2  (02-08-2016)
Second Generation Biofuel Plant Property - Additional First-Year Depreciation

  1. Section 410(a), Extension and Modification of Special Allowance for Cellulosic Biofuel Plant Property, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extends and modifies the 50 percent additional first-year depreciation deduction. The deduction is equal to 50 percent of the adjusted basis of qualified second generation biofuel plant property identified in IRC 168(I)(2). The additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service. The provision extends the additional first-year depreciation deduction for one year to January 1, 2014.

  2. Act section 410(b) amends IRC 168(l)(2). In order for property to qualify for the additional first-year depreciation deduction, it must be second generation biofuel plant property, which is depreciable property that meets the following conditions:

    • The property is used in the United States solely to produce second generation biofuel (as defined in IRC 40(b)(6)(E)).

    • The original use of the property must begin with the taxpayer on or after December 20, 2006 (the date of enactment of the provision).

    • The property must be acquired by purchase by the taxpayer after December 20, 2006. (Property does not qualify if a written binding contract for acquisition of such property was in effect before December 20, 2006.)

    • Is placed in service by the taxpayer before January 1, 2014.

  3. Property that is manufactured, constructed, or produced by the taxpayer for use by the taxpayer, qualifies if the taxpayer begins the manufacture, construction, or production after December 20, 2006 and the property is placed in service before January 1, 2014. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

    • Section 157(a), Division A of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the placed in service date for second generation biofuel plant property for one year. The property must be placed in service on or before December 31, 2014.

    • Section 189 Section 189 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the placed in service date for second generation biofuel plant property for two years. The property must be placed in service on or before December 31, 2016.

  4. Second generation biofuel is defined in IRC 40(b)(6)(E) and is described in paragraphs (9) through (12) in IRM 21.7.4.4.8.3.3.

21.7.4.4.18.5  (10-01-2016)
Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28.

21.7.4.4.18.6  (02-28-2011)
Economic Stimulus Act of 2008 P.L. 110-185, 50 percent Additional Special Depreciation Allowance

  1. Taxpayers recover (through annual depreciation deductions) the cost of certain property used in a trade or business, or for the production of income. Section 103, of the Economic Stimulus Act of 2008, P.L. 110-185, amends IRC 168(k) to allow for a nationwide additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property. This additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service.

  2. The amount of the depreciation deduction allowed with respect to tangible property for a taxable year generally is determined under the modified accelerated cost recovery system ("MACRS" ).

  3. "Qualified Property" means depreciable property:

    • To which MACRS applies with an applicable recovery period of 20 years or less,

    • Which is computer software as defined in, and depreciated under, IRC 167(f)(1),

    • Which is water utility property and depreciated under MACRS,

    • Which is qualified leasehold improvement property (as defined in IRC 168(k)(3) and Treas. Reg. 1.168(k)-1(c)) and depreciated under MACRS,

  4. The original use of the qualified property must commence with the taxpayer after December 31, 2007.

  5. The qualified property must be acquired by the taxpayer after December 31, 2007, and before January 1, 2009, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or pursuant to a binding written contract which was entered into after December 31, 2007, and before January 1, 2009

  6. The qualified property must be placed in service by the taxpayer before January 1, 2009. An extension of the placed-in-service date of one year (i.e., to before January 1, 2010) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  7. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2009, to meet the acquisition requirements in (5) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  8. Property not eligible for the 50 percent additional first-year bonus depreciation deduction includes property that is:

    • Placed in service and disposed of during the same tax year

    • Converted from business to personal use in the property’s placed-in-service year

    • Described in IRC 168(f)

    • Required to be depreciated under the alternative depreciation system of IRC 168(g) pursuant to IRC 168(g)(1)(A) through (D) or other provisions of the Code (for example, property described in Code 280F(b)(1)), or

    • Included in any class of property (as set forth in IRC 168(e)) for which the taxpayer elects not to claim the bonus depreciation deduction

    • Qualified New York Liberty Zone leasehold improvement property (as defined in IRC 1400(c)(2))

  9. The IRS developed a new version of Form 4562, for tax year 2007 to claim the special depreciation; Form 4562-FY, Depreciation and Amortization (Including Information on Listed Property). The form is for those entities (fiscal year taxpayers) whose tax year begins in 2007 and ends in 2008.

  10. Also, see the 2012 Instructions for Form 4562, for more specific information on the various placed in service dates and claiming the deduction.

  11. See Rev. Proc. 2008-54, 2008-38 I.R.B. 722, for more specific information.

  12. See IRM 21.7.4.4.18.10 below for taxpayers who elect to claim additional research or minimum tax credits in lieu of claiming the 50 percent additional first-year depreciation deduction for eligible qualified property under IRC 168(k)(4), as added by the Housing and Economic Recovery Act of 2008. Eligible qualified property is qualified property as determined under the rules listed in paragraphs (3) through (8) directly above apply, except that, in general, the date "December 31, 2007" in these rules is changed to "March 31, 2008" and the date "January 1, 2008" in paragraph (5) above is changed to "April 1, 2008."

21.7.4.4.18.6.1  (02-28-2011)
American Recovery and Reinvestment Act of 2009 P.L. 111-5, 50 percent Additional Special Depreciation Allowance

  1. Section 1201(a)(1)(A) of the American Recovery and Reinvestment Recovery Act of 2009, P.L. 111-5, extended this 50 percent additional first-year depreciation deduction for qualified property for one year as described in IRM subsection 21.7.4.4.18.6 above. The date acquired by the taxpayer, the placed in service date and in the case of taxpayer manufacturing, constructing or producing property for the taxpayers own use is extended per paragraphs (2), (3) and (4) directly below.

  2. The qualified property must be acquired by the taxpayer:

    • After December 31, 2007, and before January 1, 2010, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a binding written contract which was entered into after December 31, 2007, and before January 1, 2010

  3. The qualified property must be placed in service by the taxpayer before January 1, 2010. An extension of the placed-in-service date of one year (i.e., to before January 1, 2011) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  4. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2010, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

21.7.4.4.18.6.2  (06-23-2011)
Small Business Jobs Act of 2010 P.L. 111-240, 50 percent Additional Special Depreciation Allowance

  1. Section 2022(a) of the Small Business Jobs Act of 2010, P.L. 111-240, extended this 50 percent additional first-year depreciation deduction for qualified property for one year as described in IRM subsection 21.7.4.4.18.6 above. The date acquired by the taxpayer, the placed in service date and in the case of taxpayer manufacturing, constructing or producing property for the taxpayers own use is extended per paragraphs (2), (3) and (4) directly below.

  2. The qualified property must be acquired by the taxpayer:

    • After December 31, 2007, and before January 1, 2011, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a binding written contract which was entered into after December 31, 2007, and before January 1, 2011.

  3. The qualified property must be placed in service by the taxpayer before January 1, 2011. An extension of the placed-in-service date of one year (i.e., to before January 1, 2012) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C). See Rev. Proc. 2011-26, 2011-16 I.R.B. 664, for addition information.

  4. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2011, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  5. Rev. Proc. 2011-21, 2011-12 I.R.B. 560, provides the depreciation deduction limitations for owners of passenger automobiles (including trucks and vans) first placed in service during calendar year 2011 and the amount to be included in income by lessees of passenger automobiles first leased during calendar year 2011. Rev. Proc. 2011-21 also modifies Rev. Proc. 2010-18, 2010-9 I.R.B. 427, to increase the depreciation limitations and lessee inclusion amounts for passenger automobiles first placed in service or leased in 2010 by taxpayers claiming the IRC 168(k) additional first year depreciation deduction pursuant to the Small Business Jobs Act of 2010.

21.7.4.4.18.6.3  (06-23-2011)
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, 50 percent Additional Special Depreciation Allowance

  1. Section 401(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended this 50 percent additional first-year depreciation deduction for qualified property for two years as described in IRM subsection 21.7.4.4.18.6 above. The date acquired by the taxpayer, the placed in service date and in the case of taxpayer manufacturing, constructing or producing property for the taxpayers own use is extended per paragraphs (2), (3) and (4) directly below.

  2. The qualified property must be acquired by the taxpayer:

    • After December 31, 2007, and before September 9, 2010, or after December 31, 2011 and before January 1, 2013, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a binding written contract which was entered into after December 31, 2007, and before January 1, 2013

  3. The qualified property must be placed in service by the taxpayer before January 1, 2013. An extension of the placed-in-service date of one year (i.e., to before January 1, 2014) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  4. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2013, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  5. See Rev. Proc. 2011-26, 2011-16 I.R.B. 664, for addition information.

21.7.4.4.18.6.3.1  (06-23-2011)
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, Temporary 100 percent Additional Special Depreciation Allowance

  1. Section 401(b), of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, adds IRC 168(k)(5), allowing a 100 percent additional first-year depreciation deduction for qualified property as described in IRM subsection 21.7.4.4.18.6.3 and meets the additional requirements in paragraphs (2), (3), and (4) of this IRM subsection.

  2. The qualified property must be acquired by the taxpayer after September 8, 2010, and before January 1, 2012 (before, January 1, 2013, in the case of qualified property described in IRC 168(k)(2)(B) or IRC 168(k)(2)(C)).

  3. The original use of the qualified property must commence with the taxpayer after September 8, 2010.

  4. The qualified property must be placed in service by the taxpayer after September 8, 2010, and before January 1, 2012. An extension of the placed in service date of one year (i.e., to before January 1, 2013) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  5. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after September 8, 2010, and before January 1, 2012, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  6. See Rev. Proc. 2011-26, 2011-16 I.R.B. 664, for additional information.

  7. Rev. Proc. 2011-26, also provides a safe harbor method of accounting for passenger automobiles that qualify for the 100 percent additional first year depreciation deduction and that are subject to first year depreciation limitations under IRC 280F(a). Rev. Proc. 2011-21 amplified.

21.7.4.4.18.6.4  (03-29-2013)
American Taxpayer Relief Act of 2012, P.L. 112-240, 50 percent Additional Special Depreciation

  1. Section 331(a), Extension and Modification of Bonus Depreciation, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the 50 percent additional first-year depreciation deduction for qualified property for one year as described in IRM 21.7.4.4.18.6. The date acquired by the taxpayer, the placed in service date and in the case of taxpayer manufacturing, constructing or producing property for the taxpayers own use is extended per paragraphs (2), (3) and (4) directly below.

  2. The qualified property must be acquired by the taxpayer:

    • After December 31, 2007, and before January 1, 2014, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a written binding contract which was entered into after December 31, 2007, and before January 1, 2014

  3. The qualified property must be placed in service by the taxpayer before January 1, 2014. An extension of the placed-in-service date of one year (i.e., to before January 1, 2015) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  4. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2014, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  5. Rev. Proc. 2013-21, provides the depreciation deduction limitations for owners of passenger automobiles (including separate tables for trucks and vans) first placed in service during calendar year 2013 and the amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2013, including a separate table of inclusion amounts for lessees of trucks and vans.

