SECTION 2. BACKGROUND

.01 Prior to amendment by the Act, § 168(k)(1) allowed a 50-percent additional first year depreciation deduction (Stimulus additional first year depreciation deduction) for certain new property acquired by a taxpayer after 2007 and placed in service before 2009 (before 2010 in the case of property described in § 168(k)(2)(B) or (C)). Section 1201(a)(1) of the Act amends § 168(k)(2) by extending the placed in service date to before 2010 (before 2011 in the case of property described in § 168(k)(2)(B) or (C)).

.02 Section 168(k)(4) allows a corporation to elect (the § 168(k)(4) election)

not to claim the Stimulus additional first year depreciation deduction for eligible qualified property and instead increase its business credit limitation under § 38(c) and the AMT credit limitation under § 53(c). With the exception of revised dates, eligible qualified property for purposes of § 168(k)(4) is property eligible for the Stimulus additional first year depreciation deduction. See section 3 of Rev. Proc. 2008–65, 2008–44 I.R.B. 1082, for additional guidance on the definition of eligible qualified property for purposes of § 168(k)(4).

.03 With the extension of the Stimulus additional first year depreciation deduction by § 1201(a)(1) of the Act, § 168(k)(4) correspondingly is extended to apply to eligible qualified property that is extension property (extension property). Section 1201(b)(1)(B) of the Act amended § 168(k)(4) by adding § 168(k)(4)(H) to the Code. Section 168(k)(4)(H)(iii) defines “extension property” as property that is eligible qualified property solely by reason of the extension of § 168(k)(2) by the Act. This revenue procedure clarifies which eligible qualified property is extension property and which is not extension property (see section 3 of this revenue procedure).

.04 Under § 168(k)(4)(A), a § 168(k)(4) election applies to a corporation’s first taxable year ending after March 31, 2008, and to any subsequent taxable year. However, under § 168(k)(4)(H)(i)(I), a corporation that made the § 168(k)(4) election for its first taxable year ending after March 31, 2008, may elect not to have the § 168(k)(4) election apply to extension property. This revenue procedure provides guidance regarding the time and manner for making the election not to apply § 168(k)(4) to extension property (see section 4 of this revenue procedure).

.05 In general, the amount by which the § 168(k)(4) election increases the business credit limitation under § 38(c) and the AMT credit limitation under § 53(c) is the bonus depreciation amount. See § 168(k)(4)(A)(iii). Except as provided below, the bonus depreciation amount generally is equal to 20 percent of the excess of the aggregate amount of depreciation that would be allowable for eligible qualified property if the Stimulus additional first year depreciation deduction applied to all such property, over

July 20, 2009 150 2009–29 I.R.B.

means property that is eligible qualified property solely by reason of the extension of § 168(k)(2) by the Act. Pursuant to § 168(k)(4)(D), as amended by the Act, the term “eligible qualified property” means qualified property under § 168(k)(2), except that in applying § 168(k)(2), (1) “March 31, 2008” is substituted for “December 31, 2007” each place it appears in § 168(k)(2)(A) and § 168(k)(2)(E)(i) and (ii), (2) “April 1, 2008” is substituted for “January 1, 2008” in § 168(k)(2)(A)(iii)(I), and (3) only adjusted basis attributable to manufacture, construction or production after March 31, 2008, and before January 1, 2010, is taken into account under § 168(k)(2)(B)(ii). However, the binding contract requirement in § 168(k)(2)(A)(iii)(I) does not apply for determining whether a passenger aircraft is eligible qualified property. Section 168(k)(4)(G)(iii). For the definition of eligible qualified property prior to the amendment by the Act, see section 3 of Rev. Proc. 2008–65 (as modified by section 7.01 of this revenue procedure).

