SECTION 4. ALLOCATION OF THE

BONUS DEPRECIATION AMOUNT

.01 In General . A taxpayer allocates the bonus depreciation amount between the business credit limitation under § 38(c) and the AMT credit limitation under § 53(c) by the due date (including extensions) of the taxpayer’s federal income tax return for the taxable year. Except as provided in section 4.02 of this revenue procedure, the taxpayer specifies this allocation by reporting the amounts on the appropriate lines of the Forms 3800 and 8827. However, if a taxpayer’s first taxable year ending after March 31, 2008, ends before December 31, 2008, the taxpayer makes and specifies the allocation for such taxable year on the amended federal income tax return filed pursuant to section 3.02(1)(a)(ii) or 3.03(2) of this revenue procedure. A different allocation may be used for different taxable years.

.02 Controlled Groups . (1) In general . If a taxpayer is a member of a controlled group (as determined under section 3.05(1) of this revenue procedure) and any member of the controlled group makes the § 168(k)(4) election, the allocation of the group bonus depreciation amount to each member of the controlled group must be determined in accordance with section 4.02(2) or 4.02(3) of this revenue procedure, as applicable. This allocation of the group bonus depreciation amount for any taxable year is reported on Schedule O (Form 1120) (or a similar statement) that is attached to the federal income tax return or amended federal income tax return for that taxable year, as the case may be, filed by each member of the controlled group within the time provided in section 4.01 of this revenue procedure. However, if a member of a controlled group does not have the information necessary to allocate the group bonus depreciation amount for a taxable year on or before the due date (including extensions) of the member’s federal income tax return for the taxable year, the member must make and specify the allocation for that taxable year on an amended federal income tax return for that taxable year that is filed on or before the due date (including extensions) of the member’s federal income tax return for the succeeding taxable year. The allocation described in this section 4.02 of this revenue procedure applies

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3.05(2)(c)(ii) of this revenue procedure. At the time A’s Form 1120X is filed, A, B, and C have not entered into any agreement regarding the allocation of the bonus depreciation amount among them.

(1) Under section 4.02(3)(b)(ii) of this revenue procedure, the ABC controlled group’s group bonus depreciation amount is 20 percent of $80 million, or $16 million. Under section 4.02(3)(b)(ii) of this revenue procedure, because $16 million is less than (i) $30 million and (ii) 6 percent of the ABC controlled group aggregate unexpired and unused pre–2006 research and AMT credits (.06 X $900 million, or $54 million), the ABC controlled group is not limited by the maximum increase amount. Thus, under section 4.02(3)(b)(ii)(C) of this revenue procedure, the ABC controlled group’s group bonus depreciation amount for the period ending on December 31, 2008, is $16 million.

(2) Under section 4.02(3)(b)(iii) of this revenue procedure, A’s proportionate share of the group bonus depreciation amount is $12 million ($16 million X ($60 million/$80 million)). For its taxable year ending June 30, 2008, A may increase its business credit and AMT credit limitations under, respectively, §§ 38(c) and 53(c) by, and claim a refundable credit of, $4 million ($12 million X ($20 million/$60 million)) on its Form 1120X. For its taxable year ending June 30, 2009, A may increase its business credit and AMT credit limitations by $8 million ($12 million X ($40 million/$60 million)) (plus any group bonus depreciation amount calculated for the group and allocated to A for the period January 1, 2009, through December 31, 2009). In addition, B’s proportionate share of the group bonus depreciation amount is $4 million ($16 million X ($20 million/$80 million)). B may increase its business credit and AMT credit limitations under, respectively, §§ 38(c) and 53(c) by, and claim a refundable credit of, $4 million on its original federal income tax return for its taxable year ending December 31, 2008. The ABC controlled group then has a maximum amount of $14 million of bonus depreciation amount ($30 million less the $16 million allocated to A and B) remaining to be used for eligible qualified property placed in service by the ABC controlled group after December 31, 2008 ( e.g., long-lived property or certain aircraft). The result of this Example is the same if, instead of a single corporation, A represents a consolidated group of corporations, except the $12 million of group bonus depreciation amount allocated to A is reallocated within the A consolidated group pursuant to an allocation by the common parent in accordance with the principles of § 1502 and its accompanying regulations.

(b) Example 2 . The facts are the same as in Ex- ample 1, except A has no pre–2006 business credit or AMT credit carryforwards as of the last day of its June 30, 2008, taxable year and C has $600 million of pre–2006 research credit and AMT credit carryforwards as of December 31, 2008. Although A may increase its §§ 38(c) and 53(c) credit limitations for its taxable year ending June 30, 2008, A has no credit carryforwards that A may use to claim a refundable credit. Absent an allocation agreement, B and C may not be allocated any portion of the bonus depreciation amount that was allocated to A under section 4.02(3)(b)(iii) of this revenue procedure. The ABC controlled group, therefore, has $26 million of group bonus depreciation ($30 million less the $4 million

tions 5.01 and 5.02 of Rev. Proc. 2008–65 treating the controlled group as a single taxpayer. To calculate this amount, the eligible qualified property placed in service by each member of the controlled group during the taxable year is taken into account. However, if some or all members of the controlled group have different taxable years, the eligible qualified property to be taken into account is such property placed in service by each member of the controlled group after March 31, 2008, and before January 1, 2009 (or, for taxable years ending in 2009 or thereafter, during such calendar year);