21.7.4.4.18.6.5  (06-27-2016)
Tax Increase Prevention Act of 2014, P.L. 113-295, 50 percent Additional Special Depreciation

  1. Taxpayers recover (through annual depreciation deductions) the cost of certain property used in a trade or business, or for the production of income. Section 103, of the Economic Stimulus Act of 2008, P.L. 110-185, amended IRC 168(k) to allow for a nationwide additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property. The adjusted basis of the qualified property shall be reduced by the amount of regular depreciation deduction before computing the amount of regular depreciation deduction. This additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service.

  2. Section 125(a), Extension of Bonus Depreciation, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the 50 percent additional first-year depreciation deduction for qualified property for one year as described in IRM 21.7.4.4.18.6. The date acquired by the taxpayer, the placed in service date and in the case of taxpayer manufacturing, constructing or producing property for the taxpayers own use is extended per the paragraphs directly below.

  3. The amount of the depreciation deduction allowed with respect to tangible property for a taxable year generally is determined under the modified accelerated cost recovery system "MACRS."

  4. The original use of the qualified property must commence with the taxpayer after December 31, 2007 and which is acquired by the taxpayer:

    • After December 31, 2007, and before January 1, 2015, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a written binding contract which was entered into after December 31, 2007, and before January 1, 2015.

  5. The qualified property must be placed in service by the taxpayer before January 1, 2015. An extension of the placed-in-service date of one year (i.e., to before January 1, 2016) is provided for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C).

  6. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2015, to meet the acquisition requirements in (2) above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  7. See Rev. Proc. 2015-48, for more information. Revenue Procedure 2015-48 provides guidance for issues related to the amendments made to the IRC section 168(k)(2), IRC section 168(k)(4), and IRC section 179(f), by section 125(a), section 125(c)(2), and section 127(d) of the Tax Increase Prevention Act of 2014, P. L. No. 113-295.

21.7.4.4.18.6.6  (06-27-2016)
Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, 50 percent Additional Special Depreciation

  1. Taxpayers recover through annual depreciation deductions, the cost of certain property used in a trade or business, or for the production of income. Section 103 of the Economic Stimulus Act of 2008, P.L. 110-185, amended IRC section 168(k) to allow for a nationwide additional first-year depreciation deduction equal to 50 percent of the adjusted basis of qualified property.

  2. The adjusted basis of the qualified property shall be reduced by the amount of the additional first-year depreciation deduction before computing the amount of regular depreciation deduction. This additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service.

  3. Section 143(a)(1) of the Protecting Americans From Tax Hikes Act of 2015, enacted as part of the Consolidated Appropriations Act, 2016, Division Q, P.L. 114-113, extended the 50 percent additional first-year depreciation deduction for qualified property for one year.

  4. In general, "qualified property" means depreciable property:

    • To which IRC section 168 applies which has a recovery period of 20 years or less,

    • Which is computer software (as defined in IRC section 167(f)(1)(B)), for which a deduction is allowable under IRC section 167(a) without regards to IRC section 168(k),

    • Which is water utility property, or

    • Which is qualified leasehold improvement property.

  5. The original use of the qualified property must commence with the taxpayer after December 31, 2007, and the qualified property must be acquired by the taxpayer:

    • After December 31, 2007, and before January 1, 2016, but only if no written binding contract for the acquisition is in effect before January 1, 2008, or

    • Pursuant to a written binding contract which was entered into after December 31, 2007, and before January 1, 2016.

  6. The qualified property must be placed in service by the taxpayer before January 1, 2016, or in the case of property described in IRC section 168(k)(2)(B) or in IRC section 168(k)(2)(C), before January 1, 2017.

  7. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the taxpayer must begin the manufacture, construction, or production of the property after December 31, 2007, and before January 1, 2016, to meet the acquisition requirements in paragraph (5) directly above. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

  8. The additional first-year depreciation deduction is claimed on Form 4562, Depreciation and Amortization. Follow normal procedures for verifying claims as described in IRM 21.5.3, General Claim Procedures, and follow IRM Exhibit 21.5.3-2, Examination Criteria (CAT-A) – General, for CAT-A criteria.

21.7.4.4.18.6.7  (06-27-2016)
Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, 50 percent Additional Special Depreciation Deduction for Qualified Property for 2016 Through 2019

  1. Section 143(b)(1) of the Protecting Americans From Tax Hikes Act of 2015 (the Act), enacted as part of the Consolidated Appropriations Act, 2016, Division Q, P.L. 114-113, extended and modified the 50 percent additional first-year depreciation deduction for qualified property for 2016 through 2019. Section 143(b)(1) of the Act amends IRC section 168(k)(2) as follows for property placed in service after December 31, 2015, in taxable years ending after such date.

  2. In general the term ‘qualified property’ means depreciable property:

    • (I) to which IRC section 168 applies which has a recovery period of 20 years or less, (II) which is computer software (as defined in IRC section 167(f)(1)(B)) for which a deduction is allowable under IRC section 167(a) without regard to IRC section 168(k), (III) which is water utility property, or (iv) which is qualified improvement property,

    • the original use of which commences with the taxpayer, and

    • which is placed in service by the taxpayer before January 1, 2020.

  3. In addition, "qualified property" includes certain depreciable property having longer production periods if the property:

    • meets the requirements of the 1st and 2nd bullets in paragraph (2) directly above,

    • is placed in service by the taxpayer before January 1, 2021,

    • is acquired by the taxpayer (or acquired pursuant to a written contract entered into) before January 1, 2020,

    • has a recovery period of at least 10 years or is transportation property (as defined in IRC section 168(k)(2)(B)(iii) and (iv)), and

    • is subject to IRC section 263A, and

    • meets the requirements of clause (iii) of IRC section 263A(f)(1)(B) (determined as if such clause also applies to property which has a long useful life (within the meaning of IRC section 263A(f))).

  4. In the case of qualified property described in paragraph (3) directly above, the additional first-year depreciation deduction shall apply only to the extent of the adjusted basis thereof attributable to manufacture, construction, or production before January 1, 2020.

  5. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the acquisition requirements in the 3rd bullet in the paragraph (3) directly above shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property before January 1, 2020.

  6. See section 143(b)(1) of the Act for more information on certain aircraft property, the exception for alternative depreciation property, special rules, and coordination with IRC section 280F. See section 143(b)(6)(D) of the Act for information on the election not to deduct the additional first-year depreciation.

  7. Section 143(b)(2) of the Act amends IRC 168(k)(3), Qualified Improvement Property, for property placed in service after December 31, 2015, in taxable years ending after such date. In general, the term “qualified improvement property” means:

    • Any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.

    • Such term shall not include any improvement for which the expenditure is attributable to (i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building.

  8. Section 143(b)(4) of the Act amends IRC section 168(k)(5). The "Special Rule for Property Acquired During Certain Pre-2012 Periods" has been deleted and replaced by "Special Rules for Certain Plants Bearing Fruits and Nuts." In general, in the case of any "specified plant" which is planted before January 1, 2020, or is grafted before such date to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer’s farming business (as defined in IRC section 263A(e)(4)) during a taxable year for which the taxpayer has elected the application of IRC section 168(k)(5), the taxpayer may elect a depreciation deduction equal to 50 percent of the adjusted basis of such specified plant shall be allowed under IRC section 167(a) for the taxable year in which such specified plant is so planted or grafted, and (ii) the adjusted basis of such specified plant shall be reduced by the amount of such deduction. This 50 percent additional first-year depreciation deduction is reduced to 40 percent for a plant which is planted (or so grafted) in 2018 and 30 percent in the case of a plant which is planted (or so grafted) in 2019. IRC section 168(k)(5), as amended by the Act, applies to specified plants planted or grafted after December 31, 2015.

  9. For purposes of paragraph (8) directly above, the term "specified plant" means any:

    • tree or vine which bears fruit or nuts, and

    • other plant which will have more than one yield of fruits or nuts and which generally has a pre-productive period of more than 2 years from the time of planting or grafting to the time at which such plant begins bearing fruits or nuts.

  10. For purposes of paragraph (8) directly above, the term "specified plant" does not include any property which is planted or grafted outside the United States.

  11. Section 143(b)(5) of the Act adds new IRC section 168(k)(6), Phase Down, to the Internal Revenue Code. The 50 percent additional first-year depreciation deduction is reduced to:

    • 40 percent in the case of property placed in service in 2018 (or in the case of property placed in service in 2019 and described in IRC section 168(k)(2)(B) or 168(k)(2)(C) (determined by substituting "2019" for "2020" in IRC section 168(k)(2)(B)(i)(III) and (ii) and IRC section 168(k)(2)(E)(i)).

    • 30 percent in the case of property placed in service in 2019 (or in the case of property placed in service in 2020 and described in IRC section 168(k)(2)(B) or 168(k)(2)(C)).

  12. Section 143(b)(6)(A) of the Act amends IRC section 168(e)(6) for property placed in service after December 31, 2015, in taxable years ending after such date. In general the term "qualified leasehold improvement property" for purposes of IRC section 168(e)(6) means any improvement to an interior portion of a building which is nonresidential real property if:

    • such improvement is made under or pursuant to a lease (as defined in IRC section 168 (h)(7))(I) by the lessee (or any sublessee) of such portion, or (II) by the lessor of such portion,

    • such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and

    • such improvement is placed in service more than 3 years after the date the building was first placed in service.

  13. For purposes of paragraph (12) directly above, the term “qualified leasehold improvement property” shall not include any improvements for which the expenditure is attributable to:

    • the enlargement of the building,

    • any elevator or escalator,

    • any structural component benefitting a common area, or

    • the internal structural framework of the building.

  14. See IRC section 168(e)(6)(C), as amended by section 143(b)(B)(A) of the Act, for more information on definitions and special rules relating to qualified leasehold improvement property.

21.7.4.4.18.7  (05-13-2016)
Economic Stimulus Act of 2008, P.L. 110-185, IRC 179 Expense

  1. Taxpayers may elect under IRC 179 to "expense" the cost of qualifying property, rather than to recover their cost through "depreciation deductions." Section 102 of the Economic Stimulus Act of 2008, P.L. 110-185 (under IRC 179(b)(1)), increases the amount eligible to be expensed.

  2. Per IRC 179(d)(1), "section 179 property" means property which is:

    • Tangible property (to which section 168 applies), or computer software (as defined in IRC 197(e)(3)(B)) which is described in IRC 197(e)(3)(A)(i), to which IRC 167 applies, and which is placed is service in a taxable year beginning after 2002 and before 2011,

    • IRC 1245 property (as defined in section 1245(a)(3), and

    • Acquired by purchase for use in the active conduct of a trade or business.

    Note:

    See IRM 21.7.4.4.18.7.6, for tax years beginning after December 31, 2013, and IRM 21.7.4.4.18.7.7, for tax years beginning after December 31, 2014, for more specific information concerning these tax years.

  3. IRC 179 property does not include any property described in IRC 50(b) and does not include air conditioning and heating units.

