Section 179 Elections, 40189-40193 [05-13680]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 70, Number 133 (Wednesday, July 13, 2005)]
[Rules and Regulations]
[Pages 40189-40193]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-13680]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9209]
RIN 1545-BC69


Section 179 Elections

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
election to expense the cost of property subject to section 179 of the 
Internal Revenue Code (Code). The regulations reflect changes to the 
law made by section 202 of the Jobs and Growth Tax Relief 
Reconciliation Act of 2003 and section 201 of the American Jobs 
Creation Act of 2004.

DATES: Effective Date. These regulations are effective July 13, 2005.
    Applicability Dates: For dates of applicability, see Sec.  1.179-6.

FOR FURTHER INFORMATION CONTACT: Winston H. Douglas, (202) 622-3110 
(not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collections of information contained in these final regulations 
have been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1201. The collections of information 
in these final regulations are in Sec. Sec.  1.179-2 and 1.179-5. This 
information is required by Sec.  1.179-2 to ensure that married 
individuals filing separate returns properly allocate the cost of 
section 179 property elected to be expensed in a taxable year and that 
the dollar limitation is properly allocated among the component members 
of a controlled group. Also, this information is required by Sec.  
1.179-5 to ensure the specific identification of each piece of acquired 
section 179 property and reflect how and from whom such property was 
placed in service. This information will be used for audit and 
examination purposes.
    Estimated total annual reporting and/or recordkeeping burden: 
3,015,000 hours.
    The estimated annual burden per respondent/recordkeeper varies from 
.50 to 1 hour, depending on individual circumstances, with an estimated 
average of .75 hour.
    Estimated number of respondents and/or recordkeepers: 4,025,000.

[[Page 40190]]

    Estimated frequency of responses: Annually.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 
20224. Comments are specifically requested concerning how the burden of 
complying with the collection of information may be minimized, 
including through the application of automated collection techniques or 
other forms of information technology.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents might become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains amendments to 26 CFR parts 1 and 602. On 
August 4, 2004, the IRS and Treasury Department published temporary 
regulations (TD 9146) in the Federal Register (69 FR 46982) relating to 
the election to expense the cost of property subject to section 179 of 
the Code. The temporary regulations reflected changes to the law made 
by section 202 of the Jobs and Growth Tax Relief Reconciliation Act of 
2003 (JGTRRA), Public Law 108-27 (117 Stat. 752). On the same date, the 
IRS published a notice of proposed rulemaking (REG-152549-03) cross-
referencing the temporary regulations in the Federal Register (69 FR 
47043). No comments were received from the public in response to the 
notice of proposed rulemaking and no public hearing was requested or 
held. However, section 201 of the American Jobs Creation Act of 2004, 
Public Law 108-357 (118 Stat. 1418), extended the changes that were 
made by JGTRRA for an additional two years. The proposed regulations 
are adopted as amended by this Treasury decision, and the corresponding 
temporary regulations are removed. The revisions are discussed below.

Explanation of Provisions

Scope

    The changes made to section 179 by section 202 of JGTTRA were 
applicable for section 179 property placed in service by a taxpayer in 
taxable years beginning after 2002 and before 2006. Section 202 of 
JGTRRA expanded the definition of section 179 property to include off-
the-shelf computer software (a category of intangible property) and 
increased the $25,000 and $200,000 limitation amounts of section 
179(b)(1) and (b)(2), respectively, to $100,000 and $400,000, 
respectively. In addition, the $100,000 and $400,000 amounts were 
indexed annually for inflation for taxable years beginning after 2003 
and before 2006. JGTRRA also modified section 179 to provide that any 
election or specification for taxable years beginning after 2002 and 
before 2006 may be revoked by the taxpayer with respect to any section 
179 property, and that such revocation, once made, shall be 
irrevocable. With respect to a taxable year beginning after 2002 and 
before 2006, the conference agreement permitted taxpayers to make or 
revoke an expensing election on an amended Federal tax return without 
the consent of the Commissioner. The temporary regulations reflected 
the changes to section 179 made by section 202 of JGTTRA.
    Subsequent to the issuance of the proposed regulations and the 
temporary regulations, the American Jobs Creation Act of 2004 (AJCA) 
was enacted. Section 201 of AJCA extends the changes that were made by 
JGTTRA for an additional two years. The final regulations retain the 
rules relating to the JGTTRA changes contained in the temporary 
regulations. The final regulations also apply the AJCA's two-year 
extension of the JGTTRA changes to section 179 property placed in 
service by a taxpayer in a taxable year beginning after 2002 and before 
2008.

