New depreciation bonus rules will probably be changed this fall through “technical corrections” to the statute | Norton Rose Fulbright
Key staff of the tax-writing committees in Congress and at the US Treasury hope to meet in August — while Congress is away on recess — to make decisions about what technical corrections to make. There is talk at the staff level that too much time may have passed since the depreciation bonus was enacted last March to tighten the rules retroactively. Technical corrections are usually retroactive in effect since they merely clarify what was intended. Therefore, staff are holding out the possibility that the chairmen of the tax-writing committees might introduce a bill in September with the technical corrections that are planned. Any changes that tighten the rules would take effect prospectively from the date the bill is introduced.
Meanwhile, the IRS is working on guidance. The business plan the agency released in July for the next 12 months said guidance would be issued “under section 168 . . . regarding special depreciation allowance.” Charles Ramsey, the IRS branch chief for this area, said a revenue ruling or other guidance is possible as early as October. However, the guidance may not deal with “transition issues,” or the question whether projects on which work straddled September 11, 2001 qualify for the bonus.
Congress enacted the depreciation bonus last March in the hope that it would help stimulate the economy. Any company purchasing new equipment during a window period from September 11 last year through 2004 or 2005 is allowed to claim 30% of the cost as a depreciation deduction in the first year. The remaining 70% of the equipment cost is depreciated normally. The length of the window period depends on the equipment. The deadline for most power plants is 2005. The bonus reduces the cost of a new coal-fired or combined-cycle gas-fired power plant by 5.39%.
Independent power companies submitted 25 fact patterns to the Treasury and IRS in May that they asked be addressed in guidance. A meeting is expected with senior Treasury and IRS officials about the fact patterns in August.