  4. Per sections 102(a) and 102(b) of the Economic Stimulus Act of 2008, for taxable years beginning in 2008, the maximum amount under IRC 179(b)(1), that a taxpayer may expense is increased from $125,000, adjusted for inflation, to $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds $800,000 (previously, the $500,000 amount, adjusted for inflation under IRC 179(b)(2)). The law does not alter the rule that a taxpayer cannot elect under IRC 179 to expense more than $25,000 of the cost of any sport utility vehicle, which is qualifying property, placed in service in the taxable year.

  5. See the Instructions for Form 4562, Depreciation and Amortization and Publication 946, How to Depreciate Property, for more information on Section 179 expense.

21.7.4.4.18.7.1  (02-28-2011)
American Recovery and Reinvestment Act of 2009, P.L. 111-5, IRC 179 Expense

  1. Section 1202, Temporary Increase in Limitations on Expensing of Certain Depreciable Business Assets, of the American Recovery and Reinvestment Act of 2009, P.L. 111-5, extended the temporary increase in expensing of the cost of qualifying property, for one year. The provision extended the $250,000 and the $800,000 amounts to taxable years beginning in 2009.

21.7.4.4.18.7.2  (02-28-2011)
Hiring Incentives To Restore Employment Act, P.L. 111-147, IRC 179 Expense

  1. Section 201, Increase in Expensing of Certain Depreciable Business Assets, of the Hiring Incentives To Restore Employment Act, P.L. 111-147, extended the temporary increase in expensing of the cost of qualifying property. The provision extended the $250,000 and the $800,000 amounts to taxable years beginning in 2010.

21.7.4.4.18.7.3  (03-18-2011)
Small Business Jobs Act of 2010, P.L. 111-240, IRC 179 Expense

  1. Section 2021, Increased Expensing Limitations for 2010 and 2011; Certain Real Property Treated as IRC 179 Property, of the Small Business Jobs Act of 2010, P.L. 111–240, increased and extended the temporary increase in expensing of the cost of qualifying property.

  2. The maximum amount of the cost of qualifying property placed in service for the taxable year under IRC 179(b)(1) that a taxpayer may expense for taxable years beginning in 2010 and 2011 is increased to $500,000 and the applicable IRC 179(b)(1) amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds $800,000 under IRC 179(b)(2).

  3. The law does not alter the rule that a taxpayer cannot elect under IRC 179 to expense more than $25,000 of the cost of any sport utility vehicle, which is qualifying property, placed in service in the taxable year. See subsection 21.7.4.4.18.7.4 for changes due to the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. See Rev. Proc. 2010-47, 2010-50 I.R.B. 827, for more information.

  4. Special Rules for Qualified Real Property. If a taxpayer elects the application of IRC 179(f) property for any taxable year beginning in 2010 or 2011, the term "section 179 property" shall include any qualified real property which is: of a character subject to an allowance for depreciation, acquired by purchase for use in the active conduct of a trade or business, and not described in the last sentence of IRC 179(d)(1). The term "qualified real property" means:

    • Qualified leasehold improvement property described in IRC 168(e)(6)

    • Qualified restaurant property described in IRC 168(e)(7), and

    • Qualified retail improvement property described in IRC 168(e)(8)

  5. For purposes of applying the limitation under IRC 179(b)(1)(B), not more than $250,000 of the aggregate cost which is taken into account under IRC 179(a) for any taxable year may be attributable to qualified real property.

  6. For taxable years beginning in 2012 and thereafter, a taxpayer with a sufficiently small amount of annual investment may elect to deduct up to $25,000 of the cost of qualifying property placed in service for the taxable year. The $25,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $200,000. The $25,000 and $200,000 amounts are not indexed. In general, qualifying property is defined as depreciable tangible personal property that is purchased for use in the active conduct of a trade or business (not including off-the-shelf computer software).

21.7.4.4.18.7.4  (11-30-2011)
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, IRC 179 Expensing

  1. Section 402(a), of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, changes the maximum amount of the cost of qualifying property placed in service for the taxable year under IRC 179(b)(1) that a taxpayer may expense for taxable years beginning in 2012 is reduced to $125,000. The $125,000 amount (under IRC 179(b)(1) is reduced to $25,000 for taxable years beginning after 2012.

  2. Under section 402(b) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, for taxable years beginning in 2012, the applicable IRC 179(b)(1) amount of $125,000 is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds $500,000 under IRC 179(b)(2). For taxable years beginning after 2012 the IRC 179(b)(2) amount is $200,000. The law does not alter the rule that a taxpayer cannot elect under IRC 179 to expense more than $25,000 of the cost of any sport utility vehicle, which is qualifying property, placed in service in the taxable year.

  3. Under section 402(c) of the Act, in the case of any taxable year beginning in 2012, the $125,000 amount (under IRC 179(b)(1)) and the $500,000 amount (under IRC 179(b)(2)) are indexed for inflation. Per Rev. Proc. 2011-58, for taxable years beginning in 2012, under IRC 179(b)(1)(C), the aggregate cost of any section 179 property a taxpayer may elect to treat as an expense cannot exceed $139,000. Under IRC 179(b)(2)(C), the $139,000 limitation is reduced (but not below zero) by the amount the cost of section 179 property placed in service during the 2012 taxable year exceeds $560,000.

  4. Section 402(d) of the Act extended the placed in service date for computer software described in paragraph (2) in subsection 21.7.4.4.18.7 to taxable years beginning after 2011 and before 2013.

  5. Section 402(e) of the Act extended the provision permitting a taxpayer to irrevocably revoke an election for a taxable year under IRC 179 without the consent of the Commissioner for one year (through taxable years beginning in 2012).

21.7.4.4.18.7.5  (02-28-2013)
American Taxpayer Relief Act of 2012, P.L.112-240, IRC 179 Expensing

  1. Section 315, Extension of Increased Expensing Limitations and Treatment of Certain Real Property as Section 179 Property, of the American Taxpayer Relief Act of 2012, P.L. 112-240, made several amendments to IRC 179. Section 315(a)(1) of the Act amends the maximum amount under IRC 179(b)(1) of the cost of qualifying property placed in service for the taxable year that a taxpayer may expense. For taxable years beginning in 2012, the amount is increased from $125,000 to $500,000. For taxable years beginning in 2013, the amount is increased from $25,000 to $500,000. For taxable years beginning after 2013, the applicable IRC 179(b)(1) amount is $25,000.

  2. Under IRC 179(b)(2), the applicable IRC 179(b)(1) amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds certain thresholds. Section 315(a)(2) of the American Taxpayer Relief Act of 2012, P.L. 112-240, amends these amounts as follows

    • $2,000,000 in the case of taxable years beginning in 2012 and 2013

    • $200,000 in the case of taxable years beginning after 2013

  3. Section 315(b) of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the placed in service date for computer software described in paragraph (2) in subsection 21.7.4.4.18.7 for one year to taxable years before 2014.

  4. Section 315(c), of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the provision permitting a taxpayer to irrevocably revoke an election for a taxable year under IRC 179 without the consent of the Commissioner for one year (through taxable years beginning in 2013).

  5. Section 315(d) of the Act extended the placed in service date for qualified real property for two years to taxable years beginning in 2012 and 2013.

21.7.4.4.18.7.6  (05-13-2016)
Tax Increase Prevention Act of 2014, P.L. 113-295, IRC 179 Expensing

  1. Taxpayers may elect under IRC 179 to expense the cost of qualifying property, rather than to recover their cost through depreciation deductions. See the various subsections in this IRM for the maximum dollar amount that a taxpayer previously could have expensed under IRC 179(b)(1), and for the dollar limitation under IRC 179(b)(2) that the aggregate cost of qualifying property placed in service by the taxpayer during the taxable year cannot exceed without reducing the amount that can be expensed under IRC 179(b)(1).

  2. Per IRC 179(d)(1), “section 179 property” means property which is:

    • Tangible property (to which section 168 applies), or computer software (as defined in IRC 197(e)(3)(B)) which is described in IRC 197(e)(3)(A)(i), to which IRC 167 applies, and which is placed is service in a taxable year beginning after 2002 and before 2015,

    • IRC 1245 property (as defined in section 1245(a)(3)), and

    • Acquired by purchase for use in the active conduct of a trade or business.

    Note:

    Section 179 property does not include any property described in IRC 50(b) and does not include air conditioning or heating units.

  3. See IRM 21.7.4.4.18.7.7, for tax years beginning on or after 01/01/2015.

  4. Section 127(a)(1)(A), of the Tax Increase Prevention Act of 2014, P.L. 113-295, sets the maximum amount under IRC 179(b)(1) of the aggregated cost of qualifying property placed in service for the taxable year that a taxpayer may expense. For taxable years beginning after 2009 and before 2015, the amount remains at $500,000. Per section 127(a)(1)(B) of the Act, for taxable years beginning after 2014, the aggregated cost of qualifying property placed in service for the taxable year under IRC 179 that a taxpayer may expense is $25,000.

  5. Section 127(b), of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the placed in service date for computer software described in paragraph (2) directly above, for one year to taxable years beginning after 2002 and before 2015.

  6. Under IRC 179(b)(2), the applicable IRC 179(b)(1) amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds certain thresholds. Per section 127(a)(2)(A),of the Tax Increase Prevention Act of 2014, P.L. 113-295, the threshold amount under IRC 179(b)(2), for taxable years beginning after 2009 and before 2015, the amount remains at $2,000,000. Per section 127(a)(2)(B) of the Act, the threshold amount is $200,000 for tax years beginning after 2014.

  7. Section 127(c), of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended for one year the provision permitting a taxpayer to irrevocably revoke an election for a taxable year under IRC 179(c)(2) without the consent of the Commissioner for elections with respect to taxable years beginning after 2002 and before 2015.

  8. Section 127(d)(1), of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the special rules for qualified real property for one year. If a taxpayer elects the application of IRC 179(f) for any taxable year beginning after 2009 and before 2015, the term section 179 property shall include any qualified real property which is

    • Of a character subject to an allowance for depreciation,

    • Acquired by purchase for use in the active conduct of a trade or business, and

    • Not described in the last sentence of IRC 179(d)(1) (see note in paragraph (2) above).

    (i) (ii)(iii)

  9. The term "qualified real property" means:

    • Qualified leasehold improvement property described in IRC 168(e)(6),

    • Qualified restaurant property described in IRC 168(e)(7), and

    • Qualified retail improvement property described in IRC 168(e)(8).

21.7.4.4.18.7.7  (05-13-2016)
Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, IRC 179 Expensing

  1. Taxpayers may elect under IRC 179 to expense the cost of qualifying property, rather than to recover their cost through depreciation deductions. See the various subsections under IRM 21.7.4.4.18, for the maximum dollar amount that a taxpayer previously could have expensed under IRC 179(b)(1), and for the dollar limitation under IRC 179(b)(2) that the aggregate cost of qualifying property placed in service by the taxpayer during the taxable year cannot exceed without reducing the amount that can be expensed under IRC 179(b)(1).

