SECTION 2. BACKGROUND

.01 Extension of 50-Percent Additional First Year Depreciation Deduction .

(1) Prior to amendment by the TIPA, § 168(k)(1) allowed a 50-percent additional first year depreciation deduction for qualified property acquired by a taxpayer after 2007 and placed in service by the taxpayer before 2014 (before 2015 in the case of property described in § 168(k)(2)(B) and (C)). Section 125(a) of the TIPA amended § 168(k)(2) by extending the placed-in-service date to before 2015 (before 2016 in the case of property described in § 168(k)(2)(B) and (C)), and extending other dates in § 168(k)(2) by changing “2014” to “2015” or “January 1, 2014” to “January 1, 2015” (for example, the self-constructed property rules in § 168(k)(2)(E)(i)).

(2) Section 168(k)(2)(D)(iii) provides that a taxpayer may elect not to deduct additional first year depreciation for any class of property placed in service by the taxpayer during the taxable year. The term “class of property” is defined in § 1.168(k)–1(e)(2)(i) of the Income Tax Regulations to mean, in general, each class of property described in § 168(e) (for example, 5-year property). If the taxpayer makes this election, it applies to all qualified property that is in the same class and placed in service in the same taxable year.

(3) Section 1.168(k)–1(e)(3)(i) provides that the election not to deduct additional first year depreciation must be made by the due date, including extensions, of the federal tax return for the taxable year

in which the taxpayer places the property in service. Section 1.168(k)–1(e)(3)(ii) provides that this election generally must be made in the manner prescribed on Form 4562, Depreciation and Amortiza- tion, and its instructions. The instructions to Form 4562 for the 2013 and 2014 taxable years provide that the election is made by attaching a statement to the taxpayer’s timely filed tax return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election. Section 1.168(k)–1(e)(7)(i) provides that once the election is made, it generally may be revoked only with the written consent of the Commissioner of Internal Revenue.

(4) Taxpayers with a taxable year beginning in 2013 and ending in 2014 that filed their 2013 federal tax returns before the enactment of the TIPA may be uncertain how to claim the 50-percent additional first year depreciation for qualified property placed in service after December 31, 2013, in taxable years ending in 2014. Section 3 of this revenue procedure provides the procedures for claiming or not claiming the 50-percent additional first year depreciation for this property.

.02 TIPA Amendment of § 168(k)(4) .

(1) Prior to amendment by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, 124 Stat. 3296 (December 17, 2010) (TRUIRJCA), § 168(k)(4) allowed a corporation or an S corporation to elect not to claim the additional first year depreciation deduction allowable under § 168(k) for eligible qualified property or extension property and instead increase the business credit limitation under § 38(c) and the AMT credit limitation under § 53(c). As a result, a corporation or S corporation was able to claim unused credits from taxable years beginning before January 1, 2006, that were allocable to research expenditures or AMT liabilities, and accelerate such credits as refundable credits. With the exception of revised dates, eligible qualified property or extension property is property eligible for the additional first year depreciation deduction under § 168(k)(1).

(2) Section 401(c) of TRUIRJCA amended § 168(k)(4) by adding § 168(k)(4)(I)

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to the Code. Section 168(k)(4)(I) applied to property placed in service generally after 2010 and before 2013 (round 2 extension property). Section 331(c) of the American Taxpayer Relief Act of 2012, Pub. L. No. 112–240, 126 Stat. 2313 (January 2, 2013) (ATRA), amended § 168(k)(4) by adding § 168(k)(4)(J) to the Code. Section 168(k)(4)(J) applied to property placed in service generally after 2012 and before 2014 (round 3 extension property). With the exception of revised dates, round 2 extension property or round 3 extension property is property eligible for the additional first year depreciation deduction under § 168(k)(1). Pursuant to § 168(k)(4)(I)(i) and (J)(i), § 168(k)(4) increased only the AMT credit limitation under § 53(c) for round 2 extension property and round 3 extension property. As a result, § 168(k)(4) allowed a corporation or an S corporation to elect not to claim the additional first year depreciation deduction allowable under § 168(k) for round 2 extension property and round 3 extension property and instead increase the AMT credit limitation under § 53(c). Accordingly, a corporation or S corporation was able to claim unused credits from taxable years beginning before January 1, 2006, that were allocable to AMT liabilities and accelerate such credits as refundable credits.

(3) With the extension of the additional first year depreciation deduction by § 125(a) of the TIPA, § 168(k)(4) is correspondingly extended to apply to “round 4 extension property.” Section 125(c)(2) of the TIPA amended § 168(k)(4) by adding § 168(k)(4)(K) to the Code. Section 168(k)(4)(K)(iii) defines the term “round 4 extension property” as meaning property that is eligible qualified property solely by reason of the extension of § 168(k)(2) by the TIPA. Section 4.01 of this revenue procedure clarifies which eligible qualified property is round 4 extension property.

