Rp 2002-32

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters.
(Also Part I §§ 1502, 1504; 1.1502–75, 1.1504–1.)

Rev. Proc. 2002–32
SECTION 1. PURPOSE
.01 This revenue procedure clarifies
and supersedes Rev. Proc. 91–71 (1991–2
C.B. 900) which grants certain taxpayers
a waiver of the general rule of § 1504
(a)(3)(A) of the Internal Revenue Code.
Section 1504(a)(3)(A) generally provides
that a corporation that ceased to be a
member of a consolidated group (or a
successor of such corporation) may not be
included in any consolidated return filed
by that affiliated group (or another affiliated group with the same common parent
or a successor of such common parent)
before the 61st month beginning after the
first taxable year in which such corporation ceased to be a member of such
group.
.02 If (1) § 1504(a)(3)(A) applies to
prevent the inclusion of a corporation in a
consolidated return, and (2) the representations described in sections 5.03 and
5.14 of this revenue procedure can be
made with respect to such corporation,
then such corporation may be included in
the consolidated return for the taxable
year that includes the date on which
§ 1504(a)(3)(A) would first apply to prevent such corporation from being
included in such consolidated return if,
and only if, an automatic waiver of the
general rule of § 1504(a)(3)(A) is
obtained pursuant to section 5 of this revenue procedure.
.03 If (1) § 1504(a)(3)(A) applies to
prevent the inclusion of a corporation in a
consolidated return, and (2) the representations described in section 5.03 or 5.14
of this revenue procedure cannot be made
with respect to such corporation, then a
waiver of the application of the general
rule of § 1504(a)(3)(A) for any taxable
year may only be obtained in the form of
a private letter ruling pursuant to section
7 of this revenue procedure.
.04 If (1) § 1504(a)(3)(A) applies to
prevent the inclusion of a corporation in a
consolidated return, (2) the representations described in sections 5.03 and 5.14

May 20, 2002

of this revenue procedure can be made
with respect to such corporation, and (3)
the procedures for obtaining an automatic
waiver of the general rule of § 1504
(a)(3)(A) are not followed, then a waiver
of the application of the general rule of
§ 1504(a)(3)(A) may be obtained only for
taxable years other than the taxable year
that includes the date on which
§ 1504(a)(3)(A) first applies to prevent
such corporation from being included in a
consolidated return and may only be
obtained in the form of a private letter
ruling pursuant to section 7 of this revenue procedure.
SECTION 2. BACKGROUND
.01 Section 1504(a)(3)(A) provides
that (1) if a corporation is included (or
required to be included) in a consolidated
return filed by an affiliated group for a
taxable year that includes any period after
December 31, 1984, and (2) the corporation ceases to be a member of such affiliated group in a taxable year beginning
after December 31, 1984, the corporation
(and any successor of the corporation)
may not be included in any consolidated
return filed by such affiliated group (or
by another affiliated group with the same
common parent or a successor of the
common parent) before the 61st month
beginning after its first taxable year in
which it ceased to be a member of such
affiliated group. Section 1504(a)(3)(B)
provides that the Secretary may waive the
application of § 1504(a)(3)(A) to any corporation for any period subject to such
conditions as the Secretary may prescribe.
.02 For purposes of this revenue procedure, unless otherwise provided, a reference to a successor of a corporation
includes each successor of a successor of
such corporation, and a reference to a
predecessor of a corporation includes
each predecessor of a predecessor of such
corporation.
SECTION 3. APPLICATION
.01 Any corporation described in section 4.01 of this revenue procedure that
requests an automatic waiver by complying with the requirements set forth in section 5 of this revenue procedure is hereby
granted a waiver under § 1504(a)(3)(B)