  2. Section 124(a), of the Protecting Americans from Tax Hikes Act of 2015 (the Act), enacted as part of the Consolidated Appropriations Act, 2016, Division Q, P.L. 114-113, permanently extended the maximum dollar amount under IRC 179(b)(1) and the dollar limitation under IRC 179(b)(2) for Section 179 property as follows:

    • Per section 124(a)(1) of the Act, for taxable years beginning after December 31, 2014, the maximum amount under IRC 179(b)(1) of the aggregated cost of qualifying property placed in service for the taxable year that a taxpayer may expense is $500,000.

    • Under IRC 179(b)(2), the applicable IRC 179(b)(1) amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service by the taxpayer during the taxable year exceeds certain thresholds. Per section 124(a)(2) of the Act, the threshold amount under IRC 179(b)(2), for taxable years beginning after December 31, 2014 is $2,000,000.

  3. Per section 124(f) of the Act, section 179(b) is amended by adding an inflation adjustment:

    • In general, for any taxable year beginning after December 31, 2015, the dollar amounts shown in paragraph (2) above, may be increased by an amount equal to (i) such dollar amount multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by the CPI for calendar year 2014.

    • The amount of any increase in the bullet above shall be rounded to the nearest multiple of $10,000.

    • Per Rev. Proc. 2016-14, 2016-9 I.R.B. 365, for taxable years beginning in 2016, the inflation adjusted maximum amount under IRC 179(b)(1) remains at $500,000, and the inflation adjusted threshold amount under IRC 179(b)(2) is increased to $2,010,000.

  4. The law does not alter the rule that a taxpayer cannot elect under IRC 179 to expense more than $25,000 of the cost of any sport utility vehicle, which is qualifying property, placed in service in the taxable year.

  5. Per IRC 179(d)(1), as amended by section 124(b) of the Act, "section 179 property" means property which is:

    • Tangible property (to which section 168 applies), or

    • Computer software (as defined in IRC 197(e)(3)(B)) which is defined in IRC 197(e)(3)(A)(i), and to which section 167 applies, and

    • Acquired by purchase for use in the active conduct of a trade or business.

  6. IRC 179 property does not include any property described in IRC 50(b) and does not include air conditioning and heating units.

    Note:

    Per section 124(e) of the Act, effective with taxable years beginning after December 31, 2015, IRC 179(d)(1) includes air conditioning and heating units.

  7. Section 124(c)(2) of the Act, permanently extended the special rules for qualified real property, effective for taxable years beginning after December 31, 2015. If a taxpayer elects the application of IRC 179(f) for any taxable year.

  8. The term “section 179 property” shall include any qualified real property which is:

    • Of a character subject to an allowance for depreciation,

    • Acquired by purchase for use in the active conduct of a trade or business, and

    • Not described in the last sentence of IRC 179(d)(1) (see note in paragraph (6) above).

  9. The term “qualified real property” means:

    • Qualified leasehold improvement property described in IRC 168(e)(6),

    • Qualified restaurant property described in IRC 168(e)(7), and

    • Qualified retail improvement property described in IRC 168(e)(8).

  10. For taxable years beginning after 2009 and before 2016, for purposes of applying the limitation under IRC 179(b)(1), not more than $250,000 of the aggregate cost which is taken into account under IRC 179(a) for any taxable year may be attributable to qualified real property. Section 124(c)(2) of the Act eliminated this $250,000 limitation, effective for taxable years beginning after December 31, 2015.

  11. Per IRC 179(c)(2), any election made under section 179, and any specification contained in any such election, for any taxable year beginning before 2003 may not be revoked except with the consent of the Commissioner. Any such election or specification with respect to any taxable year beginning after 2002 and before 2015 may be revoked by the taxpayer with respect to any property, and any such revocation, once made, is irrevocable. Per Section 124(d) of the Act, for taxable years beginning after December 31, 2014, an election made under section 179 may be revoked by the taxpayer with respect to any property, and such revocation once made, shall be irrevocable.

  12. See IRC 179(a) through 179(f) for more specific information.

21.7.4.4.18.8  (10-01-2016)
Food, Conservation, and Energy Act of 2008, P.L. 110-246 - Additional First-Year Depreciation for Kiowa County, Kansas and Surrounding Areas

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Food, Conservation, and Energy Act of 2008, P.L. 110-246 - Additional First-Year Depreciation for Kiowa County, Kansas and Surrounding Areas.

21.7.4.4.18.8.1  (10-01-2016)
Food, Conservation, and Tax Relief Act of 2008, P.L. 110-246 - Increased Section 179 Expense for Kiowa County, Kansas and Surrounding Areas

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Food, Conservation, and Tax Relief Act of 2008, P.L. 110-246 - Increased Section 179 Expense for Kiowa County, Kansas and Surrounding Areas.

21.7.4.4.18.8.2  (10-01-2016)
Food, Conservation, and Energy Act of 2008, (Form 5884-A) Credit for Employers Affected by May 4, 2007 Storms and Tornadoes in Kiowa County, Kansas and Surrounding Areas.

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Food, Conservation, and Energy Act of 2008, (Form 5884-A) Credit for Employers Affected by May 4, 2007 Storms and Tornadoes in Kiowa County, Kansas and Surrounding Areas.

21.7.4.4.18.8.3  (10-01-2016)
Food, Conservation, and Energy Act of 2008, Hurricane Katrina Housing Credit, Form 5884-A for Taxpayers Affected by the May 4, 2007 Storms and Tornadoes in Kiowa County, Kansas and Surrounding Areas

  1. See the 10-01-2015 and prior revisions of this IRM for information on The Food, Conservation, and Energy Act of 2008, Hurricane Katrina Housing Credit, Form 5884-A for Taxpayers Affected by the May 4, 2007 Storms and Tornadoes in Kiowa County, Kansas and Surrounding Areas.

21.7.4.4.18.9  (02-08-2016)
Form 8932, Credit for Employer Differential Wage Payments

  1. Section 111, Credit for Employer Differential Wage Payments to Employees Who Are Active Duty Members of the Uniformed Services, of the Heroes Earning Assistance and Relief Tax Act of 2008, P.L. 110-245, created new IRC 45P. The provision provides for a credit for compensation paid by an employer to an employee who is called to active duty with respect to the armed forces of the United States and is effective for differential wage payments made to qualified employees after June 17, 2008 and on or before December 31, 2009, by an eligible small business employer, can be used to figure the credit.

  2. The credit is claimed on Form 8932, Credit for Employer Differential Wage Payments. To be considered a differential wage payment, the payment must meet both of the following requirements:

    • The payment is made by an eligible small business employer to a qualified employee for any period during which the employee is performing service in the uniformed services of the United States while on active duty for a period of more than 30 days.

      Note:

      Beginning with taxable payments made after December 31, 2015, per Section 122 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, the credit applies to employers of any size, rather than only eligible small business employers (employers with 50 or fewer employees), as under current law.

    • The payment represents all or a portion of the wages the employee would have received from the employer if the employee were performing services for the employer.

  3. The credit for employer differential wage payments has been modified by various legislation. Below is a listing of the legislation that has extended the credit for employer differential wage payments:

    • Section 736, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the credit for two years and is effective for payments made after December 31, 2009 on or before December 31, 2011.

    • Section 308(a), of the Uniformed Services, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the credit for two years and is effective for payments made after December 31, 2011 and on or before December 31, 2013.

    • Section 118, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the credit for one year and is effective for payments made after December 31, 2013 and on or before December 31, 2014.

    • Section 122 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, permanently extends the 20-percent employer wage credit for employees called to active military duty beginning with payments made after December 31, 2014.

  4. Employers who voluntarily pay the employee "differential pay," the difference between the compensation that the employer would have paid to the employee during the period of military service less the amount of pay received by the employee from the military are eligible for the credit.

  5. The differential wage payment credit for any taxable year is an amount equal to 20 percent of the first $20,000 of "eligible differential wage payments" paid to each "qualified employee" of the taxpayer during such taxable year.

  6. A "qualified employee" of a taxpayer is a person who has been an employee for the 91-day period immediately preceding the period for which any differential wage payment is made during such taxable year.

  7. See the General Instructions for Form 8932, for definitions of terms and more specific information and Notice 2010-15, 2010-6 I.R.B. 390, for more information.

  8. Action required:

    • Math verify Form 8932

    • Input TC 291 to increase the credit and TC 290 to reduce the credit

21.7.4.4.18.10  (01-29-2015)
The Housing and Economic Recovery Act of 2008 P.L. 110-289, Election to Accelerate Research Credit and Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. Section 3081, of the Housing and Economic Recovery Act of 2008, P.L. 110-289, adds IRC 168(k)(4), and provides for corporations to elect not to claim the 50 percent additional first-year depreciation for certain new property (IRC 168(k)(2)) acquired after March 31, 2008, and placed in service generally before January 1, 2009, and instead to increase their business credit limitation or alternative minimum tax credit limitation. The placed in service date is extended to January 1, 2010 for property described in IRC 168(k)(2)(B) and (C). See IRM 21.7.4.4.18.6, Economic Stimulus Act of 2008, 50 percent Special Depreciation Allowance, for more information involving bonus depreciation.

  2. Taxpayers making the election do not claim the depreciation deduction allowable under IRC 168(k) and instead, increase, the limitation on the use of research credits and minimum tax credits. If the corporation elects to accelerate the credits for the first taxable year ending after March 31, 2008, for such taxable year and for any subsequent taxable year, the corporation forgoes the 50 percent additional first-year depreciation deduction and must use the straight line method for depreciation of eligible qualified property.

  3. As a result of the IRC 168(k)(4) election, the corporation may only claim unused and unexpired credits from taxable years beginning before January 1, 2006, that are allocable to research expenditures or AMT liabilities. The increases in the allowable credits are treated as refundable credits, per this provision. See Rev. Proc. 2008-65, 2008-44 I.R.B. 1082, for guidance. Also, see Rev. Proc. 2009-33, 2009-29 I.R.B. 150, for guidance regarding the ability of corporations to elect not to claim the 50 percent depreciation deduction for certain property (extension property) placed in service after December 31, 2008 and before January 1, 2010, (or placed in service after December 31, 2009, and before January 1, 2011, for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C))

  4. The TY 2007 Form 1120 (for fiscal filers) does not contain a specific line to claim the credit. The credit can be claimed on line 32g of the TY 2008 Form 1120. Fiscal year 2007 corporations have been instructed not to make the election and claim the refundable credit on their original return, but rather on an amended return. The TY 2008 Form 1120, Form 3800 (line 18b), and Form 8827 (line 8c) contains a specific line to claim the refundable credit.

  5. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, take the following action:

    1. Input TC 290 $.00 and TC 766 with a positive amount to allow/increase the credit, or

    2. Input TC 290 $.00 and TC 767 with a negative amount to decrease the credit

  6. In order to track the credit for the Chief Financial Office, beginning January, 2009, Input a TC 971 action code 300 to the tax module via CC FRM77 whenever the credit is adjusted. Input the dollar amount in the FREEZE-RELEASE-MEMO-AMT field. The transaction date will self-populate with the current date. Money amounts must be positive or negative. Zeros are not allowed.