Manner of Making an Election or Revoking an Election Under Section 179

    The final regulations provide that for any taxable year beginning 
after 2002 and before 2008, a section 179 election or a revocation of a 
section 179 election may be made on an amended Federal tax return for 
that taxable year to which the election or revocation applies. For any 
taxable year beginning before 2003, a late section 179 election or a 
revocation of a section 179 election generally is made by a taxpayer 
submitting a request for a letter ruling. Accordingly, the final 
regulations clarify that a section 179 election or a revocation of a 
section 179 election generally must not be made in any other manner 
(for example, a section 179 election or revocation of a section 179 
election cannot be made through a request under section 446(e) to 
change the taxpayer's method of accounting).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the fact that the amount of 
time necessary to record and retain the required information will be 
minimal for those taxpayers electing to expense the cost of section 179 
property. The estimated annual burden for each such taxpayer varies 
from .50 to 1 hour, depending on individual circumstances, with an 
estimated average of .75 hour. Therefore, a regulatory flexibility 
analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding these final regulations was submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Winston H. Douglas, 
Office of the Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 and 602 are amended as follows:

[[Page 40191]]

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.179-0 is amended as follows:
0
1. The entries for Sec.  1.179-2(b)(1) and (b)(2), Sec.  1.179-4(a), 
and Sec.  1.179-5(c) are revised.
0
2. The entries for Sec.  1.179-5(d) and Sec.  1.179-6(a), (b), and (c) 
are added.
0
3. Sections 1.179-2T, 1.179-4T, 1.179-5T, and 1.179-6T are removed.
    The revisions and additions read as follows:


Sec.  1.179-0  Table of contents for section 179 expensing rules.

* * * * *


Sec.  1.179-2  Limitations on amount subject to section 179 election.

* * * * *
    (b) * * *
    (1) In general.
    (2) Excess section 179 property.
* * * * *


Sec.  1.179-4  Definitions.

    (a) Section 179 property.
* * * * *


Sec.  1.179-5  Time and manner of making election.

* * * * *
    (c) Section 179 property placed in service by the taxpayer in a 
taxable year beginning after 2002 and before 2008.
    (d) Election or revocation must not be made in any other manner.


Sec.  1.179-6  Effective dates.

    (a) In general.
    (b) Section 179 property placed in service by the taxpayer in a 
taxable year beginning after 2002 and before 2008.
    (c) Application of Sec.  1.179-5(d).


Sec.  1.179-2  [Amended]

0
Par. 3. Section 1.179-2 is amended by revising paragraphs (b)(1) and 
(b)(2)(ii) to read as follows:


Sec.  1.179-2  Limitations on amount subject to section 179 election.

* * * * *
    (b) Dollar limitation--(1) In general. The aggregate cost of 
section 179 property that a taxpayer may elect to expense under section 
179 for any taxable year beginning in 2003 and thereafter is $25,000 
($100,000 in the case of taxable years beginning after 2002 and before 
2008 under section 179(b)(1), indexed annually for inflation under 
section 179(b)(5) for taxable years beginning after 2003 and before 
2008), reduced (but not below zero) by the amount of any excess section 
179 property (described in paragraph (b)(2) of this section) placed in 
service during the taxable year.
    (b) * * *
    (2) * * *
    (ii) $200,000 ($400,000 in the case of taxable years beginning 
after 2002 and before 2008 under section 179(b)(2), indexed annually 
for inflation under section 179(b)(5) for taxable years beginning after 
2003 and before 2008).
* * * * *


Sec.  1.179-2T  [Removed]

0
Par. 4. Section 1.179-2T is removed.


Sec.  1.179-4  [Amended]

0
Par. 5. Section 1.179-4 is amended by revising the introductory text 
and paragraph (a) to read as follows:


Sec.  1.179-4  Definitions.

