Congress’ recent penchant for letting bonus depreciation expire only to be retroactively reinstated nearly a year later has created issues for many non-calendar year taxpayers. When their returns are filed assets acquired after January 1 of the year in question are not eligible for bonus depreciation. However when Congress retroactively extends the application of IRC §168(k) these returns become “erroneous” as filed since bonus depreciation must be used unless the taxpayer elected not to use bonus.

In Revenue Procedure 2015-48 the IRS gives guidance to taxpayers who find they have such “erroneous” returns already on file with the agency. Specifically as the IRS notes in the “Purpose” section of the procedure:

This revenue procedure provides guidance for issues related to the enactment of § 125(a), § 125(c)(2), and § 127(d) of the Tax Increase Prevention Act of 2014, Pub. L. No. 113-295, 128 Stat. 4010 (December 19, 2014) (TIPA). Section 125(a) of the TIPA amended § 168(k)(2) of the Internal Revenue Code (Code) by extending the placed-in-service date for property to qualify for the 50-percent additional first year depreciation deduction. Section 125(c)(2) of the TIPA amended § 168(k)(4) by allowing corporations to elect not to claim the 50-percent additional first year depreciation deduction for certain property placed in service generally after December 31, 2013, and before January 1, 2015, and instead to increase their alternative minimum tax (AMT) credit limitation under § 53(c). Section 127(d) of the TIPA amended § 179(f) by extending the application of § 179(f) from any taxable year beginning after 2009 and before 2014 to any taxable year beginning after 2009 and before 2015.

The ruling first deals with taxpayers who did not attach an election not to claim the additional first year depreciation with an affected return. The IRS provides the following relief options:

If, on its timely filed federal tax return for the 2013 taxable year or the 2014 short taxable year (both as defined in section 3.01 of this revenue procedure), as applicable, a taxpayer did not deduct the 50-percent additional first year depreciation for a class of property that is qualified property or for some or all of its 2014 qualified property, and did not make an election within the time and in the manner described in either section 2.01(3) or section 3.04(2) of this revenue procedure not to deduct the 50-percent additional first year depreciation deduction for the class of property in which the qualified property or the 2014 qualified property, as applicable, is included, the taxpayer may claim the 50-percent additional first year depreciation for that class by filing either:

(1) An amended federal tax return for the 2013 taxable year or the 2014 short taxable year, as applicable, before the taxpayer files its federal tax return for the first taxable year succeeding the 2013 taxable year or the 2014 short taxable year, as applicable. If the taxpayer has both a 2013 taxable year and a 2014 short taxable year, and has timely filed federal tax returns for both such years, the amended federal tax returns for both the 2013 taxable year and the 2014 short taxable year must be filed before the taxpayer files its federal tax return for the first taxable year succeeding the 2014 short taxable year; or

(2) A Form 3115, Application for Change in Accounting Method, under section 6.01 of Rev. Proc. 2015-14, 2015-5 I.R.B. 450, 459, with the taxpayer's timely filed federal tax return for the first or second taxable year succeeding the 2013 taxable year or the 2014 short taxable year, as applicable, if the taxpayer owns the property as of the first day of the year of change (as defined in section 3.19 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, 429). If the taxpayer has both a 2013 taxable year and a 2014 short taxable year, and has timely filed federal tax returns for both such years, the Form 3115 must be filed with the taxpayer's timely filed federal tax return for the first or second taxable year succeeding the 2014 short taxable year if the taxpayer owns the property as of the first day of the year of change.

Some taxpayers may have elected to not deduct the 50 percent bonus depreciation on an affected return and now, given that they “gave up” a larger than expected deduction, may wish to reverse that election. The IRS provides the following options in that case:

If, on its timely filed federal tax return for the 2013 taxable year or the 2014 short taxable year, as applicable, a taxpayer made an election within the time and in the manner described in section 2.01(3) of this revenue procedure to not deduct the 50-percent additional first year depreciation for a class of property that is qualified property, the Commissioner grants the taxpayer consent to revoke that election, provided the taxpayer files an amended federal tax return for the 2013 taxable year or the 2014 short taxable year, as applicable, in a manner that is consistent with the revocation of the election and by the later of (1) December 4, 2015, or (2) before the taxpayer files its federal tax return for the first taxable year succeeding the 2013 taxable year or the 2014 short taxable year.

Conversely, the ruling also deals with those taxpayers that don’t want to change their treatment, holding:

(1) In general. A taxpayer that timely filed its federal tax return for the 2013 taxable year or the 2014 short taxable year, as applicable, has made the election to not deduct the 50-percent additional first year depreciation for a class of property that is qualified property if the taxpayer made the election within the time and in the manner provided in section 2.01(3) of this revenue procedure and did not revoke that election within the time and in the manner provided in section 3.03 of this revenue procedure.

(2) Deemed election. If section 3.04(1) of this revenue procedure does not apply, a taxpayer that timely filed its federal tax return for the 2013 taxable year or the 2014 short taxable year, as applicable, will be treated as making the election to not deduct the 50-percent additional first year depreciation for a class of property that is qualified property if the taxpayer:

(a) On that return, did not deduct the 50-percent additional first year depreciation for that class of property but did deduct depreciation; and

(b) Does not file an amended federal tax return or a Form 3115 within the time and in the manner provided in section 3.02 or section 3.03 of this revenue procedure, as applicable, to claim the 50-percent additional first year depreciation for the class of property.

(3) Application. If the taxpayer makes the election under section 3.04(1) or (2) of this revenue procedure for its 2013 taxable year, the election applies to both 2013 qualified property and 2014 qualified property in the same class of property for which the election is made. If the taxpayer makes the election under section 3.04(1) or (2) of this revenue procedure for its 2014 short taxable year, the election applies to 2014 qualified property in the same class of property for which the election is made.

The ruling contains similar provisions for the special AMT treatment available to certain taxpayers, now with “Round 4” property.

Finally the procedure provides rules related to carryover of a disallowed §179 deduction for qualified real property.

01 In General. 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 either (1) continue that treatment, or (2) if the period of limitations for assessment under § 6501(a) is open, amend its federal tax return for the last taxable year beginning in 2013 to carryover the 2010, 2011, 2012, or 2013 disallowed § 179 deduction to any taxable year beginning in 2014. However, if the taxpayer's last taxable year beginning in 2013 is open under the period of limitations for assessment under § 6501(a) and an affected succeeding taxable year is closed under the period of limitations for assessment under § 6501(a), the taxpayer must continue to treat the amount of a 2010, 2011, 2012, or 2013 disallowed § 179 deduction as property placed in service on the first day of the taxpayer's last taxable year beginning in 2013.

.02 Time and Manner of Filing Amended Federal Tax Return. The amended federal tax return for the taxpayer's last taxable year beginning in 2013 must include any collateral adjustments to taxable income or the tax liability (for example, the amount of depreciation allowed or allowable in the last taxable year beginning in 2013 for the amount of the 2010, 2011, 2012, or 2013 disallowed § 179 deduction). Such collateral adjustments must also be made on amended federal tax returns for any affected succeeding taxable years. The amended returns for the taxpayer's last taxable year beginning in 2013 and for any affected succeeding taxable years must be filed within the time prescribed by law for filing an amended return for such taxable years.