959

so that the corporation may be included in
the consolidated return filed (or required
to be filed) by the affiliated group of
which it is a member, as provided in section 6 of this revenue procedure. Any corporation described in section 4.01 of this
revenue procedure that does not or cannot
comply with the requirements set forth in
section 5 may request a waiver of the
application of the general rule of
§ 1504(a)(3)(A) pursuant to section 7 of
this revenue procedure.
.02 If pursuant to section 4.02, 4.03, or
4.04 of this revenue procedure,
§ 1504(a)(3)(A) does not apply to prevent
the inclusion in a consolidated return of a
corporation, such corporation must be
included in the consolidated return filed
by the affiliated group of which it is a
member. No waiver is necessary.
SECTION 4. SCOPE
.01 This revenue procedure applies to
any corporation (a deconsolidated corporation) (1) that was included (or was
required to be included), or whose predecessor was included (or was required to
be included), in a consolidated return
filed (or required to be filed) by an affiliated group (the original group), (2) that
ceased, or whose predecessor ceased, to
be a member of such original group, and
(3) that subsequently became affiliated
with that original group (or another affiliated group with the same common parent
or a successor of such common parent)
before the 61st month beginning after the
first taxable year in which it or its predecessor ceased to be a member of the
original group.
.02 Except as provided in section 4.05,
§ 1504(a)(3)(A) does not apply to prevent
the inclusion in a consolidated return of
any corporation that was a member of a
consolidated group (the terminating
group) and that ceased to be a member of
such group solely as a result of a transaction in which a nonmember corporation
acquired the assets of the common parent
of the terminating group in a reorganization described in § 368(a)(1)(A), (C), (D),
or (G) (but, with respect to a reorganization described in § 368(a)(1)(D) or (G),
only if the requirements of § 354(b)(1)(A)
and (B) are met), and immediately after

2002–20 I.R.B.

the acquisition, the acquiring corporation
is the common parent of another affiliated
group (the acquiring group). If the acquiring group files a consolidated return, all
members of the terminating group that are
includible corporations must be included
in the consolidated return. See Rev. Rul.
91–70 (1991–2 C.B. 361).
.03 Except as provided in section 4.05,
§ 1504(a)(3)(A) does not apply to prevent
the inclusion in a consolidated return of
any corporation that was a member of a
consolidated group (the terminating
group) and that ceased to be a member of
such group solely as a result of a transaction in which a member of the terminating group acquired (a) the assets of a nonmember corporation in a reorganization
described in § 368(a)(1)(A), (C), (D), or
(G) (but, with respect to a reorganization
described in § 368(a)(1)(D) or (G), only
if the requirements of § 354(b)(1)(A) and
(B) are met) or (b) the stock of a nonmember corporation, and the acquisition
was a reverse acquisition described in
§ 1.1502–75(d)(3) of the Income Tax
Regulations in which the terminating
group ceased to exist. If the group that
remains in existence files a consolidated
return, all members of the terminating
group that are includible corporations
must be included in the consolidated
return. See Rev. Rul. 91–70.
.04 Except as provided in section 4.05,
§ 1504(a)(3)(A) does not apply to prevent
the inclusion in a consolidated return of
any corporation that was a member of a
consolidated group (the terminating
group) and that ceased to be a member of
the terminating group solely as a result of
a transaction in which (1) a nonmember
corporation (the acquiring corporation)
acquired (a) the assets of the common
parent of the terminating group in a reorganization described in § 368(a)(1)(A),
(C), (D), or (G) (but, with respect to a
reorganization described in § 368(a)
(1)(D) or (G), only if the requirements of
§ 354(b)(1)(A) and (B) are met) or (b)
stock of the common parent of the terminating group that satisfies the requirements of § 1504(a)(2), (2) immediately
after such acquisition, the acquiring corporation is a member of another affiliated
group (the acquiring group), and (3) subsequent to such acquisition, the common
parent of the acquiring group or a succes-

2002–20 I.R.B.

sor of the common parent of the acquiring
group acquires assets or stock of the
former common parent of the terminating
group or a successor of such former common parent. If the acquiring group files a
consolidated return, the corporation must
be included in the consolidated return,
provided such corporation is an includible
corporation. Cf. Rev. Rul. 91–70.
.05 If a corporation is described in section 4.02, 4.03, or 4.04, and such corporation (or such corporation’s predecessor,
as applicable) (1) was included (or was
required to be included) in a consolidated
return filed (or required to be filed) by an
affiliated group other than the terminating
group (a prior group), (2) ceased to be a
member of such prior group, and (3) subsequently became affiliated with such
prior group (or another affiliated group
with the same common parent or a successor of the common parent of such
prior group) before the 61st month beginning after the first taxable year in which
it or its predecessor ceased to be a member of such group, § 1504(a)(3)(A)
applies to prevent the inclusion of such
corporation in a consolidated return of
such prior group or another affiliated
group with the same common parent or a
successor of the common parent of such
prior group. Accordingly, that corporation
is treated as a deconsolidated corporation
and must comply with the requirements
set forth in section 5 of this revenue procedure (or if it cannot comply with section 5, section 7) to obtain a waiver of
§ 1504(a)(3)(A).
SECTION 5. PROCEDURE FOR A
DECONSOLIDATED CORPORATION
TO REQUEST AN AUTOMATIC
WAIVER UNDER SECTION
1504(a)(3)(B)
To obtain an automatic waiver of
§ 1504(a)(3)(A), the deconsolidated corporation must be included in a timelyfiled consolidated return (including extensions) of the affiliated group with respect
to which the waiver request relates (the
current group), for the taxable year that
includes the date on which such corporation most recently became a member of
such affiliated group. In addition, a statement, filed under penalties of perjury, that
includes the information described in sec-