    The following definitions apply for purposes of section 179 and 
Sec. Sec.  1.179-1 through 1.179-6:
    (a) Section 179 property. The term section 179 property means any 
tangible property described in section 179(d)(1) that is acquired by 
purchase for use in the active conduct of the taxpayer's trade or 
business (as described in Sec.  1.179-2(c)(6)). For taxable years 
beginning after 2002 and before 2008, the term section 179 property 
includes computer software described in section 179(d)(1) that is 
placed in service by the taxpayer in a taxable year beginning after 
2002 and before 2008 and is acquired by purchase for use in the active 
conduct of the taxpayer's trade or business (as described in 1.179-
2(c)(6)). For purposes of this paragraph (a), the term trade or 
business has the same meaning as in section 162 and the regulations 
under section 162.
* * * * *


Sec.  1.179-4T  [Removed]

0
Par. 6. Section 1.179-4T is removed.


Sec.  1.179-5  [Amended]

0
Part. 7. Section 1.179-5 is amended by revising paragraph (c) and 
adding paragraph (d) to read as follows:


Sec.  1.179-5  Time and manner of making election.

* * * * *
    (c) Section 179 property placed in service by the taxpayer in a 
taxable year beginning after 2002 and before 2008--(1) In general. For 
any taxable year beginning after 2002 and before 2008, a taxpayer is 
permitted to make or revoke an election under section 179 without the 
consent of the Commissioner on an amended Federal tax return for that 
taxable year. This amended return must be filed within the time 
prescribed by law for filing an amended return for such taxable year.
    (2) Election--(i) In general. For any taxable year beginning after 
2002 and before 2008, a taxpayer is permitted to make an election under 
section 179 on an amended Federal tax return for that taxable year 
without the consent of the Commissioner. Thus, the election under 
section 179 and Sec.  1.179-1 to claim a section 179 expense deduction 
for section 179 property may be made on an amended Federal tax return 
for the taxable year to which the election applies. The amended Federal 
tax return must include the adjustment to taxable income for the 
section 179 election and any collateral adjustments to taxable income 
or to the tax liability (for example, the amount of depreciation 
allowed or allowable in that taxable year for the item of section 179 
property to which the election pertains). Such adjustments must also be 
made on amended Federal tax returns for any affected succeeding taxable 
years.
    (ii) Specifications of elections. Any election under section 179 
must specify the items of section 179 property and the portion of the 
cost of each such item to be taken into account under section 179(a). 
Any election under section 179 must comply with the specification 
requirements of section 179(c)(1)(A), Sec.  1.179-1(b), and Sec.  
1.179-5(a). If a taxpayer elects to expense only a portion of the cost 
basis of an item of section 179 property for a taxable year beginning 
after 2002 and before 2008 (or did not elect to expense any portion of 
the cost basis of the item of section 179 property), the taxpayer is 
permitted to file an amended Federal tax return for that particular 
taxable year and increase the portion of the cost of the item of 
section 179 property to be taken into account under section 179(a) (or 
elect to expense any portion of the cost basis of the item of section 
179 property if no prior election was made) without the consent of the 
Commissioner. Any such increase in the amount expensed under section 
179 is not deemed to be a revocation of the prior election for that 
particular taxable year.
    (3) Revocation--(i) In general. Section 179(c)(2) permits the 
revocation of an entire election or specification, or a portion of the 
selected dollar amount of a specification. The term specification in 
section 179(c)(2) refers to both the selected specific item of section 
179 property subject to a section 179 election and the selected dollar 
amount allocable to the specific item of section 179 property. Any 
portion of the cost basis of an item of section 179 property

[[Page 40192]]

subject to an election under section 179 for a taxable year beginning 
after 2002 and before 2008 may be revoked by the taxpayer without the 
consent of the Commissioner by filing an amended Federal tax return for 
that particular taxable year. The amended Federal tax return must 
include the adjustment to taxable income for the section 179 revocation 
and any collateral adjustments to taxable income or to the tax 
liability (for example, allowable depreciation in that taxable year for 
the item of section 179 property to which the revocation pertains). 
Such adjustments must also be made on amended Federal tax returns for 
any affected succeeding taxable years. Reducing or eliminating a 
specified dollar amount for any item of section 179 property with 
respect to any taxable year beginning after 2002 and before 2008 
results in a revocation of that specified dollar amount.
    (ii) Effect of revocation. Such revocation, once made, shall be 
irrevocable. If the selected dollar amount reflects the entire cost of 
the item of section 179 property subject to the section 179 election, a 
revocation of the entire selected dollar amount is treated as a 
revocation of the section 179 election for that item of section 179 
property and the taxpayer is unable to make a new section 179 election 
with respect to that item of property. If the selected dollar amount is 
a portion of the cost of the item of section 179 property, revocation 
of a selected dollar amount shall be treated as a revocation of only 
that selected dollar amount. The revoked dollars cannot be the subject 
of a new section 179 election for the same item of property.
    (4) Examples. The following examples illustrate the rules of this 
paragraph (c):