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21.7.4.4.18.10.1  (01-27-2011)
American Recovery and Reinvestment Act of 2009 P.L. 111-5, Election to Accelerate Research Credit and Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. Section 1201(b), of the American Recovery and Reinvestment Tax Act of 2009, P.L. 111-5, extended for one year the election to accelerate the use of unused research credit and alternative minimum tax credit carryforwards from tax years beginning before 2006 and obtain a refundable credit in lieu of bonus depreciation. The provision provides for corporations to elect not to claim the 50 percent additional first-year depreciation for eligible qualified property (defined in IRM 21.7.4.4.18.6(14)) acquired after March 31, 2008, and placed in service after December 31, 2008, and before January 1, 2010 (extension property) and instead, to increase their business credit limitation or alternative minimum tax credit limitation. In the preceding sentence, the placed in service date of "December 31, 2008" is changed to "December 31, 2009" and the placed in service date of "January 1, 2010" is changed to "January 1, 2011" for property described in IRC 168(k)(2)(B) or 168(k)(2)(C).

  2. If a taxpayer made an election to increase the research credit or minimum tax credit limitations for its first tax year ending after March 31, 2008, the taxpayer can choose not to have the election apply to extension property. If the taxpayer made the election and does not choose to not have the election apply to extension property, the original election continues to apply to both eligible qualified property and extension property. However, in this case, separate bonus depreciation amounts, maximum increase amounts, and maximum amounts are computed for eligible qualified property and for extension property. If a taxpayer did not make the election for its first tax year ending after March 31, 2008, the taxpayer can make the election only for extension property for its first tax year ending after December 31, 2008.

  3. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, follow the instructions in paragraphs (4), (5) and (6) in subsection 21.7.4.4.18.10.

21.7.4.4.18.10.2  (02-28-2011)
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, Election to Accelerate Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111–312, was signed into law. Section 401(c) of the Act extended the election to accelerate the AMT credit in lieu of bonus depreciation. In general, the provision provides for corporations to elect not to claim the 50 percent or 100 percent additional first-year depreciation for eligible qualified property (defined in IRM 21.7.4.4.18.6) acquired after March 31, 2008, and placed in service after December 31, 2010 and before January 1, 2013 (or placed in service after December 31, 2012, and before January 1, 2014, for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C)) and instead, to increase their alternative minimum tax credit limitation. This provision refers this eligible qualified property as "round 2 extension property" .

  2. If a taxpayer made an election to increase the research credit or minimum tax credit limitations for its first tax year ending after March 31, 2008, or a taxpayer who made the election for its first taxable year ending after December 31, 2008, the taxpayer can elect not to have IRC 168(k)(4) apply to round 2 extension property. However, if the taxpayer does not make the election under IRC 168(k)(4)(I)(ii)(I), in applying IRC 168(k)(4) to the taxpayer, the bonus depreciation amounts, maximum increase amounts, and maximum amounts shall be computed and applied to eligible qualified property which is round 2 extension property.

  3. Taxpayers not previously electing to make the election under IRC 168(k)(4) for its first tax year ending after March 31, 2008, nor whom made the election under IRC 168(k)(4)(H)(ii) for its first taxable year ending after December 31, 2008, can elect to have IRC 168(k)(4) apply to its first taxable year ending after December 31, 2010 and each subsequent year the taxpayer makes the election under IRC 168(k)(4), then IRC 168(k)(4) only applies to eligible qualified property which is round 2 extension property.

  4. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, follow the instructions in paragraphs (4), (5) and (6) in subsection 21.7.4.4.18.10.

21.7.4.4.18.10.3  (04-21-2015)
American Taxpayer Relief Act of 2012, P.L. 112-240, Extension of Election to Accelerate the Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. Section 331(c)(1), Extension of Election to Accelerate the AMT Credit in Lieu of Bonus Depreciation, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the election to accelerate the alternative minimum tax (AMT) credit in lieu of bonus depreciation. In general, the provision provides for corporations to elect not to claim the 50 percent additional first-year depreciation for eligible qualified property (defined in IRM 21.7.4.4.18.6) acquired after March 31, 2008, and placed in service after December 31, 2012, and before January 1, 2014 (or placed in service after December 31, 2013, and before January 1, 2015, for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168)k)(2)(C)) and instead, to increase their AMT credit limitation. The provision refers this eligible qualified property as "round 3 extension property" .

  2. If a taxpayer made the election under IRC 168(k)(4)(A) to increase the research credit or minimum tax credit limitations for its first taxable year ending after March 31, 2008, made the election to increase the research credit or minimum tax credit limitations under IRC 168(k)(4)(H)(ii) for its first taxable year ending after December 31, 2008 (extension property election), or made the election to increase the minimum tax credit limitation under IRC 168(k)(4)(I)(iii)for its first taxable year after December 31, 2010 (round 2 extension property :

    • Under new IRC 168(k)(4)(J)(ii)(l), the taxpayer can elect not to have IRC 168(k)(4) apply to round 3 extension property, but

    • If the taxpayer does not make the election under new IRC 168(k)(4)(J)(ii)(I), in applying IRC 168(k)(4) to the taxpayer the bonus depreciation amount, maximum amounts, and maximum increase amounts, shall be computed and applied to eligible qualified property which is round 3 extension property. The amounts described in new subparagraph (J)(ii)(I) of IRC 168(k)(4) shall be computed separately from any amounts computed with respect to eligible qualified property which is not round 3 extension property.

  3. Taxpayers that have not previously made the election to apply IRC 168(k)(4). Under new IRC 168(k)(4)(J)(iii), in the case of a taxpayer who neither made the election under IRC 168(k)(4)(A) for its first taxable year ending after March 31, 2008, nor made the election under IRC 168(k)(4)(H)(ii) for its first taxable year ending after December 31, 2008 (extension property election), nor made the election under IRC 168(k)(4)(I)(iii) for any taxable year ending after December 31, 2010 (round 2 extension property election):

    • The taxpayer may elect to have IRC 168(k)(4) apply to round 3 extension property for its first taxable year ending after December 31, 2012, and each subsequent taxable year, and

    • If the taxpayer makes the election under new IRC 168(k)(4)(J)(iii)(I), IRC 168(k)(4) shall only apply to eligible qualified property which is round 3 extension property.

  4. Under IRC 168(k)(4)(J)(iv), round 3 extension property is defined as property that is eligible qualified property solely by reason of the extension of IRC 168(k)(2) by the American Taxpayer Relief Act of 2012.

  5. Section 331(c)(2) of the American Taxpayer Relief Act of 2012 added new IRC 168(k)(4)(J) to provide special rules for round 3 extension property. In general, new IRC 168(k)(4)(J)(i) provides that in the case of round 3 extension property, this paragraph shall be applied without regard to:

    • The limitation described in IRC 168(k)(4)(B)(i) thereof, and

    • The business credit increase amount under IRC 168(k)(4)(E)(iii).

  6. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, follow the instructions in paragraphs (4), (5) and (6) in subsection 21.7.4.4.18.10.

  7. Per Section 125(c)(2), of the Tax Increase Prevention Act of 2014, a taxpayer who has an election for round 3 extension property shall be treated as having an election in effect for round 4 extension property unless the taxpayer elects not to have IRC section 168(k)(4) apply to round 4 extension property. See IRM 21.7.4.4.18.10.4, for more information on round 4 extension property.

21.7.4.4.18.10.4  (04-21-2015)
Tax Increase Prevention Act of 2014, P.L. 113-295, Accelerate the Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. Section 125(c)(2), Tax Increase Prevention Act of 2014, P.L. 113-295, extended the election to accelerate the alternative minimum tax credit in lieu of bonus depreciation. In general, the provision provides for corporations to elect not to claim the 50 percent additional first-year depreciation for eligible qualified property (defined in IRM 21.7.4.4.18.6) acquired after March 31, 2008, and placed in service after December 31, 2013, and before January 1, 2015 (or placed in service after December 31, 2014, and before January 1, 2016, for certain property having longer production periods as described in IRC 168(k)(2)(B) and also for certain aircraft as described in IRC 168(k)(2)(C)), and instead, to increase their AMT credit limitation. The provision refers to this eligible qualified property as round 4 extension property.

  2. A taxpayer who has an election for round 3 extension property shall be treated as having an election in effect for round 4 property unless the taxpayer elects not to have IRC section 168(k)(4) apply to round 4 extension property. See IRM 21.7.4.4.18.10.3 for more information on round 3 extension property. In addition, all the provisions in IRM 21.7.4.4.18.10.3 apply to round 4 extension property except for the new placed-in-service date for round 4 extension property (see paragraph (1) above)).

21.7.4.4.18.10.5  (06-27-2016)
Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, Extension of Election to Accelerate the Alternative Minimum Tax Credit in Lieu of Bonus Depreciation

  1. Section 143(a)(3) of the Protecting Americans From Tax Hikes Act of 2015 (the Act), enacted as part of the Consolidated Appropriations Act, 2016, Division Q, P.L. 114-113, extended for one year the election to accelerate the unused alternative minimum tax (AMT) credit carryforwards from tax years beginning before 2006 and obtain a refundable credit in lieu of bonus depreciation. In general, the provision provides for corporations to elect not to claim the 50 percent additional first-year depreciation for “eligible qualified property” (defined in IRM 21.7.4.4.18.6.6, Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, 50 percent Additional Special Depreciation) acquired after March 31, 2008, and placed in service after December 31, 2014, and before January 1, 2016 (or placed in service after December 31, 2015, and before January 1, 2017, for certain property having longer production periods as described in IRC section 168(k)(2)(B) and also for certain aircraft as described in IRC section 168(k)(2)(C)), and instead, to increase their AMT credit limitation. Section 143(a)(3) of the Act refers to this eligible qualified property as round 5 extension property.

  2. Section 143(a)(3) of the Act added new IRC section 168(k)(4)(L) to provide special rules for round 5 extension property. In general, new IRC section 168(k)(4)(L)(i)(I) provides that in the case of round 5 extension property, the limitation described in IRC section 168(k)(4)(B)(i) and the business credit increase amount under IRC section 168(k)(4)(E)(iii) thereof shall not apply.

  3. A taxpayer who has an election for round 4 extension property shall be treated as having an election in effect for round 5 extension property unless, under new IRC section 168(k)(4)(L)(ii)(I), the taxpayer elects not to have IRC section 168(k)(4) apply to round 5 extension property.

  4. Under new IRC section 168(k)(4)(L)(ii)(II), a taxpayer who does not have an election in effect for round 4 extension property may elect to apply IRC section 168(k)(4) to round 5 extension property. If the taxpayer makes the election under new IRC section 168(k)(4)(L)(ii)(II), IRC section 168(k)(4) applies only to eligible qualified property that is round 5 extension property.

