SECTION 2. BACKGROUND AND RA

PROPERTY

.01 Section 15345(a)(1) of the Act provides, in general, that § 1400N(d) of the Internal Revenue Code shall apply to the Kansas disaster area. Section 1400N(d), added by § 101 of the Gulf Opportunity Zone Act of 2005, Pub. L. No. 109–135, 119 Stat. 2577 (Dec. 21, 2005), generally allows a 50-percent additional first year depreciation deduction for qualified Gulf Opportunity Zone property. Section 15345(d)(1) of the 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 § 1400N(d)(1) through (5).

.02 RA property is depreciable property that meets all of the following requirements:

(1) The property is described in § 168(k)(2)(A)(i) and § 1.168(k)–1(b)(2)(i) of the Income Tax Regulations, or the property is nonresidential real property (as defined in § 168(e)(2)(B)) or residential rental property (as defined in § 168(e)(2)(A)) and depreciated under § 168;

(2) Substantially all of the use of the property is in the Kansas disaster area (as defined in § 15345(b) of the Act and section 2.04 of this notice) and in the active conduct of a trade or business by the taxpayer in the Kansas disaster area. For purposes of this section 2.02(2), rules similar to the rules in section 3 of Notice 2006–77, 2006–2 C.B. 590, for determining “substantially all” and “active conduct of a trade or business” apply;

(3) The original use of the property commences with the taxpayer in the Kansas disaster area on or after May 5, 2007. Used property will satisfy the original use requirement so long as the property has not been previously used within the Kansas disaster area. For purposes of this section 2.02(3), rules similar to the original use rules in section 5 of Notice 2007–36, 2007–17 I.R.B. 1000, apply; (4) The property is acquired by the taxpayer by purchase (as defined in § 179(d) and § 1.179–4(c)) on or after May 5, 2007, but only if no written binding contract for the acquisition of the property was in effect on or before May 4, 2007. For purposes of this section 2.02(4), rules similar to the rules in § 1.168(k)–1(b)(4)(ii) (binding contract), in § 168(k)(2)(E)(i) and § 1.168(k)–1(b)(4)(iii) (self-constructed property), and in § 168(k)(2)(E)(iv) and § 1.168(k)–1(b)(4)(iv) (disqualified transactions) apply; and

(5) The property is placed in service by the taxpayer on or before December 31, 2008 (December 31, 2009, in the case of qualified nonresidential real property and residential rental property).

.03 Depreciable property is not eligible for the Kansas additional first year depreciation deduction if:

(1) The 50-percent additional first year depreciation deduction under § 168(k), as amended by § 103 of the Economic Stimulus Act of 2008, Pub. L. No. 110–185, 122 Stat. 613 (Feb. 13, 2008), applies to the property;

(2) The property is described in § 168(k)(2)(D)(i) and § 1.168(k)–1(b)(2)(ii)(A)( 2 );

(3) The property is described in § 168(f);

(4) Any portion of the property is financed with the proceeds of any obligation

the interest on which is tax-exempt under § 103;

(5) The property is a qualified revitalization building (as defined in § 1400I(b)) for which the taxpayer has made an election under § 1400I(a)(1) or (a)(2) in accordance with section 7 of Rev. Proc. 2003–38, 2003–1 C.B. 1017; (6) The property is included in any class of property for which the taxpayer elects not to deduct the Kansas additional first year depreciation (see section 4 of this notice);

(7) The property is placed in service and disposed of during the same taxable year. However, rules similar to the rules in § 1.168(k)–1(f)(1)(ii) and (iii) (technical termination of a partnership under § 708(b)(1)(B) or transactions described in § 168(i)(7)) apply; or

(8) The property is converted from business or income-producing use to personal use in the same taxable year in which the property is placed in service by a taxpayer.

.04 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.

.05 If depreciable property is not RA property in the taxable year in which the property is placed in service by the taxpayer, the Kansas additional first year depreciation deduction is not allowable for the property even if the property subsequently becomes RA property due to a change in use. See § 1.168(k)–1(f)(6)(iv)(B).

.06 Limitation provisions of the Code (for example, §§ 465, 469, and 704(d)) apply and may limit the amount of the Kansas additional first year depreciation deduction that may be claimed by a taxpayer subject to such a provision.

.07 If RA property is no longer RA property in the hands of the same taxpayer at any time before the end of the RA property’s recovery period as determined under § 167(f)(1) or § 168, as applicable, then the taxpayer generally must recapture in the taxable year in which the RA property is no longer RA property the benefit derived

August 11, 2008 307 2008–32 I.R.B.

provisions in Rev. Proc. 2002–9, 2002–1 C.B. 327 (as modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, as amplified, clarified, and modified by Rev. Proc. 2002–54, 2002–2 C.B. 432, and as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561), or any successor, with the following modifications:

(a) The scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply; and

(b) For purposes of section 6.02(4)(a) of Rev. Proc. 2002–9, the taxpayer must include on line 1a of the Form 3115 the designated automatic accounting method change number 115.