SECTION 4. SECTION 168(k)(4)

ELECTION

.01 In General . Except as provided in § 3081(b) of the Housing Act (relating to certain automotive partnerships), only a corporation may elect to apply § 168(k)(4). This election is made by the corporate taxpayer for its first taxable year ending after March 31, 2008. If the election to apply § 168(k)(4) is made, the election applies to all eligible qualified property placed in service by the taxpayer in the taxpayer’s first taxable year ending after March 31, 2008, and in any subsequent taxable year. Even if a taxpayer does not place in service any eligible qualified property in its first taxable year ending after March 31, 2008, the

taxpayer must make the election to apply § 168(k)(4) for that taxable year if it wishes to apply the election to eligible qualified property placed in service in a subsequent taxable year.

.02 Controlled Group of Corporations . All corporations which are treated as a single employer under § 52(a) (generally any controlled group of corporations within the meaning of § 1563(a), determined by substituting “more than 50 percent” for “more than 80 percent” each place it appears in that section) shall be treated as one taxpayer for purposes of § 168(k)(4) and as having elected to apply § 168(k)(4) if any such corporation so elects. Section 168(k)(4)(C)(iv). For example, if the common parent of an affiliated group of corporations filing a consolidated return makes the election to apply § 168(k)(4) for one member of the affiliated group, then all members of the affiliated group are treated as one taxpayer for purposes of § 168(k)(4) and as having made the election.

.03 Applicable Depreciation Method . If a taxpayer elects to apply § 168(k)(4), the applicable depreciation method under § 168(b) for all eligible qualified property is the straight line method. Section 168(k)(4)(A)(ii). .04 Ordering Rules for Applying Elec- tions under § 168(k) . Under § 168(k), there are two elections: the election not to claim the Stimulus additional first year depreciation for all property in a particular class of property ( see § 168(k)(2)(D)(iii)) and the election to apply § 168(k)(4) for all eligible qualified property. If a taxpayer makes both elections, the taxpayer applies § 168(k)(2)(D)(iii) first. Any class of property (as defined in § 1.168(k)–1(e)(2)) for which a § 168(k)(2)(D)(iii) election has been made is not qualified property under § 168(k)(2) nor eligible qualified property under § 168(k)(4). For example, if a calendar-year taxpayer for its taxable year ending December 31, 2008, makes the election to apply § 168(k)(4) and also elects not to claim the Stimulus additional first year depreciation deduction for 7-year property, the taxpayer first applies § 168(k)(2)(D)(iii) to all of its 7-year property acquired and placed in service in 2008. All eligible qualified property (excluding the 7-year property) will be included in the taxpayer’s § 168(k)(4) election.

2008–44 I.R.B. 1084 November 3, 2008

.02 Limitation on Allocations . (1) For any taxable year, the portion of the bonus depreciation amount that may be allocated to the business credit limitation under § 38(c) shall not exceed the excess of the business credit increase amount (determined under section 5.05 of this revenue procedure) over the bonus depreciation amount allocated by the taxpayer to such limitation for all preceding taxable years.

(2) For any taxable year, the portion of the bonus depreciation amount that may be allocated to the AMT credit limitation under § 53(c) shall not exceed the excess of the AMT tax credit increase amount (determined under section 5.06 of this revenue procedure) over the bonus depreciation amount allocated by the taxpayer to such limitation for all preceding taxable years.

.03 Time and Manner for Specifying Al- location . The IRS and Treasury intend to publish separate guidance on the time and manner for specifying the allocation.

.04 Example . Y, a calendar-year corporation, makes the election to apply § 168(k)(4) for its taxable year ending December 31, 2008. Because § 168(k)(4) was not available prior to 2008, Y has no bonus depreciation amounts (as defined in § 168(k)(4)(C)) for preceding taxable years. Assume that (1) under section 5.01 of this revenue procedure, Y’s bonus depreciation amount is $100 million, (2) under section 5.05 of this revenue procedure, Y’s business credit increase amount is $10 million, and (3) under section 5.06 of this revenue procedure, Y’s AMT credit increase amount is $590 million. Consequently, under section 5.04 of this revenue procedure, Y’s maximum increase amount is $30 million (the lesser of (1) $30 million and (2) .06 X ($10 million + $590 million), or $36 million). Therefore, under section 5.03 of this revenue procedure, Y’s bonus depreciation amount that may be allocated to increase the credit limitations under §§ 38(c) and 53(c) is $30 million. Pursuant to section 6.01 of this revenue procedure, as limited by section 6.02 of this revenue procedure, the portion of the bonus depreciation amount ($30 million) that Y allocates to the credit limitation under § 38(c) is $10 million (the maximum amount that Y may allocate to its § 38(c) credit limitation under section 6.02(1) of this revenue procedure) and the portion of the bonus depreciation amount that Y allocates to the credit limitation under § 53(c) is $20 million.