  5. In applying IRC section 168(k)(4) to eligible qualified property that is round 5 extension property, taxpayers do not claim the 50 percent additional first-year depreciation under IRC section 168(k) and instead, use the straight line method of depreciation for eligible qualified property that is round 5 extension property and increase their pre-2006 minimum tax credit limitation. Also, under new IRC section 168(k)(4)(L)(i)(II), the bonus depreciation amount, maximum amount, and maximum increase amount shall be computed and applied to eligible qualified property which is round 5 extension property. These amounts shall be computed separately from any amounts computed with respect to eligible qualified property which is not round 5 extension property.

  6. See IRC section 168(k)(4)(C) for computing the bonus depreciation amount, maximum amount, and maximum increase amount.

  7. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, take the following action:

    • Input TC 290 $.00 and TC 766 with a positive amount to allow/increase the credit, or

    • Input TC 290 $.00 and TC 767 with a negative amount to decrease the credit

    • Input a TC 971 action code 300 to the tax module via CC FRM77 whenever the credit is adjusted. Input the dollar amount in the FREEZERELEASE-MEMO-AMT field. The transaction date will self-populate with the current date. Money amounts must be positive or negative. Zeros are not allowed.

21.7.4.4.18.10.5.1  (06-27-2016)
Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, Extension of Election to Accelerate the Alternative Minimum Tax Credit in Lieu of Bonus Depreciation for 2016 through 2019

  1. Section 143(b)(3) of the Protecting Americans From Tax Hikes Act of 2015 (the Act), enacted as part of the Consolidated Appropriations Act, 2016, Division Q, P.L. 114-113, extended and modified the election to accelerate the alternative minimum tax credit in lieu of bonus depreciation for 2016 through 2019. Section 143(b)(3) of the Act amends IRC section 168(k)(4) as follows for taxable years ending after December 31, 2015.

  2. In general, IRC section 168(k)(4) provides for corporations to elect not to claim the 50 percent additional first-year depreciation for qualified property and instead, increase their minimum tax credit limitation and obtain a refundable credit. In general, under IRC section 168(k)(4)(A), if a corporation elects to apply IRC section 168(k)(4) for any taxable year:

    • IRC section 168(k)(1) and IRC section 168(k)(2)(F) shall not apply to any qualified property placed in service during such taxable year,

    • the applicable depreciation method used under IRC section 168 with respect to such property shall be the straight line method, and

    • the limitation imposed by IRC section 53(c) for such taxable year shall be increased by the bonus depreciation amount which is determined for such taxable year under IRC section 168(k)(4)(B).

  3. See IRM 21.7.4.4.18.6.7, Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, 50 percent Additional Special Depreciation for Qualified Property for 2016 Through 2019, for the property that qualifies as “Qualified Property” under IRC section 168(k)(2).

  4. See IRC section 168(k)(4)(B) through IRC section 168(k)(4)(D) for information on the bonus depreciation amount, credit refundable, and other rules.

  5. If an amended return is received, or a taxpayer did not receive the proper credit on their original return, take the following action:

    • Input TC 290 $.00 and TC 766 with a positive amount to allow/increase the credit, or

    • Input TC 290 $.00 and TC 767 with a negative amount to decrease the credit,

    • Input a TC 971 action code 300 to the tax module via CC FRM77 whenever the credit is adjusted. Input the dollar amount in the FREEZERELEASE-MEMO-AMT field. The transaction date will self-populate with the current date. Money amounts must be positive or negative. Zeros are not allowed.

21.7.4.4.18.11  (02-08-2016)
Energy Efficient Commercial Building Deduction

  1. Section 1331, Title XIII, of the Energy Policy Act of 2005, P.L. 109-58, created the Energy Efficient Commercial Building Deduction under IRC 179D. The provision provides a deduction for all or a part of the energy efficient commercial building property expenditures made by the taxpayer after December 31, 2005 in calendar years 2006 through 2014.

  2. The energy efficient commercial building deduction has been modified by various legislation. Below is a listing of the legislation that has extended the energy efficient commercial building deduction:

    • Section 204, Division A, Title III, of the Tax Relief and Health Care Act of 2006, P.L. 109-432, extended the deduction for one year for property placed in service after December 31, 2007 and on or before December 31, 2008.

    • Section 303, Division B, Title III, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the deduction for five years for property placed in service after December 31, 2008 and on or before December 31, 2013.

    • Section 158, Division A, Title I, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the deduction for one year and is effective for taxable years beginning after December 31, 2013 and on or before December 31, 2014

    • Section 190, Div. P, Title I, of the Path Act extends the period in which a taxpayer may claim the deduction for two years for property placed in service after December 31, 2014 and on or before December 31, 2016.

    • Section 341, Div. Q, Title III, of the PATH Act updates the energy efficiency standards required for a building to qualify for the section 179D deduction and is effective for property placed in service after December 31, 2015 and on or before December 31, 2016.

  3. Energy efficient commercial building property is defined as depreciable property which is installed:

    1. On or in any building located in the United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (as in effect on April 2, 2003)

    2. As part of the interior lighting system, the heating, cooling, ventilation, and hot water system, or the building envelope, and is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to those systems by 50 percent or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001

    3. Section 341 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, updated the ASHRAE standards for energy efficient commercial buildings. The provision modifies the deduction for energy efficient commercial buildings by updating the energy efficiency standards to reflect new standards of the American Society of Heating, Refrigerating, and Air Conditioning Engineers beginning in 2016, Standard 90.1-2007.

  4. A partial deduction is allowed for buildings that do not meet the above requirements. See Notice 2006-52, 2006-26 I.R.B. 1175, Notice 2008-40, 2008-14 I.R.B. 725, and Notice 2012-26, 2012-17 I.R.B. 847 for special rules for partial allowances, method of calculation, basis reduction, interim rules for lighting systems, and other specific information.

  5. The deduction is limited to an amount equal to $1.80 per square foot of the building over the aggregate amount of the deductions under IRC 179D with respect to the building for all prior taxable years, in which such expenditures were made and is allowed in the year in which the property is placed in service (2006 through 2014).

21.7.4.4.18.12  (02-08-2016)
Election to Expense Advanced Mine Safety Equipment

  1. Section 404, Division A, Title VI, of the Tax Relief and Health Care Act of 2006, P.L. 109-432, added an election to Election to Expense Advanced Mine Safety Equipment under IRC 179E. Taxpayers may elect to treat 50 percent of the cost of any qualified advance mine safety equipment as an expense which is not charged to a capital account.

  2. Qualified advanced mine safety equipment property is any advanced mine safety equipment property for use in any underground mine located in the United States where the original use commences with the taxpayer, and which is placed in service after December 20, 2006 and on or before December 31, 2008.

  3. Advanced mine safety equipment property means any of the following:

    1. Emergency communication technology or device which is used to allow a miner to maintain constant communication with an individual who is not in the mine

    2. Electronic identification and location device which allows an individual who is not in the mine to track at all times the movements and location of miners working in or at the mine

    3. Emergency oxygen-generating, self-rescue device which provides oxygen for at least 90 minutes

    4. Pre-positioned supplies of oxygen which (in combination with self-rescue devises) can be used to provide each miner on a shift, in the event of an accident or other event which traps the miner in the mine or otherwise necessitates the use of such a self-rescue devices, the ability to survive for at least 48 hours

    5. Comprehensive atmospheric monitoring system which monitors the level of carbon monoxide, methane, and oxygen that are present in all areas of the mine and which can detect smoke in the case of a fire in the mine

  4. The election to expense advanced mine safety equipment has been modified by various legislation. Below is a listing of the legislation that has extended the election to expense advanced mine safety equipment:

    • Section 311, Division C, Title III, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, extended the election for one year and is effective for property placed in service for taxable years beginning after December 31, 2008 and on or before December 31, 2009.

    • Section 743, Title VII, of the Tax Relief Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the election for two years and is effective for property placed in service for taxable years beginning after December 31, 2009 and on or before December 31, 2011.

    • Section 316(a), Title III, of the American Taxpayer Relief Act of 2012, P.L. 112-240, extended the election for two years and is effective for property placed in service for taxable years beginning after December 31, 2011 and on or before December 31, 2013.

    • Section 128, Division A, Title I, of the Tax Increase Prevention Act of 2014, P.L. 113-295, extended the election for one year and is effective for property placed in service for taxable years beginning after December 31, 2013 and on or before December 31, 2014.

    • Section 168 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113, extended the election for two years and is effective for property placed in service for taxable years beginning after December 31, 2014 and on or before December 31, 2016.

21.7.4.4.18.13  (02-13-2009)
Special Allowance for Certain Reuse and Recycling Property

  1. Division B, Title III, section 308, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, created IRC 168(m), which allows a taxpayer to claim a 50 percent additional first-year depreciation allowance for qualified reuse and recycling property. This additional first year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service.

  2. Qualified reuse and recycling property is any reuse and recycling property:

    • To which IRC 168 applies

    • Which has a useful life of at least five years

    • The original use of which commences with the taxpayer after August 31, 2008; and

    • Which is acquired by purchase by the taxpayer after August 31, 2008, but only if no written binding contract for the acquisition was in effect before September 1, 2008, or which is acquired by the taxpayer pursuant to a written binding contract which was entered into after August 31, 2008

  3. Qualified reuse and recycling property does not include property:

    • To which IRC 168(k) applies

    • Required to be depreciated under the alternative depreciation system of IRC 168(g) pursuant to IRC 168(g)(1)(A) through (D) or other provisions of the Code (for example, property described in IRC 280F(b)(1))

    • Included in any class of property (as set forth in IRC 168(e)) for which the taxpayer elects not to claim the 50 percent additional first-year depreciation deduction under Code 168(m)

    • Placed in service and disposed of during the same tax year; or

    • Converted from business to personal use in the property’s placed-in-service year

  4. Reuse and recycling property is any machinery and equipment (not including buildings or real estate), along with all appurtenances, including software necessary to operate such equipment, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials. Reuse and recycling property does not include rolling stock or other equipment used to transport reuse and recyclable materials.

  5. Qualified reuse and recyclable materials is the following property if it is generated by an individual or business:

    • Scrap plastic

    • Scrap glass

    • Scrap textiles

    • Scrap rubber

    • Scrap packaging

    • Recovered fiber

    • Scrap ferrous and nonferrous metals; or

    • Electronic scrap, which is any cathode ray tube, flat panel screen, or similar video display device with a screen size greater than 4 inches measured diagonally, or any central processing unit

  6. "Recycling" or "recycle" means that process (including sorting) by which worn or superfluous materials are manufactured or processed into specification grade commodities that are suitable for use as a replacement or substitute for virgin materials in manufacturing tangible consumer and commercial products, including packaging.

