SECTION 2. BACKGROUND

.01 Section 179(a) allows a taxpayer to elect to treat as an expense the cost of any § 179 property that is not chargeable to capital account. Section 179(b) prescribes a dollar limitation on the aggregate cost of § 179 property that can be treated as an expense. The dollar limitation is the amount under § 179(b)(1) ($125,000 for any taxable year beginning after 2006 and before 2011), reduced by the amount under § 179(b)(2) (the amount by which the cost of § 179 property placed in service during the taxable year exceeds $500,000 for any taxable year beginning after 2006 and before 2011), with both amounts adjusted annually for inflation. For taxable years beginning in 2008, section 3.20 of Rev. Proc. 2007–66, 2007–45 I.R.B. 970, 975, provides that the amounts provided in § 179(b)(1) and (2), adjusted for inflation, are $128,000 and $510,000, respectively.

Section 102(a) of the Stimulus Act added § 179(b)(7) to the Code. For any taxable year beginning in 2008, § 179(b)(7) changes the amount provided in § 179(b)(1) to $250,000 and the amount provided in § 179(b)(2) to $800,000. Section 179(b)(7) also provides that these amounts will not be adjusted for inflation. This revenue procedure modifies Rev. Proc. 2007–66 to reflect these statutory changes to § 179 (see section 3 of this revenue procedure).

.02 Under § 179(d)(8), the limitations of § 179(b) apply to a partnership and to each partner, and in similar fashion apply to an S corporation and each of its shareholders. In the case of a partnership, § 1.179–2(b)(3)(iv) provides that the partner’s distributive share of the partnership’s § 179 expenses for the partnership’s taxable year is taken into account in the partnership’s taxable year that ends with or within the partner’s taxable year. Similar rules apply in the case of S corporations and their shareholders. Section 1.179–2(b)(4). Thus, when the taxable years of a partnership (or an S corporation) and a partner (or an S corporation shareholder) do not coincide, each will be subject to a different dollar limitation under § 179(b)(1) and (2). This revenue procedure clarifies the application of the § 179(b)(1) limitation of $250,000 for the Stimulus § 179 deduction to partners (or S corporation shareholders) that are calendar-year taxpayers and have interests in partnerships (or S corporations) with taxable years beginning in 2008 and ending in 2009 (see section 4 of this revenue procedure).

.03 Prior to the enactment of the Stimulus Act, § 168(k)(1) provided a 30-percent additional first year depreciation deduction for qualified property acquired after September 10, 2001, and before January 1, 2005. Section 103 of the Stimulus Act amends § 168(k) to allow a taxpayer to claim the Stimulus additional first year depreciation deduction for certain new property acquired by the taxpayer after 2007 and placed in service by the taxpayer before 2009 (before 2010 in the case of property described in § 168(k)(2)(B) or (C)). Section 103 of the Stimulus Act also provides that the amount of the Stimulus additional first year depreciation allowance is 50 percent. With the exception of the increased amounts and the revised dates, the

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Stimulus Act of $250,000 for (a) § 179 property placed in service by the partner or the S corporation shareholder during 2008 and (b) its allocable share of the § 179 deduction from any partnership or S corporation with a taxable year ending in 2008. Similarly, a partner or S corporation shareholder that is a calendar-year taxpayer is subject to the 2009 § 179(b)(1) dollar limitation for (a) § 179 property placed in service by the partner or S corporation shareholder during 2009 and (b) its allocable share of the § 179 deduction from any partnership or S corporation with a taxable year ending in 2009.

(3) Example . The following example illustrates the provisions of this section 4.

Example . XY, an S corporation, has a taxable year beginning April 1, 2008, and ending March 31, 2009. X, a calendar-year taxpayer, is the sole shareholder of XY. X is engaged in the active conduct of XY’s trade or business. X does not own any interests in any other partnerships or S corporations. Further, X is not engaged in the active conduct of any other trades or businesses. XY purchases only one item of § 179 property, costing $250,000, during its taxable year beginning April 1, 2008, and ending March 31, 2009, and places this § 179 property in service on April 18, 2008. For its taxable year beginning April 1, 2008, and ending March 31, 2009, XY elects under § 179 to expense the $250,000 cost of that § 179 property and allocates its § 179 deduction of $250,000 to X. Because XY’s taxable year ends within X’s 2009 taxable year, X cannot claim its share of the $250,000 attributable to XY’s § 179 deduction until X’s 2009 taxable year. As a result, X is subject to the 2009 § 179(b)(1) dollar limitation, instead of the Stimulus Act limitation of $250,000, for its taxable year beginning in 2009.