In addition, during its taxable year ending December 31, 2009, Y places in service long production period property or certain aircraft that is eligible qualified property. Y’s 2008 § 168(k)(4) election remains in effect. For the 2009 taxable year, assume that (1) under section 5.01 of this revenue procedure, Y’s bonus depreciation amount is $100 million and (2) under section 5.04 of this revenue procedure, Y’s maximum increase amount is $30 million. Therefore, under section 5.03 of this revenue procedure, Y’s bonus depreciation amount for the taxable year

partnership, property placed in service by the partnership is not taken into account in determining the corporation’s aggregate amounts of depreciation computed under sections 5.01(1) and (2) of this revenue procedure.

(3) The applicable convention rules under § 168(d) (including the mid-quarter convention for property placed in service during the last three months of a taxable year) apply in determining the aggregate depreciation amounts under sections 5.01(1) and (2) of this revenue procedure. (4) For passenger aircraft, the binding contract requirement in § 168(k)(2)(A)(iii)(I) does not apply for determining the aggregate depreciation amount under section 5.01(1) of this revenue procedure. Section 168(k)(4)(G)(iii). Accordingly, for determining the aggregate depreciation amount under section 5.01(1) of this revenue procedure, a passenger aircraft is taken into account if the aircraft is acquired by the taxpayer (1) after March 31, 2008, and before January 1, 2009, or (2) pursuant to a written binding contract entered into after March 31, 2008, and before January 1, 2009 (assuming all other requirements for qualified property under § 168(k)(2) are met).

(5) With respect to long production period property, only the adjusted basis of such property attributable to manufacture, construction, or production after March 31, 2008, and before January 1, 2009, is taken into account in determining the aggregate depreciation amounts under sections 5.01(1) and (2) of this revenue procedure. Section 168(k)(4)(D)(ii). The amounts of adjusted basis of the property attributable to manufacture, construction, or production after March 31, 2008, and before January 1, 2009, are referred to as “progress expenditures.” For purposes of determining progress expenditures under this section 5.02(5), rules similar to the rules in section 4.02(1)(b) of Notice 2007–36, 2007–17 I.R.B. 1000, 1001 (relating to progress expenditures for GO Zone extension real property), apply.

.03 Maximum Amount . The bonus depreciation amount for any taxable year shall not exceed the maximum increase amount (as computed under section 5.04 of this revenue procedure) reduced (but not below zero) by the sum of the bonus depreciation amounts determined under

§ 168(k)(4)(C) for all preceding taxable years. Section 168(k)(4)(C)(i) and (ii).

.04 Maximum Increase Amount . For purposes of section 5.03 of this revenue procedure, the maximum increase amount for any taxpayer means the lesser of (1) $30,000,000, or (2) 6 percent of the sum of the business credit increase amount (as computed under section 5.05 of this revenue procedure) and the AMT credit increase amount (as computed under section 5.06 of this revenue procedure). Section 168(k)(4)(C)(iii)(I) and (II). .05 Business Credit Increase Amount . The business credit increase amount means the portion of the credit allowable under § 38 (without regard to § 38(c)) for the first taxable year ending after March 31, 2008, that is allocable to business credit carryforwards to such taxable year that are (1) from taxable years beginning before January 1, 2006, and (2) properly allocable (considering the application of § 38(d) to credits used in prior taxable years) to the research credit determined under § 41(a). Section 168(k)(4)(E)(iii). For purposes of this section 5.05, a business credit carryforward allocable to the research credit that was from a taxable year beginning before January 1, 2006, but has expired before the first taxable year ending after March 31, 2008, is not taken into account in determining the business credit increase amount.

.06 AMT Credit Increase Amount . The AMT credit increase amount means the portion of the minimum tax credit under § 53(b) for the first taxable year ending after March 31, 2008, determined by taking into account only the adjusted minimum tax for taxable years beginning before January 1, 2006. Section 168(k)(4)(E)(iv). For purposes of this section 5.06, minimum tax credits shall be treated as allowed on a first-in, first-out basis. Section 168(k)(4)(E)(iv).