Under the provisions of the American Taxpayer Relief Act of 2012, P.L. 112-240 (ATRA), corporations or consolidated groups with alternative minimum tax (AMT) credits from pre-2006 tax years may continue to accelerate the use of these credits instead of claiming the Sec. 168(k) additional bonus depreciation for eligible qualified property (EQP). To accelerate the use of these credits, an election must be made under Sec. 168(k)(4). This provision has proved particularly useful for companies with excess AMT credits that do not benefit from claiming bonus depreciation.
Forgoing Bonus Depreciation
The provisions of Sec. 168(k)(4) originally allowed a corporation with EQP placed in service after March 31, 2008, through Dec. 31, 2009, (original and extension property) to forgo its "bonus" depreciation and increase its general business credit and prior-year AMT limitations. This benefit was unavailable for 2010 (except for qualifying long-production-period property and certain aircraft) but was reinstated as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312 (the Act). The Act generally extended Sec. 168(k)(4) to qualified property placed in service in 2011 and 2012 (round 2 extension property). In addition, ATRA generally extends Sec. 168(k)(4) to qualified property placed in service in 2013 (round 3 extension property). The provisions for rounds 2 and 3 extension property allow the acceleration only of AMT credits, not for an increased general business credit, but otherwise are similar to the provisions for original and extension property.
A taxpayer may make two elections to forgo bonus depreciation under Sec. 168(k):
* The first election to forgo bonus depreciation is made under Sec. 168(k)(2)(D)(iii) on an entity-by-entity and class-by-class basis (e.g., all five-year property of one subsidiary in a consolidated group could be elected out of bonus depreciation).
* The second election to accelerate research credits or AMT credits in lieu of claiming bonus depreciation is made under Sec. 168(k)(4) and applies to all property of a controlled group of corporations (generally determined by greater-than-50% ownership) that meets the requirements of Sec. 168(k).
The IRS has provided that an election out of bonus depreciation under Sec. 168(k)(2)(D)(iii) is taken into account before an election to accelerate research credits or AMT credits under Sec. 168(k)(4). Thus, a taxpayer may control the...