Now that there is a formal relief process to change bonus elections that does not require an amended return, it may be worth the time to take one more look at your bonus elections related to the Tax Cuts and Job Act.
Many taxpayers felt they did not have sufficient time to analyze the new regulations to make a timely election under IRC Section 168(k) for first-year bonus amounts in the 2016 and 2017 tax years after the passage of the Tax Cuts and Jobs Act in December 2017. And, the Treasury Department and the IRS agreed with taxpayers on this point.
On July 31, 2019, the Internal Revenue Service issued Revenue Procedure 2019-33 allowing a taxpayer to make a late election, or to revoke an election, under section 168(k) for qualifying property acquired after September 27, 2017, and placed in service by its taxable year that includes September 28, 2017. The IRS also implemented a simplified process for the taxpayer to take advantage of the revenue procedure: requiring only the filing of a Form 3115 Application for Change in Accounting Method. This process allows for an automatic approval of the revocation or late election as long as it is made within one, two or three years of the applicable tax year.
Applicable Code Sections
Rev. Proc. 2019-33 applies to late elections and revocations to taxpayers that have qualifying property under the following code sections for elections:
- IRC Section 168(k)(5) – specific plants that are planted or grafted before January 1, 2027 [see Section 4 of the revenue procedure for details]
- IRC Section 168(k)(7) – the election to not deduct bonus for any given class of qualifying property (e.g., 5-year property) [see Section 5 of the revenue procedure for details]
- IRC Section 168(k)(10) – qualifying property for which the taxpayer elects to take 50% bonus instead of the new 100% bonus depreciation rate per the Tax Cuts and Jobs Acts. [see Section 6 of the revenue procedure for details]
Below is a summary of the required steps for applying Rev. Proc. 2019-33.
- Be sure to make the election within the specified time frame.
- Aggregate all changes for an election under a single code section (e.g. 168(k)(5) as described in Section 4 of the revenue procedure) or changes across multiple code sections into one Section 481(a) adjustment on Form 3115.
- The automatic method change number is “241” (Note: As of August 21, 2019, the Form 3115 instructions are not updated with this information).
After reviewing your situation and Rev. Proc. 2019-33, you may find some unexpected tax benefits available to your organization.