  7. The 50 percent additional first-year depreciation allowance for qualified reuse and recycling property under IRC 168(m)(1) is allowed as follows:

    • The taxpayer is allowed an additional first-year depreciation deduction for the placed-in-service year equal to 50 percent of the adjusted basis of the qualified reuse and recycling property; and

    • Before computing the amount otherwise allowable as a depreciation deduction for the qualified reuse and recycling property for the placed-in-service year and any subsequent taxable year, the taxpayer must reduce the adjusted basis of the qualified reuse and recycling property by the amount of the 50 percent additional first-year depreciation deduction

  8. In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer’s own use, the acquisition requirements in (2)(d) above shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after August 31, 2008. Property that is manufactured, constructed, or produced for the taxpayer by another person under a contract that is entered into prior to the manufacture, construction, or production of the property is considered manufactured, constructed, or produced by the taxpayer.

21.7.4.4.18.14  (04-21-2015)
Emergency Economic Stabilization Act of 2008, P.L. 110-343 - Special Allowance for Qualified Disaster Assistance Property, Additional First-Year Depreciation

  1. Division C, Title VII, Subtitle B, section 710, of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, created IRC 168(n), Special Allowance for Qualified Disaster Assistance Property which allows an eligible taxpayer to claim a 50 percent additional first -year depreciation allowance for qualified disaster assistance property. This additional first-year depreciation deduction is allowed for both regular and alternative minimum tax for the taxable year in which the property is placed in service after December 31, 2007.

  2. The 50 percent additional first-year depreciation allowance for qualified disaster assistance property under IRC 168(n) is allowed as follows:

    1. An eligible taxpayer is allowed an additional first-year depreciation deduction for the taxable year in which such property is placed in service by the eligible taxpayer equal to 50 percent of the adjusted basis of the qualified disaster assistance property, and

    2. Before computing the amount otherwise allowable as a depreciation deduction for the qualified disaster assistance property for the placed-in-service year and any subsequent taxable year, the eligible taxpayer must reduce the adjusted basis of the qualified disaster assistance property by the amount of the additional first-year depreciation deduction

  3. Qualified disaster assistance property means any property:

    1. Which is described in IRC 168(k)(2)(A)(i), or which is non-residential real property or residential rental property

    2. Substantially all of the use of the property is (1) in a disaster area that was federally declared disaster occurring before January 1, 2010, and (2) in the active conduct of a trade or business by the taxpayer in such disaster area

    3. Which (1) rehabilitates property damaged, or replaces property destroyed or condemned, as a result of such federally declared disaster except that, property shall be treated as replacing property destroyed or condemned if, as part of an integrated plan, such property replaces property which is included in a continuous area which includes real property destroyed or condemned, and (2) is similar in nature to, and located in the same county as, the property being rehabilitated or replaced

    4. The original use of the property in such disaster area commences with an eligible taxpayer on or after the date on which the federally declared disaster occurs (the "applicable disaster date" )

    5. Which is acquired by the eligible taxpayer by purchase (as defined in IRC 179(d)) on or after the applicable disaster date, but only if no written binding contract for the acquisition was in effect before such date, and

    6. Which is placed in service by the eligible taxpayer on or before the date which is the last day of the third calendar year following the applicable disaster date (the fourth calendar year in the case of non-residential real property and residential rental property)

  4. An eligible taxpayer is a taxpayer who has suffered an economic loss attributable to a federally declared disaster.

  5. Special rules: Rules similar to the rules of subsection 168(k)(2)(E) apply. That is, per section 710 of the Emergency Economic Stabilization Act of 2008, P.L. 110-343, in the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of clause (iii) of section 168(k)(2)(A) shall be treated as if met if the taxpayer begins manufacturing, constructing, or producing property for the taxpayers own use beginning after December 31, 2007.

  6. "Qualified disaster assistance property" does not include:

    1. Any property to which IRC 168(k) (determined without regard to IRC sections 168(k)(4)), 168(l), or 168(m) applies

    2. Any property to which IRC 1400N(d)(1) applies

    3. Any property described in IRC 1400N(p)(3)

    4. Any property required to be depreciated under the alternative depreciation system of IRC 168(g) pursuant to IRC 168(g)(1)(A) through (D) or other provisions of the Code (for example, property described in IRC 280F(b)(1))

    5. Any property of which any portion is financed with the proceeds of any obligation the interest on which is exempt from tax under IRC 103

    6. Any qualified revitalization building for which the taxpayer has elected the commercial revitalization deduction under IRC 1400I(a)(1) or (2)

    7. All property included in any class of property (as set forth in IRC 168(e)) for which the taxpayer elects not to claim the 50 percent additional first-year depreciation deduction under IRC 168(n)

    8. Placed in service and disposed of during the same tax year, or

    9. Converted from business to personal use in the property’s placed-in-service year

21.7.4.4.19  (10-01-2009)
Election to Include in Gross Income, Assets Held on January 1, 2001

  1. See the October 1, 2008 and prior revisions to IRM 21.7.4 for information on the Election to Include in Gross Income, Assets Held on January 1, 2001.

21.7.4.4.20  (02-04-2013)
Form 8886, Reportable Transaction Disclosure Statement

  1. Any taxpayer, including an individual, trust, estate, partnership, S corporation, or other corporation, that participates in a reportable transaction and is required to file a federal income tax return or information return, must file Form 8886 (See the Instructions for Form 8886 for special rules for a Regulated Investment Company (RIC)).

  2. The form applies to transactions entered into after December 31, 2002. However, there may be different rules applicable to reportable transactions (other than transactions of interest) before August 3, 2007 and transactions of interest entered into before November 2, 2006. (See instructions to previous Forms 8886 for specific rules for transactions entered into prior to those dates.)

  3. Taxpayers must attach Form 8886 to their information return or federal income tax return for each tax year in which they participated in a reportable transaction. If a reportable transaction results in a loss or credit carried back to a prior year, attach Form 8886 to an application for tentative refund (Form 1045 or Form 1139) or amended return for the carryback years. If a transaction becomes a listed transaction or Transaction of Interest after the taxpayer files their return, they must send a Form 8886 to the Office of Tax Shelter Analysis (OTSA) at the address below within 90 days of the transaction being Listed or a Transaction of Interest, and they must attach a Form 8886 to each tax return reflecting tax consequences of their participation in the Listed Transaction or Transaction of Interest.
    Internal Revenue Service
    OTSA Mail Stop 4915
    1973 North Rulon White Blvd.
    Ogden, UT 84404

  4. Beginning January 1, 2013, if the taxpayer has filed a paper or MeF amended return with Form 8886 attached, input TC 971 action code "689" on the taxpayer's Form 1041, Form 1065 or Form 1120 series tax account. Also, input the TC 971 AC 689 if the explanation for the amended return contains any of the key words below. Enter the IRS received date of the amended return in the transaction date field and input Form 8886 in the remarks field. The key words or indicators are as follows:

    • Form 8886

    • Reportable transaction

    • Listed transaction

    • 6501(c)(10)

    • Transaction of interest (TOI)

  5. Form 8886 is also filed separately for the first time taxpayers disclose the reportable transaction. Taxpayers must send a copy of Form 8886 to the following address at the same time they file the original form with their tax return:

    Internal Revenue Service
    OTSA Mail Stop 4915
    Large and Mid Size Business Division
    1973 North Rulon White Blvd.
    Ogden, UT 84404

  6. Taxpayers may request a ruling from the IRS to determine whether a transaction must be disclosed. The request for a ruling must be submitted to the IRS by the date Form 8886 would otherwise be filed. The request must be sent to:

    Sent via US Postal Service Sent via Private Delivery Service (e.g., UPS, FedEx, etc.)

    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU,
    P.O. Box 7604
    Ben Franklin Station
    Washington, D.C. 20044

    Internal Revenue Service
    Attn.: CC:PA:LPD:DRU, Room 5336
    1111 Constitution Avenue N.W.
    Washington, D.C. 20224

21.7.4.4.20.1  (02-04-2013)
Form 8883, Asset Allocation Statement Under Section 338

  1. Form 8883, Asset Allocation Statement Under Section 338, is filed to report information about transactions involving the deemed sale of corporate assets under IRC 338. This includes information previously reported on Form 8023, Elections Under Section 338 for Corporations Making Qualified Stock Purchases.

  2. Generally, taxpayers attach Form 8883 to the income tax return on which the effects of the IRC 338 deemed sale and purchase of the target's assets are required to be reported. See the Instructions for Form 8883, for more information.

  3. If the amount allocated to any asset is increased or decreased after the year in which the sale occurs, any affected party must complete Parts I through IV and VI of Form 8883 and attach the form to the income tax return for the year in which the increase or decrease is taken into account.

  4. Beginning January 1, 2013, if the taxpayer has filed a paper or MeF amended return with Form 8883 attached, input TC 971 action code "789" on the taxpayer's Form 1065 or Form 1120 series tax account. Also, input TC 971 AC 789 if the explanation for the amended return contains any of the key words below. Enter the IRS received date in the transaction date field and input Form 8883 in the remarks field. The key words or indicators are as follows:

    • Form 8883

    • Increase purchase price

    • Amend allocations

    • Increase or decrease to Adjusted Gross-Up Basis (AGUP) or Aggregate Deemed Sales Price

    • Reallocated purchase price to different classes

21.7.4.4.20.2  (01-13-2016)
Basket Option Contracts

  1. Per Notice 2015-73, 2015-46 I.R.B. 660, the Treasury Department and the Internal Revenue Service identified as a listed transaction a type of structured financial transaction, in which a taxpayer attempts to defer income recognition and convert short-term capital gain and ordinary income to long-term capital gain using a contract denominated as an option contract. Notice 2015-73 alerts persons involved in these transactions about certain responsibilities that may arise from their involvement with these transactions.

  2. Notice 2015-47, 2015-30 I.R.B. 76, identified the basket option contract and substantially similar transactions as listed transactions for purposes of section 1.6011-4(b)(2) of the Income Tax Regulations and section 6111 and section 6112 of the Internal Revenue Code. Notice 2015-47 also alerted persons involved in these transactions about certain responsibilities that may arise from their involvement with these transactions. Notice 2015-47 is revoked. See Notice 2015-73 for details.

  3. Per Notice 2015-74, 2015-46 I.R.B. 663, the Treasury Department and the Internal Revenue Service identified as a transaction of interest a type of structured financial transaction, in which a taxpayer attempts to defer income recognition and convert short-term capital gain and ordinary income to long-term capital gain through a contract denominated as an option, notional principal contract, forward contract, or other derivative contract. Notice 2015-74 also alerts persons involved in these transactions about certain responsibilities that may arise from their involvement with these transactions.

  4. Notice 2015-48, 2015-30 I.R.B. 77, identified the basket contract and substantially similar transactions as transactions of interest for purposes of section 1.6011-4(b)(6) of the Income Tax Regulations and section 6111 and section 6112 of the Internal Revenue Code. Notice 2015-48 also alerted persons involved in these transactions about certain responsibilities that may arise from their involvement with these transactions. Notice 2015-48 is revoked. See Notice 2015-74 for details.

