SECTION 2. BACKGROUND

.01 Section 1400N(d) generally allows a 50-percent additional first year depreciation deduction for GO Zone property. The GO Zone additional first year depreciation deduction is allowable in the taxable year in which the GO Zone property is placed in service by the taxpayer.

.02 GO Zone property is depreciable property that meets all of the requirements provided in § 1400N(d)(2) and in section 2.02 of Notice 2006–77, 2006–40 I.R.B. 590. One of these requirements is that the original use of the property must commence with the taxpayer in the GO Zone

on or after August 28, 2005. Another requirement is that the property must be placed in service by the taxpayer on or before December 31, 2007 (December 31, 2008, in the case of qualified nonresidential real property and residential rental property). Depreciable property described in § 1400N(d)(2)(B) and in section 2.03 of Notice 2006–77 is not eligible for the GO Zone additional first year depreciation deduction.

.03 Section 1400N(d)(6), added by section 120 of the Tax Relief and Health Care Act of 2006 (TRHCA), Pub. L. No. 109–432, 120 Stat. 2922, extends the placed-in-service date requirement for GO Zone extension property. Section 1400N(d)(6)(A) provides that in the case of any GO Zone extension property, § 1400N(d)(2)(A) is applied without regard to § 1400N(d)(2)(A)(v), which is the placed-in-service date requirement described in section 2.02 of this notice. Section 1400N(d)(6)(B) provides that Go Zone extension property is property substantially all of the use of which is in one or more specified portions of the GO Zone (as described in section 3 of this notice) and that is either (I) nonresidential real property or residential rental property that is placed in service by the taxpayer on or before December 31, 2010, or (II) in the case of a taxpayer who places a building described in (I) in service on or before December 31, 2010, property described in § 168(k)(2)(A)(i) if substantially all of the use of such property is in such building and such property is placed in service by the taxpayer not later than 90 days after such building is placed in service. In the case of any GO Zone extension property that is nonresidential real property or residential rental property, § 1400N(d)(6)(D) provides that the GO Zone additional first year depreciation deduction is applicable only to the extent of the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010. For further guidance, see section 4 of this notice. .04 The counties and parishes in Alabama, Louisiana, and Mississippi that comprise the GO Zone are listed on page 2 of IRS Publication 4492, Informa- tion for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, under Gulf Opportunity (GO) Zone (Core Disaster

2007–17 I.R.B. 1000 April 23, 2007

accounting, such as, for example, after the requirements of § 461 (including the economic performance requirement of § 461(h)) are satisfied.

In the case of GO Zone extension real property that is manufactured, constructed, or produced for the taxpayer by another person under a written binding contract (as defined in § 1.168(k)–1(b)(4)(ii)), the amount that is properly chargeable to capital account for purposes of § 1400N(d)(6)(D) includes any payments by the taxpayer under the contract that represent part of the purchase price of the property but only to the extent progress is made in manufacture, construction, or production of the property, or, to the extent costs are incurred by the taxpayer earlier than payments are made (determined on a cumulative basis for the property), any part of that price for which the taxpayer has satisfied the requirements of § 461 (including the economic performance requirement of § 461(h)). In the case of an accrual method taxpayer, the taxpayer has made a payment if the transaction would be considered a payment by a taxpayer using the cash receipts and disbursements method of accounting. Solely for purposes of this paragraph, the written binding contract must be entered into before the manufacture, construction, or production of the property to be delivered under the contract is completed.

With respect to GO Zone extension real property that is manufactured, constructed, or produced by another person and is purchased by the taxpayer after the manufacture, construction, or production of the property is completed, only the part of the purchase price attributable to the cost of manufacture, construction, or production of the GO Zone extension real property before January 1, 2010, is eligible for the GO Zone additional first year depreciation deduction.

(2) Property described in § 1400N(d)(6)(B)(ii)(II) and section 4.01(4)(b) of this notice . The progress expenditure rule in § 1400N(d)(6)(D) and section 4.02(1) of this notice does not apply to the GO Zone extension property described in § 1400N(d)(6)(B)(ii)(II) and section 4.01(4)(b) of this notice (GO Zone extension personal property). Accordingly, the unadjusted depreciable basis (as defined in § 1.168(b)–1(a)(3)) of such GO Zone extension personal property is

St. Bernard, St. Tammany, and Washington.

.03 Mississippi: The counties of Hancock, Harrison, Jackson, Pearl River, and Stone.