Category: Tax Returns, Examinations & IRS Procedure;
Deductions & Credits Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer (TP) filed his original tax return reporting only his income from wages. Subsequently, TP discovered that the activities of his sole proprietorship had not been reported, and an amended return is being prepared. TP acquired substantial property during the tax year eligible for expensing under §179. The issue is whether the election to expense the property under §179 can be made on the amended return. Regulation §1.179-5 requires that the election be made on the first return for the tax year to which the election applies. Literal reading of the regulation indicates that TP cannot elect §179 with respect to the sole proprietorship assets acquired during the taxable year. It seems clear that the language "first return for the tax year to which the election applies" is intended to prevent taxpayers from claiming §179 benefits on an amended return. In fact, the regulation goes on to specifically sanction §179 elections made on an amended return filed prior to the deadline (including extensions) for the year to which the election applies. If the former language were not intended to prevent an election on an amended return, the latter language carving out an exception to what appears to be the general rule would not have been needed. TP argues that since the assets for which an election under §179 is desired were not even considered in the original return, he should be allowed to make the election on the amended return. I was unable to locate a case or ruling on point; however, in the cases of D. LaPoint, 94 TC 733, and F.G. Subt, 62 TCM 642, the taxpayers expensed certain repairs. On examination, the repairs were treated as capitalizable expenditures. The taxpayer then argued that an expense under §179 should be allowed. The courts in both cases denied deductions under §179 for failure to so elect on the original returns. The assets originally expensed as repairs were not available to be considered for §179 on the original return, but the new set of facts, namely capitalization of the previously expensed asset, did not give rise to the opportunity to make an election based on that new set of facts. While these cases do not directly oppose TP's position, they certainly do not help it. The regulations at §1.179-5 are extremely clear: the election must be made on the first return for the year in which the election is to be effective. Congress delegated to the Treasury the authority to regulate the area of elections under §179; accordingly, these regulations have the force and effect of law. It seems to me that absent any interpretive matter to the contrary, the regulation means what it so clearly seems to say, namely that §179 cannot be elected on an amended return except for the narrow exception of such a return filed before the filing deadline of the original return. |