  5. A taxpayer filing amended returns under Notice 2015-73 or Notice 2015-74 must comply with the requirements of section 1.6011-4 of the Income Tax Regulations including, but not limited to, attaching to the amended return any disclosure statements that may be required in accordance with section 1.6011-4(a) and section 1.6011-4(e). In addition, a taxpayer filing an amended return under section 3.06(3)(b) of the notices must write "FILED UNDER NOTICE 2015-73" or "FILED UNDER NOTICE 2015-74" at the top of any amended paper return. Any amended return submitted electronically, must also indicate "FILED UNDER NOTICE 2015-73" or "FILED UNDER NOTICE 2015-74."

  6. If you receive an amended return that has been filed under Notice 2015-73 or Notice 2015-74, follow the instructions in IRM 21.7.9.3.2, Amended Return Filed Under Notice 2015-73 and Notice 2015-74.

21.7.4.4.21  (12-04-2014)
Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts

  1. Generally, Form 8697 is used to figure the interest due, or to be refunded, under the look-back method of IRC 460(b)(2) on certain long-term contracts that are accounted for under either the percentage of completion method or the percentage of completion-capitalized cost method.

  2. If the taxpayer owes interest, or if no interest is to be refunded to the taxpayer, the taxpayer (other than partnerships that are not electing large partnerships) is directed to include any interest due in the bottom margin of the tax return and attach a check or money order for the full amount payable to the United States Treasury. See IRM 21.7.12.5.7.3, Form 8697 With Additional Interest Due or if No Interest is Due to be Refunded, if a Form 1065 is filed reporting interest due under the look-back method.

  3. If interest is to be refunded, taxpayers are instructed not to attach Form 8697 to their income tax return. It should be filed separately with the IRS at one of the addresses below:

    Individuals All Others
    Internal Revenue Service
    Philadelphia, PA 19255-0001
    Internal Revenue Service
    Cincinnati, OH 459999-0001
  4. All BMF Form 8697 claims for refund, and loose Form 8697 reporting additional interest due or if no interest is due to be refunded, and all BMF correspondence pertaining to Form 8697 are worked at the Cincinnati Campus in the Non-master file (NMF) Unit. See IRM 21.7.12.5.7, Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts. Route loose BMF forms and BMF correspondence to this area. If CIS case, re-control to 0241326771. Route paper cases to:

    Cincinnati Campus CAMC
    201 W. Rivercenter Blvd
    Stop 6111G, Team C103
    Covington, KY 41011

21.7.4.4.22  (12-04-2014)
Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method

  1. Form 8866 is used to figure the interest due or to be refunded under the look-back method of IRC 167(g)(2) for property placed in service after September 13, 1995, that is depreciated under the income forecast method as described in IRC 167(g). Exception: The look-back method does not apply for any property with a cost basis of $100,000 or less.

  2. All BMF Form 8866 claims for refund, and loose Form 8866 reporting additional interest due or if no interest is due to be refunded, and all BMF correspondence pertaining to Form 8866 are worked at the Cincinnati Campus in the Non-master file (NMF) Unit. See IRM 21.7.12.5.8, Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method. Route loose forms and correspondence to this area. If CIS case, re-control to 0241326771. Route paper cases to:

    Cincinnati Campus CAMC
    201 W. Rivercenter Blvd
    Stop 6111G, Team C103
    Covington, KY 41011

21.7.4.4.23  (05-28-2014)
Telephone Excise Tax Refund (TETR)

  1. This subject will be referred to as the Telephone Excise Tax Refund (TETR) in the remainder of this IRM. However, it may also be referred to as the Telephone Excise Tax Credit (TETC) in other material. The title of Form 8913 is Credit for Federal Telephone Excise Tax Paid.

  2. Additional TETR information is available on SERP under the IRM Supplements Tab. Continually check SERP for updates.

  3. We are removing the subsections on TETR. Please refer to the October 1, 2013 revision of IRM 21.7.4 for directions on working TETR cases.

21.7.4.4.24  (05-28-2014)
Form 1099-K, Payment Card and Third-Party Network Transactions - Reporting Requirements

  1. Section 3091, Returns Relating to Payments Made in Settlement of Payment Card and Third Party Network Transactions, of the Housing and Economic Recovery Act of 2008, P.L. 110-289, adds new section 6050W to the Internal Revenue Code. Beginning with calendar year 2011, business entities including sole proprietors, partnerships, corporations, S-corporations, and trusts may receive Form 1099-K, Merchant Card and Third Party Network Payments.

  2. IRC 6050W requires any payment settlement entity ("payor or PSE" ) making one or more payments to a participating payee ("payee" ) in settlement of "reportable payment transactions," to file Form 1099-K annually with the IRS. The payor reports the gross amount of such reportable payment transactions for the calendar year and for each month within such calendar year. The payor must also report the name, address, and TIN of the participating payees on Form 1099K. A similar statement must be furnished to the payee containing the same information, as well as the name, address, and phone number of the person required to prepare the return. A "reportable payment transaction" means any payment card transaction and any third party network transaction (see (6) below for the de minimus exception). A "payment card transaction" means any transaction in which a payment card is accepted as payment. A "third party network transaction" means any transaction that is settled through a third party payment network.

  3. Under IRC 6050W, a "payment settlement entity" is a domestic or foreign entity, that is a merchant acquiring entity or a third party settlement organization. A merchant acquiring entity is the bank or other organization that has the contractual obligation to make payments to participating payees in settlement of payment card transactions. A third party settlement organization (TPSO) is, the central organization that has the contractual obligation to make payments to participating payees of a third party network transaction. In both contexts, the code and regulations conclude that a merchant acquiring entity or third party settlement organization "makes payment" in settlement of a reportable transaction if it submitted the instructions to transfer funds to the account of the participating payee.

  4. A “payment card” is defined as any card (e.g., a credit card or debit card) which is issued pursuant to an agreement or arrangement which provides for:

    • One or more issuers of such cards;

    • A network of persons unrelated to each other, and to the issuer, who agree to accept such cards as payment; and

    • Standards and mechanisms for settling the transactions between the merchant acquiring entities and the persons who agree to accept such cards as payment. (Thus, under the provision, a bank that enrolls a business to accept credit cards and contracts with the business to make payment on credit card transactions is required to report to the IRS the business’s gross credit card transactions for each calendar year. The bank also is required to provide a copy of the information report to the business)

  5. The provision also requires reporting on a third-party network transaction. A "third party payment network" is defined as any agreement or arrangement that:

    • Involves the establishment of accounts with a central organization by a substantial number of persons (e.g., more than 50) who are unrelated to such organization, provide goods or services, and have agreed to settle transactions for the provision of such goods or services pursuant to such agreement or arrangement,

    • Provides for standards and mechanisms for settling such transactions; and

    • Guarantees persons providing goods or services pursuant to such agreement or arrangement that such person will be paid for providing such goods or services.

  6. There is a de minimus exception from reporting for third party settlement organizations. A third party settlement organization is not required to report a payee's transactions unless the payee's gross amount of third party network transactions for the year exceeds $20,000 and the total number of such payee's transactions exceeds 200.

  7. Reportable payment transactions subject to information reporting are also subject to backup withholding requirements. In addition, penalties relating to the failure to file correct information returns apply to the information reporting requirements under new IRC 6050W. See TD 9496 for the final regulations relating to information reporting requirements, information reporting penalties, and backup withholding requirements for payment card and third party network transaction in the Federal Register, volume 75, No 157, dated Monday August 16, 2010.

  8. Notice 2011-88, delays the application of backup withholding to payees that fail to provide a correct taxpayer identification number (TIN) to the PSE. Instead of applying to payments made after December 31, 2011, backup withholding will apply to payments made after December 31, 2012.

  9. Notice 2011-89, provides transitional relief from penalties for reporting incorrect information on informational returns (Form 1099-K) and payee statements filed under section 6050W of the Internal Revenue Code. The relief provided by Notice 2011-89 is available for information returns and payee statements to be filed only in 2012, based on payments made in calendar year 2011, provided that the IRC 6050W filer makes a good faith effort to accurately file the appropriate information return and the accompanying payee statement.

  10. Notice 2013-56, extends the penalty relief provided in Notice 2011-89 to certain errors on information returns and payee statements required to be filed and furnished in 2013 and 2014. The notice provides relief from penalties under sections 6721 and 6722 for returns and statements required to be filed and furnished in:

    1. 2013 based on payments made in calendar year 2012 if they have: (1) missing TINs, or (2) obviously incorrect TINs (as desribed in IRC 3406(h)(1), or (3) incorrect name and TIN combinations, and

    2. 2014 based on payments made in calendar year 2013, but only in cases where the 2013 Form 1099-K contains an incorrect name and TIN combination.

  11. Notice 2013-56, also informs payors that the IRS will not issue CP2100/CP2100A Notices based on incorrect name and TIN combinations reported on Forms 1099-K due before 2014. The IRS will begin sending CP2100/CP2100A Notices with respect to Forms 1099-K in late 2014. These CP2100/CP2100A Notices will be based on incorrect name and TIN combinations reported on Forms 1099-K required to be filed in 2014 for calendar year 2013 payments.

  12. CP2100/CP 2100A Notices are not necessary to trigger backup withholding if the payee either did not provide a TIN or provided an obviously incorrect TIN. Payers should continue to backup withhold on calendar year 2013 payments to payees who failed to provide a TIN or who provided an obviously incorrect TIN. Follow normal backup withholding procedures in IRM 21.7.4.4.10, Backup Withholding (BUWH) on Income Tax Returns. See the chart below:

    Type of 1099-K TIN Error TY 2012 and TY 2013 Reporting (Payments made in Calendar Year 2011 and 2012) TY 2014 Reporting (Payments made in Calendar Year 2013)
    Missing/Obviously Incorrect CP2100/2100A: No notice issued by IRS for 1099-K errors

    Backup Withholding (BUWH):: Do not backup withhold

    Penalties: Subject to penalty relief
    CP2100/2100A:: Notices will be issued in late 2014 for 1099-K errors

    Backup Withholding (BUWH):: Begin backup withholding immediately (before receipt of CP2100/ 2100A)

    Penalties:: Subject to penalties
    Incorrect TIN/Name Combination CP2100/2100A: No notice issued by IRS for 1099-K errors

    Backup Withholding (BUWH):: Do not backup withhold

    Penalties: Subject to penalty relief
    CP2100/2100A: Notices will be issued in late 2014 for 1099-K errors

    Backup Withholding (BUWH): Follow normal BUWH procedures for when a CP2100/2100A is received

    Penalties: Subject to penalty relief
  13. There is no requirement to report the amount of merchant card and third-party network payments received on a separate line of the taxpayers return. Taxpayers will include the total amount of receipts, including those included on Form 1099-K, on the gross receipts line.

  14. See the Third Party Reporting Information Center, on www.irs.gov and the Instructions for Form 1099K, for more information. In addition, more information can be found on SERP under the IRM Supplemental tab. Click on the Form 1099-K, Payment Card and Third-Party Networks Transactions link for Frequently Asked Questions and more.


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