.02 Eligible Qualified Property That Is Not Extension Property . Eligible qualified property (as defined in § 168(k)(4)(D), as amended by the Act) is not extension property if:

(1) The eligible qualified property is acquired by the taxpayer after March 31, 2008, and placed in service by the taxpayer before January 1, 2009;

(2) The eligible qualified property meets the requirements of § 168(k)(2)(B) (long production period property or transportation property), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010; or

(3) The eligible qualified property meets the requirements of § 168(k)(2)(C) (certain aircraft), is acquired by the taxpayer after March 31, 2008, and is placed in service by the taxpayer before January 1, 2010. .03 Extension Property . Extension property is eligible qualified property (as defined in § 168(k)(4)(D), as amended by the Act) that:

(1) Is acquired by the taxpayer after March 31, 2008, is placed in service by the taxpayer after December 31, 2008, and before January 1, 2010, and is not described in section 3.02(2) or (3) of this revenue procedure;

.07 Section 168(k)(4)(H)(ii)(I) provides that, if a corporation did not make the § 168(k)(4) election for its first taxable year ending after March 31, 2008, the corporation may elect (the § 168(k)(4) extension property election) not to claim the Stimulus additional first year depreciation deduction for extension property and instead increase its business credit limitation under § 38(c) and the AMT credit limitation under § 53(c). Section 168(k)(4)(H)(ii)(II) provides that, if a corporation makes the § 168(k)(4) extension property election, such election applies only to extension property. This revenue procedure provides guidance regarding the time and manner for making the § 168(k)(4) extension property election (see section 6 of this revenue procedure).

.08 Section 3081(b) of the Housing and Economic Recovery Act of 2008, Pub. L. No. 110–289, 122 Stat. 2654 (July 30, 2008) (Housing Act), allows an applicable partnership (as defined in § 3081(b)(4)(A) of the Housing Act) to elect to be treated as having made a deemed payment of income tax in a certain amount. If an applicable partnership makes this election, the applicable partnership determines the depreciation deduction for any eligible qualified property (as defined in § 3081(b)(4)(C) of the Housing Act and in section 3 of Rev. Proc. 2008–65) placed in service by the partnership during the taxable year by using the straight line method and by not claiming the Stimulus additional first year depreciation deduction, and reduces the amount of its research credit for the taxable year by the amount of the deemed payment for the taxable year. The election to apply § 3081(b) of the Housing Act (the § 3081(b) Housing Act election) must be made for the applicable partnership’s first taxable year ending after March 31, 2008, and applies to any taxable year during which eligible qualified property is placed in service by the applicable partnership. The Act does not extend or amend the § 3081(b) Housing Act election. Therefore, if an applicable partnership made the § 3081(b) Housing Act election for its first taxable year ending after March 31, 2008, this election continues to apply only to eligible qualified property as defined in section 3 of Rev. Proc. 2008–65 (as modified by section 7.01 of this revenue procedure). An applicable

partnership may not make an election to apply § 3081(b) of the Housing Act to extension property.

.09 Section 1201(a)(3)(A)(iii) of the Act amends § 168(k)(4)(D) by adding a new clause (ii) which provides that, for purposes of applying § 168(k)(2) to determine whether depreciable property is eligible qualified property for purposes of § 168(k)(4), “April 1, 2008” shall be substituted for “January 1, 2008” in § 168(k)(2)(A)(iii)(I). This amendment relates to the qualification of property acquired by a taxpayer pursuant to a written binding contract as eligible qualified property for purposes of § 168(k)(4). Section 3.02(2) of Rev. Proc. 2008–65 is modified to reflect this amendment (see section 7 of this revenue procedure).

.10 Section 168(k)(4)(E)(iv) defines the term “AMT credit increase amount” as meaning 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. This revenue procedure modifies section 5.06 of Rev. Proc. 2008–65 to clarify that “adjusted minimum tax” means “adjusted net minimum tax” (see section 7 of this revenue procedure).

.11 Section 3.02(1)(a)(ii) of Rev. Proc. 2009–16 provides that, if a taxpayer’s first taxable year ending after March 31, 2008, ends before December 31, 2008, the taxpayer must file an amended federal income tax return on or before the due date (without regard to extensions) of the taxpayer’s original federal income tax return for the succeeding taxable year in order to claim the refundable credit resulting from a § 168(k)(4) election. Some taxpayers have expressed concern about how to comply with this requirement when a taxpayer’s succeeding taxable year is a short taxable year. This revenue procedure modifies section 3.02(1)(a)(ii) of Rev. Proc. 2009–16 to address this concern (see section 8 of this revenue procedure).