960

tions 5.01 through 5.14 of this revenue
procedure, which is subject to verification
on examination, as provided by section
6.02 of this revenue procedure, must be
attached to such return.
.01 The following heading typed or
legibly printed at the top of the statement:
“AUTOMATIC WAIVER OF THE
A P P L I C AT I O N
OF
SECTION
1504(a)(3) FILED PURSUANT TO REV.
PROC. 2002–32.”
.02 The name, address, and employer
identification number of the deconsolidated corporation, and the name, address,
and employer identification number of
each corporation, if any, that was a predecessor of such deconsolidated corporation
at any time on or after the date a predecessor of such deconsolidated corporation
ceased to be a member of the current
group (or another affiliated group with
the same common parent or a predecessor
of the common parent of the current
group).
.03 If the common parent of the current group is the common parent of the
group from which the deconsolidated corporation or its predecessor disaffiliated
(the former group), a representation that
such common parent was not an S corporation, an entity disregarded as an entity
separate from its owner, a real estate
investment trust, or a regulated investment company at any time during the
period of disaffiliation. If the common
parent of the current group was not the
common parent of the former group, a
representation that the common parent of
the former group and each successor of
the common parent of the former group
was not an S corporation, an entity disregarded as an entity separate from its
owner, a real estate investment trust, or a
regulated investment company at any
time during the period beginning on the
date of disaffiliation and ending on the
date that such common parent or successor ceased to exist. In addition, if the
common parent of the current group was
not the common parent of the former
group, a representation that the common
parent of the current group was not an S
corporation, an entity disregarded as an
entity separate from its owner, a real
estate investment trust, or a regulated
investment company at any time during
the period beginning on the date that such

May 20, 2002

corporation became a successor of the
common parent of the former group and
ending on the date the deconsolidated
corporation became a member of the current group.
.04 The year in which the current
group elected to file consolidated returns.
.05 The date on which the deconsolidated corporation or its predecessor
ceased to be a member of either the current group or the former group.
.06 The date on which the deconsolidated corporation most recently became a
member of the current group.
.07 A description of the manner by
which the deconsolidated corporation or
its predecessor ceased to be a member of
the current group or the former group and
the manner by which the deconsolidated
corporation became a member of the current group (redemption of stock, new
issuance of stock, etc.). This statement
should include the business purposes of
the transactions that caused the disaffiliation and subsequent affiliation and
describe whether the transactions were
with a related party.
.08 If the common parent of the current group is the common parent of the
former group and the former group
remained in existence throughout the
period of disaffiliation, the taxable
income of the current group for (1) the
taxable year prior to the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
the current group, (2) the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
such group, (3) each taxable year subsequent to the taxable year in which the
deconsolidated corporation or its predecessor ceased to be a member of such
group but before the deconsolidated corporation again became a member of the
current group, and (4) the taxable year in
which the deconsolidated corporation
became a member of the current group.
.09 If the common parent of the current group is the common parent of the
former group and the former group
ceased to exist on or after the date on
which the deconsolidated corporation or
its predecessor ceased to be a member of
the former group and before the date the
deconsolidated corporation became a
member of the current group, the taxable
income of the former group for (1) the