    Example 1. Taxpayer, a sole proprietor, owns and operates a 
jewelry store. During 2003, Taxpayer purchased and placed in service 
two items of section 179 property--a cash register costing $4,000 
(5-year MACRS property) and office furniture costing $10,000 (7-year 
MACRS property). On his 2003 Federal tax return filed on April 15, 
2004, Taxpayer elected to expense under section 179 the full cost of 
the cash register and, with respect to the office furniture, claimed 
the depreciation allowable. In November 2004, Taxpayer determines it 
would have been more advantageous to have made an election under 
section 179 to expense the full cost of the office furniture rather 
than the cash register. Pursuant to paragraph (c)(1) of this 
section, Taxpayer is permitted to file an amended Federal tax return 
for 2003 revoking the section 179 election for the cash register, 
claiming the depreciation allowable in 2003 for the cash register, 
and making an election to expense under section 179 the cost of the 
office furniture. The amended return must include an adjustment for 
the depreciation previously claimed in 2003 for the office 
furniture, an adjustment for the depreciation allowable in 2003 for 
the cash register, and any other collateral adjustments to taxable 
income or to the tax liability. In addition, once Taxpayer revokes 
the section 179 election for the entire cost basis of the cash 
register, Taxpayer can no longer expense under section 179 any 
portion of the cost of the cash register.
    Example 2. Taxpayer, a sole proprietor, owns and operates a 
machine shop that does specialized repair work on industrial 
equipment. During 2003, Taxpayer purchased and placed in service one 
item of section 179 property--a milling machine costing $135,000. On 
Taxpayer's 2003 Federal tax return filed on April 15, 2004, Taxpayer 
elected to expense under section 179 $5,000 of the cost of the 
milling machine and claimed allowable depreciation on the remaining 
cost. Subsequently, Taxpayer determines it would have been to 
Taxpayer's advantage to have elected to expense $100,000 of the cost 
of the milling machine on Taxpayer's 2003 Federal tax return. In 
November 2004, Taxpayer files an amended Federal tax return for 
2003, increasing the amount of the cost of the milling machine that 
is to be taken into account under section 179(a) to $100,000, 
decreasing the depreciation allowable in 2003 for the milling 
machine, and making any other collateral adjustments to taxable 
income or to the tax liability. Pursuant to paragraph (c)(2)(ii) of 
this section, increasing the amount of the cost of the milling 
machine to be taken into account under section 179(a) supplements 
the portion of the cost of the milling machine that was already 
taken into account by the original section 179 election made on the 
2003 Federal tax return and no revocation of any specification with 
respect to the milling machine has occurred.
    Example 3. Taxpayer, a sole proprietor, owns and operates a real 
estate brokerage business located in a rented storefront office. 
During 2003, Taxpayer purchases and places in service two items of 
section 179 property--a laptop computer costing $2,500 and a desktop 
computer costing $1,500. On Taxpayer's 2003 Federal tax return filed 
on April 15, 2004, Taxpayer elected to expense under section 179 the 
full cost of the laptop computer and the full cost of the desktop 
computer. Subsequently, Taxpayer determines it would have been to 
Taxpayer's advantage to have originally elected to expense under 
section 179 only $1,500 of the cost of the laptop computer on 
Taxpayer's 2003 Federal tax return. In November 2004, Taxpayer files 
an amended Federal tax return for 2003 reducing the amount of the 
cost of the laptop computer that was taken into account under 
section 179(a) to $1,500, claiming the depreciation allowable in 
2003 on the remaining cost of $1,000 for that item, and making any 
other collateral adjustments to taxable income or to the tax 
liability. Pursuant to paragraph (c)(3)(ii) of this section, the 
$1,000 reduction represents a revocation of a portion of the 
selected dollar amount and no portion of those revoked dollars may 
be the subject of a new section 179 election for the laptop 
computer.
    Example 4. Taxpayer, a sole proprietor, owns and operates a 
furniture making business. During 2003, Taxpayer purchases and 
places in service one item of section 179 property--an industrial-
grade cabinet table saw costing $5,000. On Taxpayer's 2003 Federal 
tax return filed on April 15, 2004, Taxpayer elected to expense 
under section 179 $3,000 of the cost of the saw and, with respect to 
the remaining $2,000 of the cost of the saw, claimed the 
depreciation allowable. In November 2004, Taxpayer files an amended 
Federal tax return for 2003 revoking the selected $3,000 amount for 
the saw, claiming the depreciation allowable in 2003 on the $3,000 
cost of the saw, and making any other collateral adjustments to 
taxable income or to the tax liability. Subsequently, in December 
2004, Taxpayer files a second amended Federal tax return for 2003 
selecting a new dollar amount of $2,000 for the saw, including an 
adjustment for the depreciation previously claimed in 2003 on the 
$2,000, and making any other collateral adjustments to taxable 
income or to the tax liability. Pursuant to paragraph (c)(2)(ii) of 
this section, Taxpayer is permitted to select a new selected dollar 
amount to expense under section 179 encompassing all or a part of 
the initially non-elected portion of the cost of the elected item of 
section 179 property. However, no portion of the revoked $3,000 may 
be the subject of a new section 179 dollar amount selection for the 
saw. In December 2005, Taxpayer files a third amended Federal tax 
return for 2003 revoking the entire selected $2,000 amount with 
respect to the saw, claiming the depreciation allowable in 2003 for 
the $2,000, and making any other collateral adjustments to taxable 
income or to the tax liability. Because Taxpayer elected to expense, 
and subsequently revoke, the entire cost basis of the saw, the 
section 179 election for the saw has been revoked and Taxpayer is 
unable to make a new section 179 election with respect to the saw.

