IRS limits use of bonus depreciation in 382 RBIG and RBIL calcs

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May 2018

Overview

On May 8, the IRS released Notice 2018-30 (the 2018 Notice) limiting the use of bonus depreciation under Section 168(k) in determinations of recognized built-in gains (RBIG) and recognized built-in losses (RBIL) under Section 382 as provided in Notice 2003-65 (the 2003 Notice). The 2018 Notice is effective for ownership changes occurring after May 8, 2018.

The takeaway

The 2018 Notice resolves questions about the impact of Section 168(k) on a loss corporation’s RBIG and RBIL, preventing bonus depreciation from influencing a loss corporation’s Section 382 limitation. In order to comply with the 2018 Notice, a loss corporation must ignore Section 168(k) in measuring its RBIG and RBIL under the 2003 Notice. However, given the effective date of the 2018 Notice, loss corporations that underwent ownership changes prior to May 9, 2018, may be able to apply Section 168(k) to the hypothetical purchases described in either the Section 338 Approach or the Section 1374 Approach of the 2003 Notice for purposes of determining such corporation’s RBIG or RBIL.

See also:

Notice 2003-65, 2003-2 C.B. 747

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Julie Allen

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