May 20, 2002

taxable year prior to the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
the former group, (2) the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
such group, and (3) each taxable year, if
any, subsequent to the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
such group and during which such group
existed. In addition, (1) the taxable
income of the common parent of the
former group or its successor for each
interim taxable year (as defined herein)
during which such common parent of the
former group was not the common parent
of a consolidated group, (2) the taxable
income of any consolidated group other
than the former group of which the common parent of the former group or its successor was the common parent during any
interim taxable year for each interim taxable year, and (3) the taxable income of
the current group for the taxable year in
which the deconsolidated corporation
became a member of the current group.
For purposes of this section 5.09 and sections 5.10 and 5.11 of this revenue procedure, the term interim taxable year refers
to any taxable year that is subsequent to
the taxable year in which the deconsolidated corporation or its predecessor
ceased to be a member of the former
group but before the taxable year in
which the deconsolidated corporation
became a member of the current group.
.10 If the common parent of the current group is not the common parent of
the former group, the taxable income of
the former group for (1) the taxable year
prior to the taxable year in which the
deconsolidated corporation or its predecessor ceased to be a member of the
former group, (2) the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
such group, and (3) each interim taxable
year, if any, during which such group
existed. In addition, (1) the taxable
income of the common parent of the
former group or its successor for each
interim taxable year during which such
common parent of the former group or its
successor was not the common parent of
a consolidated group, (2) the taxable
income of any consolidated group other
than the former group of which the com-

961

mon parent of the former group or its successor was the common parent during any
interim taxable year for each interim taxable year, and (3) the taxable income of
the current group for the taxable year in
which the deconsolidated corporation
became a member of the current group.
.11 The taxable income, or separate
taxable income (adjusted for the items
that would be taken into account in determining the consolidated net operating
loss attributable to the deconsolidated
corporation under § 1.1502–21(b)(2)(iv)),
as the case may be, of the deconsolidated
corporation or its predecessor, as applicable, for (1) the taxable year prior to the
taxable year in which the deconsolidated
corporation or its predecessor ceased to
be a member of the current group or the
former group, (2) the taxable year in
which the deconsolidated corporation or
its predecessor ceased to be a member of
such group, (3) each interim taxable year,
and (4) the taxable year in which the
deconsolidated corporation became a
member of the current group.
.12 An analysis of the effect of the disaffiliation and the effect of the subsequent
consolidation on the following items of
(a) the deconsolidated corporation and its
predecessor, as applicable, (b) the current
group, and (c) if the current group is not
the group from which the deconsolidated
corporation or its predecessor disaffiliated, the former group or, if the former
group terminated as a result of the disaffiliation or during the period of the disaffiliation, the common parent of the
former group and the members of the
former group (or their successors, if
applicable) with which such common parent (or its successor, as applicable) was
affiliated at any time during the period of
disaffiliation for all periods described in
section 5.11 of this revenue procedure:
(1) Taxable income;
(2) Gains and losses on intercompany
transactions;
(3) Excess loss accounts;
(4) Tax liability;
(5) Net operating loss carryovers;
(6) Capital loss carryovers;
(7) Tax credits; and
(8) Losses deferred pursuant to § 267
(f).
.13 In the case of a consolidated group
of which one or more members are
reporting corporations described in

2002–20 I.R.B.

§ 6038A(a), an analysis of the effect of
the disaffiliation and the effect of the subsequent consolidation on the United
States taxation of any related party within
the meaning of § 6038A(c)(2) (other than
a member of the group). Such analysis
must take into account any transfers of
money or property occurring during the
period of disaffiliation and involving
(directly or indirectly) the deconsolidated
corporation, its predecessors, and any
reporting corporation or related party, if
such transfers are not in the ordinary
course of business.
.14 A representation that the disaffiliation and subsequent consolidation has not
provided and will not provide a benefit of
a reduction in income, increase in loss, or
any other deduction, credit, or allowance
(a federal tax savings) that would not otherwise be secured or have been secured
had the disaffiliation and subsequent consolidation not occurred, including, but not
limited to, the use of a net operating loss
or credit that would have otherwise
expired, or the use of a loss recognized on
a disposition of stock of the deconsolidated corporation or a predecessor of
such corporation. In determining whether
the disaffiliation and subsequent consolidation provided or will provide a federal
tax savings, the net tax consequences to
all parties, taking into account the time
value of money, are considered.
SECTION 6. EFFECT OF WAIVER
.01 A waiver under § 1504(a)(3)(B)
granted pursuant to section 3.01 of this
revenue procedure is binding on the consolidated group that files the statement
required by section 5 of this revenue procedure with a consolidated return and
may not be revoked by such consolidated
group. The waiver is binding as of the
date on which the deconsolidated corporation most recently became a member of
the current group and as long as the
deconsolidated corporation or a successor
of such corporation remains a member of
the current group or another group with a
common parent that is a successor of the
common parent of the current group,
unless permission is granted for the entire
group to cease filing a consolidated
return.
.02 Notwithstanding section 6.01, if
the Service determines that the information provided pursuant to section 5 of this

