IRS Provides Procedures for Taking Retroactive Bonus Depreciation on QIP
Rev. Proc. 2020-25 provides procedural options for a taxpayer to capture the retroactive benefit of the law change in the taxpayer’s 2018, 2019, or 2020 tax year, by either amending its tax returns (or filing an amended return or administrative adjustment request for BBA partnerships) or changing accounting methods.
The new automatic accounting method change procedures included in the Rev. Proc. apply to QIP placed in service after December 31, 2017, and are available to taxpayers other than those changing an election under Section 163(j) of the Code. A taxpayer may also make a late election, or revoke an election, out of bonus depreciation through the streamlined process. Additional procedures for filing for an automatic change in accounting methods is provided in Rev. Proc. 2020-23. Taxpayers changing an election under Section 163(j) are not eligible to use the Rev. Proc.’s accounting method change procedures and instead must file amended returns to claim a change in depreciation of QIP (see our alert here).
The various alternatives in the Rev. Proc. provide taxpayers with broad optionality to increase near-term cash-on-hand via tax refunds from prior tax years (potentially enhanced by other retroactive changes provided in the CARES Act, such as net operating loss carrybacks, discussed in a prior alert here). Alternatively, taxpayers with prior or projected future losses may wish to forgo bonus depreciation in lieu of increased future deductions over the 15-year recovery period. A partnership will want to analyze the differing results of the various options for its partners, including potentially withdrawn partners.
For questions about this relief or other tax issues, contact a member of the Ballard Spahr Tax Group.
Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.