(B) Second, calculate the maximum increase amount in section 5.04 of Rev. Proc. 2008–65, the business credit increase amount in section 5.05 of Rev. Proc. 2008–65, and the AMT credit increase amount in section 5.06 of Rev. Proc. 2008–65 by taking into account the sum of all member’s pre–2006 unexpired and unused research credits and AMT credits as of the last day of the taxable year. However, if the taxable years of some or all members of the controlled group end on different dates, the sum of all members’ pre–2006 unexpired and unused research credits and AMT credits as of the last day of each member’s last taxable year ending on or before December 31 (determined for each calendar year) are taken into account; and

(C) Finally, calculate the maximum amount in section 5.03 of Rev. Proc. 2008–65 to arrive at the group bonus depreciation amount for the taxable year.

(iii) Member’s proportionate share of group bonus depreciation amount . Each member’s proportionate share of the group bonus depreciation amount is equal to the group bonus depreciation amount determined under section 4.02(3)(b)(ii)(C) of this revenue procedure multiplied by a fraction, the numerator of which is the amount such member contributed to the total computed under section 4.02(3)(b)(ii)(A) of this revenue procedure and the denominator of which is the total computed under section 4.02(3)(b)(ii)(A) of this revenue procedure. If the taxable years of some or all members of the controlled group end on different dates, all (if any) of a member’s proportionate share of group bonus depreciation amount must be claimed by such member in the taxable year of the member to which such share

relates (determined by reference to the eligible qualified property’s placed in service date).

(c) Allocation agreement . In lieu of the method provided in section 4.02(3)(b) of this revenue procedure, the controlled group may allocate the group bonus depreciation amount (computed as provided in section 4.02(3)(b)(ii) of this revenue procedure) to any member in any proportion that all members of the controlled group agree. Any agreement, and the amounts allocated to all members pursuant to such agreement, must be shown on Schedule O (Form 1120) (or a similar statement) within the time and in the manner provided in section 4.02(1) of this revenue procedure. A subsequent agreement may be filed (shown on Schedule O (or similar statement) within the time and in the manner provided in section 4.01(1) of this revenue procedure) that varies the group bonus depreciation amounts allocated to controlled group members in taxable years after the group’s first taxable year ending after March 31, 2008.

.04 Example 1 . A, B, and C are corporations that, on December 31, 2008, are the only members of the ABC controlled group. A’s first taxable year ending after March 31, 2008, ends on June 30, 2008. B and C’s first taxable year ending after March 31, 2008, ends on December 31, 2008. As of June 30, 2008, A has $300 million of unexpired and unused pre–2006 research and AMT credit carryforwards. As of December 31, 2008, B and C each have $300 million of unexpired and unused pre–2006 research and AMT credit carryforwards. Therefore, as of December 31, 2008, the ABC controlled group has $900 million of unexpired and unused pre–2006 research and AMT credit carryforwards.

On May 1, 2008, A and B each placed in service eligible qualified property that costs $50 million and is 5-year property under § 168(e). On September 1, 2008, A also placed in service eligible qualified property that costs $100 million and is 5-year property under § 168(e). A, B, and C depreciate their 5-year property using the optional depreciation table that corresponds with the general depreciation system, the 200-percent declining balance method, a 5-year recovery period, and the half-year convention. For each of the properties placed in service on May 1, 2008, the difference between the aggregate amount of depreciation that would be allowable for the property if the Stimulus additional first year depreciation deduction applied over the aggregate amount of depreciation that would be allowable for the property if the Stimulus additional first year depreciation deduction did not apply is $20 million. That amount for the property placed in service by A on September 1, 2008, is $40 million. For its taxable year ending June 30, 2008, A makes the § 168(k)(4) election by filing an amended federal income tax return (Form 1120X) on January 15, 2009, in the manner provided by section

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tax any business and AMT credit carryforwards that arose in a taxable year in which the corporation was a C corporation. The credits allowed by § 1374(b)(3)(B) are subject to three limitations: the business credit limitation in § 38(c), the AMT credit limitation in § 53(c), and the amount of the § 1374(a) tax. Sections 1374(b)(3)(B) and 1.1374–6(b). If an S corporation makes the § 168(k)(4) election, the S corporation calculates its bonus depreciation amount as provided in section 5 of Rev. Proc. 2008–65, increases its business and AMT credit limitations, uses the straight line method for depreciating its eligible qualified property, and must not claim the Stimulus additional first year depreciation deduction for such property. However, the § 168(k)(4) election does not increase the S corporation’s § 1374(b)(3)(B) limitation. Therefore, if the § 168(k)(4) election is made, an S corporation may not claim business credits or AMT credits in excess of its § 1374(a) tax for the taxable year. Any credits allowed as a result of the increase in the business or AMT credit limitations, which may be used only as an additional credit against the § 1374(a) tax, are not refundable to the S corporation.

.03 Time and Manner for Making the § 168(k)(4) Election . An S corporation makes the § 168(k)(4) election within the time and in the manner provided in section 3 of this revenue procedure.