2002–20 I.R.B.

revenue procedure was incorrect in any
material respect at the time the waiver
request was filed, the Service may revoke
the waiver granted pursuant to this revenue procedure at any time, for all or any
part of the period for which it was
granted.
SECTION 7. DECONSOLIDATED
CORPORATIONS THAT DO NOT
QUALIFY FOR THE AUTOMATIC
WAIVER
If a deconsolidated corporation cannot
qualify for an automatic waiver pursuant
to section 3.01 of this revenue procedure,
a waiver under § 1504(a)(3)(B) may only
be obtained through a letter ruling request
filed in accordance with Rev. Proc.
2002–1 (2002–1 I.R.B. 1) (or similar revenue procedure applicable to a later year).
If the representations described in sections 5.03 and 5.14 of this revenue procedure can be made with respect to such
corporation and the procedures for
obtaining an automatic waiver of the general rule of § 1504(a)(3)(A) are not followed, however, then a private letter ruling can only be obtained to waive the
application of the general rule of
§ 1504(a)(3)(A) for taxable years other
than the taxable year that includes the
date on which § 1504(a)(3)(A) first
applies to prevent such corporation from
being included in the consolidated return.
The letter ruling request must be submitted by the common parent of the affiliated
group of which the deconsolidated corporation becomes a member before the due
date (including extensions) of the consolidated return for the tax year with respect
to which the waiver is requested. The letter ruling request must include the information set forth in section 5 of this revenue procedure. To the extent that the
representations set forth in section 5.03 or
section 5.14 of this revenue procedure
cannot be made, however, the letter ruling
request must: (1) contain information
establishing that federal tax savings (as
described in section 5.14 of this revenue
procedure) was not a purpose of the disaffiliation, and that the amount of any
federal tax savings attributable to the disaffiliation or a subsequent consolidation
is not significant; and (2) state whether
the deconsolidated corporation or a predecessor of such corporation was, at any
time during the period of disaffiliation, in

962

the effective control of any member (or
successor of any member) of the current
group or the former group.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 91–71 (1991–2 C.B. 900) is
clarified, and, as clarified, is superseded.
SECTION 9. EFFECTIVE DATE
This revenue procedure is generally
effective for consolidated returns due
(including extensions) on or after May
20, 2002. Section 7 of this revenue procedure, however, applies to all letter ruling
requests postmarked, or if not mailed,
received, after May 20, 2002. Nonetheless, the Service may ask the taxpayer to
submit information specified in this revenue procedure for any ruling requests
postmarked, or if not mailed, received,
before that date.
SECTION 10. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the
Office of Management and Budget
(OMB) in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–1784.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid OMB control number.
The collections of information in this
revenue procedure are in section 5 and
section 7. This information is required to
determine whether a taxpayer qualifies
for a waiver under this revenue procedure. The collections of information are
required to obtain a benefit. The likely
respondents are corporations that were
formerly members of consolidated groups
and that later join affiliated groups.
The estimated total annual reporting
burden is 100 hours.
The estimated annual burden per
respondent varies from 2 hours to 8
hours, depending on individual circumstances, with an estimated average of 5
hours. The estimated number of respondents is 20.

May 20, 2002

The estimated annual frequency of
responses is on occasion.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue tax law. Generally tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.
SECTION 11. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Vincent Daly of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
procedure, contact Mr. Daly at (202) 622–
7770 (not a toll-free call).

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of
correct tax liability.
(Also Part I, §§ 56, 168, 179, 446, 1400L.)

Rev. Proc. 2002–33
SECTION 1. PURPOSE
This revenue procedure provides procedures for a taxpayer to claim the additional 30 percent depreciation (additional
first year depreciation) provided by
§§ 168(k) and 1400L(b) of the Internal
Revenue Code and other deductions for
qualified property or qualified New York
Liberty Zone (Liberty Zone) property that
the taxpayer did not claim on the taxpayer’s federal tax return filed before June 1,
2002. This revenue procedure also
explains how a taxpayer may elect not to
deduct the additional first year depreciation for qualified property and Liberty
Zone property.
SECTION 2. BACKGROUND
.01 Section 168(k), as added by § 101
of the Job Creation and Worker Assistance Act of 2002 (the Act), Pub. L. No.
107–147, 116 Stat. 21 (March 9, 2002),
and § 1400L(b), as added by § 301(a) of
the Act, generally allow an additional first
year depreciation deduction for qualified
property or Liberty Zone property placed
in service by the taxpayer after September
10, 2001. The term “qualified property” is
defined in § 168(k)(2) and the term “Lib-