(4) Pursuant to § 168(k)(4)(K)(i)(I), § 168(k)(4) increases only the AMT credit limitation under § 53(c) for round 4 extension property. As a result, § 168(k)(4) allows a corporation or an S corporation to elect not to claim the additional first year depreciation deduction allowable under § 168(k) for round 4 extension property and instead increase the AMT credit limitation under § 53(c). Accordingly, a

corporation or S corporation is able to claim unused credits from taxable years beginning before January 1, 2006, that are allocable to AMT liabilities and accelerate such credits as refundable credits.

(5) Section 168(k)(4)(K)(ii)(I) provides that if a corporation has an election in effect under § 168(k)(4) for round 3 extension property and the corporation does not make the election not to apply § 168(k)(4) to round 4 extension property, the corporation is treated as having an election in effect for round 4 extension property. Section 4.02 of this revenue procedure provides guidance regarding the time and manner for making an election not to apply § 168(k)(4) to round 4 extension property.

(6) Section 168(k)(4)(K)(ii)(II) provides that if a corporation does not have an election in effect under § 168(k)(4) for round 3 extension property, the corporation may elect to apply § 168(k)(4) to round 4 extension property. Section 4.03 of this revenue procedure provides guidance regarding the time and manner for making this election.

.03 Extension of Application of § 179(f) .

(1) Section 179(a) allows a taxpayer to elect to treat the cost (or a portion of the cost) of any § 179 property as an expense for the taxable year in which the taxpayer places the property in service. Section 179(b)(1) and section 179(b)(2) prescribe a dollar limitation on the aggregate cost of § 179 property that can be treated as an expense under § 179(a). The dollar limitation is the amount under § 179(b)(1) (the § 179(b)(1) limitation), reduced (but not below zero) by the amount by which the cost of § 179 property placed in service during the taxable year exceeds the amount under § 179(b)(2) (the § 179(b)(2) limitation). Prior to amendment by the TIPA, the § 179(b)(1) limitation was $500,000 for taxable years beginning in 2010, 2011, 2012, or 2013, and $25,000 for taxable years beginning after 2013. The § 179(b)(2) limitation was $2,000,000 for taxable years beginning in 2010, 2011, 2012, or 2013, and $200,000 for taxable years beginning after 2013. Section 127(a) of the TIPA extended the $500,000 § 179(b)(1) limitation to taxable years beginning after 2009 and before 2015 and the $2,000,000

§ 179(b)(2) limitation to taxable years beginning after 2009 and before 2015.

(2) Section 179(b)(3)(A) provides that a taxpayer’s § 179 deduction for any taxable year, after application of the § 179(b)(1) and (2) limitations, is limited to the taxpayer’s taxable income for that taxable year that is derived from the taxpayer’s active conduct of any trade or business during that taxable year (taxable income limitation). Section 179(b)(3)(B) provides that the amount of any cost of § 179 property elected to be expensed in a taxable year that is disallowed as a § 179 deduction under the taxable income limitation may be carried forward for an unlimited number of years and may be deducted under § 179(a) in a future year subject to the same limitations.

(3) If a taxpayer elects to apply § 179(f), § 179 property includes qualified real property (as defined in § 179(f)(1) and(2)). Prior to amendment by the TIPA, § 179(f) applied to qualified real property placed in service in any taxable year beginning in 2010, 2011, 2012, or 2013. Section 127(d)(1) of the TIPA extended the application of § 179(f) to qualified real property placed in service in any taxable year beginning after 2009 and before 2015. (4) For purposes of applying the § 179(b)(1) limitation ($500,000) for any taxable year beginning after 2009 and before 2015, § 179(f)(3) provides that not more than $250,000 of the aggregate cost (as defined in § 179(d)(3) and § 1.179– 4(d)) of § 179 property that is treated as an expense under § 179(a) for the taxable year can be attributable to qualified real property. Thus, the maximum amount of qualified real property that may be expensed under § 179(a) for any taxable year beginning after 2009 and before 2015 is $250,000.

(5) Prior to amendment by the TIPA, § 179(f)(4) provided that, notwithstanding § 179(b)(3)(B), a taxpayer that elected to apply § 179(f) and elected to expense under § 179(a) the cost (or a portion of the cost) of qualified real property placed in service during any taxable year beginning in 2010, 2011, 2012, or 2013 could not carryover to any taxable year beginning after 2013 the amount of any cost of such property that was disallowed as a § 179 deduction under the taxable income limi

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tation of § 179(b)(3)(A) (2010, 2011, 2012, or 2013 disallowed § 179 deduction). To the extent that any § 179 deduction attributable to qualified real property was not allowed to be carried over to a taxable year beginning after 2013, that amount was required to be treated as an amount for which an election under § 179 was not made and as property placed in service on the first day of the taxpayer’s last taxable year beginning in 2013 for purposes of computing depreciation. Section 127(d)(2) of the TIPA amended § 179(f)(4) by striking “2013” each place it appeared and inserting “2014”.

(6) The Treasury Department and the Internal Revenue Service recognize that a taxpayer that treated the amount of a 2010, 2011, 2012, or 2013 disallowed § 179 deduction for qualified real property as property placed in service on the first day of the taxpayer’s last taxable year beginning in 2013 may want to carryover that amount to any taxable year beginning in 2014 in accordance with § 179(f)(4), as amended by the TIPA. Section 5 of this revenue procedure provides the procedures to do this.