Revenue Procedure 2019-33 Provides Bonus Depreciation Relief

Revenue Procedure 2019-33 generally allows taxpayers extra time to make certain elections under the bonus depreciation rules provided in IRC Section 168(k) for the 2016 and 2017 tax years. The revenue procedure also provides rules for receiving automatic consent to revoke a bonus depreciation election for bonus depreciation elections made for 2016 or 2017.

Background

The Tax Cuts and Jobs Act of 2017 amended the rules for bonus depreciation under IRC Section 168(k), generally increasing the benefit and eligibility, although with some trade-offs. Following are some of the rule changes:

• Election for specified plants under Section 168(k)(5). Taxpayers may elect to deduct bonus depreciation for any specified plant that is planted by the taxpayer in the ordinary course of its farming business before Jan. 1, 2027, or grafted before that date to a plant that already has been planted. If a taxpayer makes this election, the bonus depreciation deduction is allowable for the specified plant for the tax year in which that specified plant is planted or grafted, and the specified plant is not treated as qualified property under Section 168(k) in the year the plant is placed in service.
• Election out of bonus depreciation under Section 168(k)(7). Taxpayers may elect not to deduct bonus depreciation for all qualified property that is in the same class of property and placed in service by the taxpayer in the same tax year.
• Election to apply 50% bonus depreciation under Section 168(k)(10). Taxpayers may elect to deduct 50%, instead of 100%, bonus depreciation for qualified property acquired after Sept. 27, 2017, by the taxpayer and placed in service or planted or grafted, as applicable, by the taxpayer during its tax year that includes Sept. 28, 2017.

Proposed regulations implementing these changes were released on Aug. 8, 2018, and generally were effective for qualified property acquired after Sept. 27, 2017, and placed in service after Sept. 28, 2017. Commenters requested late election relief, maintaining that they filed returns before publication of the proposed regulations or that they had filing due dates shortly after the publication of the proposed regulations.

Revenue Procedure 2019-33

In response to comments to the proposed regulations, the U.S. Department of the Treasury and the IRS issued Revenue Procedure 2019-33 to allow taxpayers to make a late election or revoke an election by filing an amended federal income tax return for the 2016 or 2017 tax year before filing their federal income tax returns for the first tax year after their 2016 or 2017 tax year. The amended return must include the adjustment to taxable income for the late election and any collateral adjustments to taxable income or tax liability. Such collateral adjustments also must be made on amended federal income tax returns for any affected succeeding tax year.

Alternatively, taxpayers may choose to file a Form 3115, “Application for Change in Accounting Method,” for the first, second, or third tax year succeeding the 2016 or 2017 tax year to make a late election, or taxpayers may revoke an election with a Section 481(a) adjustment.

Conclusion

Revenue Procedure 2019-33 provides taxpayers with an opportunity to reconsider how they treat property eligible for bonus depreciation on their 2016 and 2017 federal income tax returns. Taxpayers that did not elect bonus depreciation for 2016 or 2017 may be eligible for late election relief, and taxpayers that elected bonus depreciation but now wish to change that election may be eligible for automatic consent to revoke the election. Taxpayers should review their returns to determine if they should change their election.