May 20, 2002

erty Zone property” is defined in
§ 1400L(b)(2). The additional first year
depreciation deduction is allowed for
both regular tax and alternative minimum
tax purposes for the taxable year in which
the qualified property or Liberty Zone
property is placed in service. If the property is described in both § 168(k) and
§ 1400L(b), only one additional first year
depreciation deduction is allowable for
the property.
.02 The additional first year depreciation deduction generally is determined
without any proration based on the length
of the taxable year in which the qualified
property or Liberty Zone property is
placed in service. The additional first year
depreciation is equal to 30 percent of the
adjusted basis of the qualified property or
Liberty Zone property. The adjusted basis
of this property generally is its cost or
other basis multiplied by the percentage
of business/investment use, reduced by
the amount of any § 179 expense deduction and adjusted to the extent provided
by other provisions of the Code and the
regulations thereunder (for example,
reduced by the amount of the disabled
access credit pursuant to § 44(d)(7)).
.03 Before computing the amount otherwise allowable as a depreciation deduction for the placed-in-service year and
subsequent taxable years, the adjusted
basis of the qualified property or Liberty
Zone property for which the additional
first year depreciation is deductible must
be reduced by the amount of the additional first year depreciation deduction.
The remaining adjusted basis of this property is depreciated using the applicable
depreciation provisions under the Code
for the property (that is, § 167(f)(1) for
computer software and § 168 for other
property). This depreciation deduction for
the remaining adjusted basis of the qualified property or Liberty Zone property for
which the additional first year depreciation is deductible is allowed for both
regular tax and alternative minimum tax
purposes.
.04 The additional first year depreciation must not be deducted for, among
other things: (1) property that is required
to be depreciated under the alternative
depreciation system of § 168(g) pursuant
to § 168(g)(1)(A) through (D) or other
provisions of the Code (for example,
property described in § 263A(e)(2)(A) or

963

§ 280F(b)(1)); (2) property described in
§ 168(f); or (3) any class of property for
which the taxpayer elects not to deduct
the additional first year depreciation (see
section 3 of this revenue procedure for
further details about this election).
.05 Pursuant to §§ 168(k)(2)(C)(ii) and
1400L(b)(2)(C)(iii), Liberty Zone leasehold improvement property (as defined in
§ 1400L(c)(2)) is not eligible for the additional first year depreciation deduction.
However, in accordance with § 1400L(c),
this property is included as 5-year property for purposes of § 168. The straightline method of depreciation is required to
be used under § 168 for Liberty Zone
leasehold improvement property and the
class life for this property for purposes of
the alternative depreciation system of
§ 168(g) is 9 years.
.06 For § 179 property that is Liberty
Zone property, § 1400L(f) increased the
amount a taxpayer may elect to expense
under § 179 by the lesser of (1) $35,000,
or (2) the cost of § 179 property that is
Liberty Zone property placed in service
during the taxable year. Accordingly, the
§ 179 expense deduction that may be
elected for § 179 property that is Liberty
Zone property placed in service by the
taxpayer after September 10, 2001, is
increased (1) to a maximum of $55,000
for a taxable year that began in 2000, and
(2) to a maximum of $59,000 for a taxable year that began in 2001.
SECTION 3. ELECTION NOT TO
DEDUCT ADDITIONAL FIRST YEAR
DEPRECIATION
.01 In General. Pursuant to §§ 168
(k)(2)(C)(iii) and 1400L(b)(2)(C)(iv), a
taxpayer may make an election not to
deduct the additional first year depreciation for any class of property placed in
service during the taxable year. If the taxpayer makes this election, it applies to all
qualified property or Liberty Zone property that is in the same class and placed in
service in the same taxable year. In addition, the depreciation adjustments under
§ 56 apply to that property for purposes
of computing the taxpayer’s alternative
minimum taxable income. The election
not to deduct the additional first year
depreciation for any class of property
placed in service during the taxable year
is made separately by each person owning

2002–20 I.R.B.