MLR

S corp gets second chance to get depreciation right

Categories:

In a recent private letter ruling, the IRS has given an unnamed S corporation a second chance at computing its depreciation deduction.

According to the facts in the ruling (LTR201337013), sometime in the past, the S corporation acquired and placed in service depreciable assets, some qualifying for 100 percent bonus depreciation and some qualifying for 50 percent bonus depreciation.

Thinking that the bonus depreciation would only produce losses that the corporation’s shareholders would be unable to use on their personal returns, the S corporation made a valid, timely election to forgo the bonus depreciation.

After filing the relevant tax returns, the S corporation became aware that a major shareholder had sufficient income to have benefited from the bonus depreciation deductions. However, once the election is made to forgo bonus depreciation, a business can revoke the election only with the consent of the IRS. That consent may be obtained only by filing a request for a private ruling.

The recent private ruling contains the IRS response to the S corporation’s request. The IRS ruled that the S corporation could revoke its election to forgo bonus depreciation by filing the appropriate amended returns within 60 days after the date of the ruling.