    (d) Election or revocation must not be made in any other manner. 
Any election or revocation specified in this section must be made in 
the manner prescribed in paragraphs (a), (b), and (c) of this section. 
Thus, this election or revocation must not be made by the taxpayer in 
any other manner (for example, an election or a revocation of an 
election cannot be made through a request under section 446(e) to 
change the taxpayer's method of accounting), except as otherwise 
expressly provided by the Internal Revenue Code, the regulations under 
the Code, or other guidance published in the Internal Revenue Bulletin.


Sec.  1.179-5T  [Removed]

0
Par. 8. Section 1.179-5T is removed.


Sec.  1.179-6  [Removed]

0
Par. 9. Section 1.179-6 is removed.


Sec.  1.179-6T  [Amended]

0
Par. 10. Section 1.179-6T is redesignated as Sec.  1.179-6 and amended 
as follows:

[[Page 40193]]

0
1. The first sentence of paragraph (a) is revised.
0
2. Paragraph (b) is revised.
0
3. Paragraph (c) is added.
    The revisions and addition read as follows:


Sec.  1.179-6  Effective dates.

    (a) * * * Except as provided in paragraphs (b) and (c) of this 
section, the provisions of Sec. Sec.  1.179-1 through 1.179-5 apply for 
property placed in service by the taxpayer in taxable years ending 
after January 25, 1993. * * *
    (b) Section 179 property placed in service by the taxpayer in a 
taxable year beginning after 2002 and before 2008. The provisions of 
Sec.  1.179-2(b)(1) and (b)(2)(ii), the second sentence of Sec.  1.179-
4(a), and the provisions of Sec.  1.179-5(c), reflecting changes made 
to section 179 by the Jobs and Growth Tax Relief Reconciliation Act of 
2003 (117 Stat. 752) and the American Jobs Creation Act of 2004 (118 
Stat. 1418), apply for property placed in service in taxable years 
beginning after 2002 and before 2008.
    (c) Application of Sec.  1.179-5(d). Section 1.179-5(d) applies on 
or after July 12, 2005.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 11. The authority citation for part 602 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805.


0
Par. 12. In Sec.  602.101, paragraph (b) is amended by removing the 
entries for ``1.179-2T'' and ``1.179-5T'' and adding a new entry for 
``1.179-5'' in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
 
                                * * * * *
1.179-5....................................................    1545-1201
                                * * * * *
------------------------------------------------------------------------


Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: June 23, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 05-13680 Filed 7-12-05; 8:45 am]
BILLING CODE 4830-01-P