National Business Aviation Association (NBAA) officials said the organization is seeking clarity regarding proposed regulations related to immediate expensing, also referred to as bonus depreciation.
The NBAA recently submitted comments to the IRS on the definition of a written binding contract related to bonus depreciation. Under both the current and proposed immediate expensing regulations, the possibility exists a contract might not be viewed as a written binding agreement if it provides for liquidated damages of less than 5 percent of the contract price in the case of breach by the purchaser or by the seller.
The contract must be a written binding contract to qualify for bonus depreciation treatment.
Officials said the Notice of Proposed Rulemaking followed passage of the Tax Cuts and Jobs Act, signed into law December 2017, which amended Internal Revenue Code 168(k) to provide 100 percent bonus depreciation of both new and used qualifying property acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023, with phase downs until 2027.
“From a policy perspective, the determination of what constitutes a written binding contract should be based on the commitment of the taxpayer claiming bonus depreciation to the expenses and liabilities under the contract,” Scott O’Brien, NBAA senior director of government affairs, said. “So long as that taxpayer is obligated to pay a sufficient amount of damages in case of default, the contract should be viewed as binding.”
NBAA requested officials said in comments to the IRS the organization sought guidance requiring a threshold for liquidated damages apply only to the purchaser.
Since the purchaser is the taxpayer claiming bonus depreciation, the language limiting damages to a specified amount should only apply to purchasers, according to the NBAA.