IRS explains how to claim (or elect out of) 50% Kansas bonus depreciation Notice 2008-67, 2008-32 IRB
The Food, Conservation and Energy Act of 2008, popularly known as the Farm Act, provided temporary GO Zone-style tax relief for taxpayers in Kiowa County, Kansas, and surrounding areas, who were affected by the storms and tornadoes that began on May 4, 2007. This relief includes 50% bonus depreciation (Kansas additional first year depreciation) for qualified Recovery Assistance (RA) property placed in service by the taxpayer on or after May 5, 2007, during the tax year that includes May 5, 2007. IRS has issued detailed guidance explaining how to claim (or elect out of) this Kansas bonus depreciation.
Background. Section 15345(a) of the Farm Act provides that, with the exception of newly revised dates for determining the eligibility of the Kansas additional first year depreciation deduction for RA property, the rules for determining the eligibility of the Kansas additional first year depreciation deduction for RA property will be determined by following Code Sec. 1400N(d)(1) through Code Sec. 1400N(d)(5). RA property is depreciable property that meets all of five requirements set forth in Notice 2008-67, Sec. 2.02 , some of which incorporate principles from earlier IRS guidance on GO Zone bonus depreciation. For example, one requirement is that substantially all of the use of the property must be in the Kansas disaster area and in the active conduct of a trade or business in that area. For this purpose, rules similar to those in Notice 2006-77, 2006-2 CB 590, Sec. 3, apply for determining “substantially all” and “active conduct of a trade or business.”
Notice 2008-67, Sec. 2.03, sets forth eight categories of depreciable property that are not eligible for the Kansas additional first-year depreciation.
Kansas disaster area. The counties in Kansas that comprise the Kansas disaster area are: Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford. ( Notice 2008-67, Sec. 2.04 )
Claiming bonus depreciation where a return has not been filed. If a taxpayer has not filed its federal tax return for the tax year that includes May 5, 2007, and wants to claim the Kansas additional first year depreciation for a class of property (as defined in Notice 2008-67, Sec. 4.02) that is RA property placed in service by the taxpayer on or after May 5, 2007, during the tax year that includes May 5, 2007, the taxpayer may claim the Kansas additional first year depreciation for that class of property on line 14 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007. If the RA property is listed property under Code Sec. 280F(d)(4), such as passenger automobiles or computers, the taxpayer may claim the Kansas additional first year depreciation for that listed property on line 25 of Form 4562, Depreciation and Amortization, for the federal tax return for the tax year that includes May 5, 2007. (Notice 2008-67, Sec. 3.02)
Claiming bonus depreciation where a return has been filed. If a taxpayer timely filed its federal tax return for the tax year that includes May 5, 2007, and did not claim on that return the Kansas additional first year depreciation for a class of property that is RA property placed in service by the taxpayer on or after May 5, 2007, during the tax year that includes May 5, 2007, but wants to do so, the taxpayer may claim the Kansas additional first year depreciation for that class of property under Notice 2008-67, Sec. 3.03 , provided the taxpayer did not make an election not to deduct the Kansas additional first year depreciation for the class of property under Notice 2008-67, Sec. 4.03 . The taxpayer has the option of claiming the Kansas additional first year depreciation for the tax year that includes May 5, 2007:
- by filing an amended federal tax return (or a qualified amended return under Rev Proc 94-69, 1994-2 CB 804, if applicable) on or before Dec. 31, 2009, for the tax year that includes May 5, 2007, and any affected subsequent tax year, and including the statement “Filed Pursuant to Notice 2008-67” at the top of any amended return (or qualified amended return);
- by filing a Form 3115, Application for Change in Accounting Method, with the taxpayer’s timely filed federal tax return for the first tax year succeeding the tax year that includes May 5, 2007, if this return has not been filed on or before Aug. 11, 2008, and the taxpayer owns the property as of the first day of this tax year; or
- if the taxpayer’s federal tax return for the first tax year succeeding the tax year that includes May 5, 2007, was filed on or before Aug. 11, 2008, by either (i) filing an amended federal tax return (or a qualified amended return) on or before Dec. 31, 2009, for the first tax year succeeding the tax year that includes May 5, 2007, attaching a Form 3115 to the amended federal tax return, and including the statement “Filed Pursuant to Notice 2008-67” at the top of any amended return (or qualified amended return); or (ii) filing a Form 3115 with the taxpayer’s timely filed federal tax return for the second tax year succeeding the tax year that includes May 5, 2007, if the taxpayer owns the property as of the first day of this tax year. (Notice 2008-67, Sec. 3.03)
Election not to deduct the Kansas additional first-year depreciation. A taxpayer may make an election not to deduct the Kansas additional first year depreciation for any class of property that is RA property placed in service during the tax year. (Code Sec. 1400N(d)(2)(B)(iv)) If a taxpayer makes this election, then it applies to all RA property that is in the same class of property and placed in service in the same tax year, and no Kansas additional first year depreciation deduction is allowable for the class of property. The election not to deduct the Kansas additional first year depreciation is made by each person owning RA property (for example, for each member of a consolidated group by the common parent of the group, by the partnership, or by the S corporation). In addition, rules similar to those in Reg. § 1.168(k)-1(e)(5) (failure to make election), Reg. § 1.168(k)-1(e)(6) (alternative minimum tax), and Reg. § 1.168(k)-1(e)(7) (revocation of election) apply for purposes of the election not to deduct the Kansas additional first year depreciation deduction.
Except as provided in Notice 2008-67, Sec. 4.03(3), an election not to deduct the Kansas additional first year depreciation for any class of property that is RA property placed in service during the tax year must be made by the due date (including extensions) of the federal tax return for the tax year in which the RA property is placed in service by the taxpayer. Except as provided in Notice 2008-67, Sec. 4.03(2) and Notice 2008-67, Sec. 4.03(3), the election not to deduct the Kansas additional first year depreciation must be made in the manner prescribed on Form 4562, Depreciation and Amortization, and its instructions.
Notice 2008-67, Sec. 4.03(2), provides procedures for making the election not to deduct the Kansas additional first-year depreciation for returns for the tax year that includes May 5, 3007 that are filed on or after Aug. 11, 2008.
Notice 2008-67, Sec. 4.03(3), provides special rules for returns for the tax year that includes May 5, 3007 that are filed before Aug. 11, 2008 under which a taxpayer is considered to have made the election not to deduct the Kansas additional first-year depreciation.
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