SECTION 5. CERTAIN PROPERTY

NOT ELIGIBLE FOR THE GO ZONE ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION

.01 In General . Section 1400N(p)(1) disallows the GO Zone additional first year depreciation deduction for any property described in § 1400N(p)(3). Pursuant to § 1400N(p)(3)(A), such property includes:

(1) any property used in connection with any private or commercial golf course, massage parlor, hot tub facility, suntan facility, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises (“prohibited activities”); or

(2) any gambling or animal racing property.

.02 Prohibited Activities .

.03 Time and Manner of Making the Election .

(1) In general . An election not to deduct the GO Zone additional first year depreciation for any class of property that is GO Zone property placed in service during the taxable year must be made by the due date (including extensions) of the federal income tax return for the taxable year in which the GO Zone property is placed in service by the taxpayer. The election must be made in the manner prescribed on Form 4562, Depreciation and Amortization, and its instructions.

If a taxpayer files its 2004 or 2005 federal income tax return on or after September 13, 2006, then the taxpayer must follow the instructions for the 2005 Form 4562 (Rev. January 2006) for the manner for making the election not to deduct the GO Zone additional first year depreciation for any class of property that is GO Zone property placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s taxable year beginning in 2004 or 2005 (2004 or 2005 taxable year). If a taxpayer files its 2004 or 2005 federal income tax return before September 13, 2006, then see section 4.03(2) of this notice for the procedures for making the election not to deduct the GO Zone additional first year depreciation for any class of property that is GO Zone property placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s 2004 or 2005 taxable year.

(2) Special rules for 2004 or 2005 fed- eral income tax return filed before Septem- ber 13, 2006 .

(a) In general . If a taxpayer files its 2004 or 2005 federal income tax return before September 13, 2006, then the taxpayer has made the election not to deduct the GO Zone additional first year depreciation for a class of property that is GO Zone property placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s 2004 or 2005 taxable year, if the taxpayer:

(i) made the election within the time prescribed in section 4.03(1) of this notice and in the manner prescribed in the instructions for the 2005 Form 4562 (Rev. January 2006) (that is, attach a statement to the taxpayer’s timely filed return (including extensions) indicating the class of property for which the taxpayer is making the election and that, for such class of prop

erty, the taxpayer is electing not to claim the GO Zone additional first year depreciation deduction); or

(ii) made the deemed election provided for in section 4.03(2)(b) of this notice.

(b) Deemed election . If section 4.03(2)(a)(i) of this notice does not apply, a taxpayer that files its 2004 or 2005 federal income tax return before September 13, 2006, will be treated as having made the election not to deduct the GO Zone additional first year depreciation for a class of property that is GO Zone property placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s 2004 or 2005 taxable year, if the taxpayer:

(i) on that return, did not claim the GO Zone additional first year depreciation deduction for that class of property but did claim depreciation; and

(ii) does not file an amended federal tax return for the taxpayer’s 2004 or 2005 taxable year on or before February 14, 2007, or a Form 3115, Application for Change in Accounting Method, with the taxpayer’s federal tax return for the taxpayer’s next succeeding taxable year, to claim the GO Zone additional first year depreciation deduction for that class of property.

If a Form 3115 is filed under section 4.03(2)(b)(ii) of this notice, the Form 3115 must be filed in accordance with the automatic change in method of accounting provisions of Rev. Proc. 2002–9, 2002–1 C.B. 327, as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, and amplified, clarified, and modified by Rev. Proc. 2002–54, 2002–2 C.B. 432, or any successor. The change in method of accounting from filing the Form 3115 results in a § 481(a) adjustment. Further, the scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply. Moreover, for purposes of section 6.02(4)(a) of Rev. Proc. 2002–9, the taxpayer should include on line 1a of the Form 3115 the designated automatic accounting method change number “104”.

Section 1.446–1(e)(3)(ii) authorizes the Commissioner of Internal Revenue to prescribe administrative procedures setting forth the limitations, terms, and conditions deemed necessary to permit a taxpayer to obtain consent to change a method of accounting. In addition, section 2.04 of Rev.

2006–33 I.R.B. 250 August 14, 2006

(b) the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing. However, pursuant to § 1400N(p)(3)(B)(ii), if the portion of the real property dedicated to gambling, the racing of animals, or the on-site viewing of such racing is less than 100 square feet, then that portion is not gambling or animal racing property. For example, no apportionment is required under this 100-square-foot de minimis rule in the case of a retail store that sells lottery tickets in a less than 100 square foot area.

(2) Real property not dedicated to gam- bling or animal racing . Real property that is not dedicated to gambling, the racing of animals, or the on-site viewing of such racing but is attached to such gaming facilities is eligible for the GO Zone additional first year depreciation deduction (assuming all other requirements under § 1400N(d) are met). Such property may include, for example, hotels, restaurants, and parking lots of gaming facilities. For example, the GO Zone additional first year depreciation deduction for a building that is used as both a casino and a hotel (and that otherwise qualifies for the GO Zone additional first year depreciation deduction under § 1400N(d)), is determined without regard to the portion of the building’s unadjusted depreciable basis that bears the same percentage to the total unadjusted depreciable basis as the percentage of square footage dedicated to gambling (that is, the casino floor) bears to the total square footage of the building.