Internal Revenue Bulletin 2019-41 (PDF rendition): IRS Notices

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Bulletin No. 2019–41
October 7, 2019
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REV PROC 2019-35, page 871.
General Rules and Specifications for Substitute Forms and
Schedules. This procedure provides guidelines and general
requirements for the development, printing, and approval of
the 2019 substitute tax forms. This procedure will be repro-
duced as the next revision of Publication 1167. Rev. Proc.
2018-51 is superseded.
EMPLOYEE PLANS
TD 9875, page 856.
These final regulations amend the current regulations under
§ 401(k) relating to hardship distributions. Section 41113 of
the Bipartisan Budget Act of 2018 (BBA) directs the Secre-
tary to remove the requirement in the current regulations that
an employee’s plan contributions be suspended for at least
6 months following a hardship distribution from the plan. The
amendments conform the regulations with § 41113 and up-
date the regulations to reflect BBA § 41114 and certain oth-
er statutory changes to 401(k) plans.
NOT 2019-51, page 866.
This notice sets forth updates on the corporate bond month-
ly yield curve, the corresponding spot segment rates for
September 2019 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for September 2019, and
the 30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).
EMPLOYMENT TAX
AOD 2019-2, page 806.
In Union Pacific Railroad Company v. United States, 865 F.3d
1045 (8th Cir. 2017), rev’g No. 8:14CV237 (D. Neb. July 1,
2016), the Eighth Circuit held that lump-sum payments paid
to unionized employees upon ratification of collective bar-
gaining agreements (“ratification payments”) are not taxable
compensation under the RRTA. In Union Pacific, the Eighth
Circuit declined to follow Soc. Sec. Bd. v. Nierotko, 327 U.S.
358 (1946), and other cases following it that have broad-
ly defined payment for services under FICA. The Supreme
Court subsequently rejected the same reasoning in reversing
the Eighth Circuit’s opinion in BNSF Ry. Co. v. Loos, 139
S.Ct. 893 (2019), and instead emphasized the parallels be-
tween the FICA and the RRTA schemes. This AOD provides
that Union Pacific’s holding on ratification payments has been
superseded by the Supreme Court analysis in Loos.
INCOME TAX
REV RUL 2019-23, page 807.
Federal rates; adjusted federal rates; adjusted federal long-
term rate, the long-term exempt rate, and the blended annual
rate. For purposes of sections 382, 1274, 1288, 7872 and
other sections of the Code, tables set forth the rates for
October 2019.
TD 9874, page 809.
This Treasury Decision provides guidance regarding the addi-
tional first year depreciation deduction under section 168(k)
and reflects changes to section 168(k) by the Tax Cuts and
Jobs Act.
NOT 2019-52, page 869.
In response to the devastation caused by the 2018 Califor-
nia Wildfires to Butte, Los Angeles, and Ventura counties in
the State of California, this notice expands the emergency
housing and compliance monitoring relief provided in Rev.
Proc. 2014-49, 2014-37 I.R.B. 535, and Rev. Proc. 2014-
50, 2014-37 I.R.B. 540. The expanded relief in this notice is
limited to the CA Wildfires Major Disaster (as defined in the
notice). This notice also solicits public comment regarding
any desirable amendments to Rev. Proc. 2014-49 and Rev.
Proc. 2014-50.
Finding Lists begin on page ii.

REG-106808-19, page 912.
These proposed regulations provide guidance regarding the
additional first year depreciation deduction under section
168(k), as amended by the Tax Cuts and Jobs Act. This doc-
ument proposes rules regarding (i) property not eligible for
the additional first year depreciation deduction, (ii) a de min-
imus use rule for determining whether a taxpayer previously
used property, (iii) application of the used property acquisi-
tion requirements to partnerships, (iv) an election to allow the
additional first year depreciation deduction for certain com-
ponents of larger self-constructed property, (v) computation
of the additional first year depreciation deduction for certain
property having longer production periods, (vi) the mid-quar-
ter convention, (vii) the definition of binding contract in the
context of a business acquisition, and (viii) application of the
acquisition requirements to property not acquired pursuant
to a written binding contract.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
October 7, 2019 Bulletin No. 2019–41

Part 0
Actions Relating to
Decisions of the Tax Court
It is the policy of the Internal Reve-
nue Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions. Prior to 1991, the
Service published acquiescence or non-
acquiescence only in certain regular Tax
Court opinions. The Service has expanded
its acquiescence program to include other
civil tax cases where guidance is deter-
mined to be helpful. Accordingly, the Ser-
vice now may acquiesce or nonacquiesce
in the holdings of memorandum Tax Court
opinions, as well as those of the United
States District Courts, Claims Court, and
Circuit Courts of Appeal. Regardless of
the court deciding the case, the recom-
mendation of any Action on Decision will
be published in the Internal Revenue
Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquiescence”
and “acquiescence in result only” mean
that the Service accepts the holding of the
court in a case and that the Service will
follow it in disposing of cases with the
same controlling facts. However, “acqui-
escence” indicates neither approval nor
disapproval of the reasons assigned by the
court for its conclusions; whereas, “acqui-
escence in result only” indicates disagree-
ment or concern with some or all of those
reasons. “Nonacquiescence” signifies that,
although no further review was sought,
the Service does not agree with the hold-
ing of the court and, generally, will not
follow the decision in disposing of cases
involving other taxpayers. In reference to
an opinion of a circuit court of appeals, a
“nonacquiescence” indicates that the Ser-
vice will not follow the holding on a na-
tionwide basis. However, the Service will
recognize the precedential impact of the
opinion on cases arising within the venue
of the deciding circuit.
The Commissioner does NOT ACQUI-
ESCE in the following decision:
Union Pacific Railroad Company v.
United States,
1

865 F.3d 1045 (8th Cir. 2017), rev’g
No. 8:14CV237 (D. Neb. July 1, 2016)
1
In Union Pacific Railroad Company v. United States, 865 F.3d 1045 (8th Cir. 2017), rev’g No. 8:14CV237 (D. Neb. July 1, 2016), the Eighth Circuit held that lump-sum payments paid
to unionized employees upon ratification of collective bargaining agreements (“ratification payments”) are not taxable compensation under the RRTA. In Union Pacific, the Eighth Circuit
declined to follow Soc. Sec. Bd. v. Nierotko, 327 U.S. 358 (1946), and other cases following it that have broadly defined payment for services under FICA. The Supreme Court subsequently
rejected the same reasoning in reversing the Eighth Circuit’s opinion in BNSF Ry. Co. v. Loos, 139 S.Ct. 893 (2019), and instead emphasized the parallels between the FICA and the RRTA
schemes. This AOD provides that Union Pacific’s holding on ratification payments has been superseded by the Supreme Court analysis in Loos.
October 7, 2019 806 Bulletin No. 2019–41

Part I
Section 1274.—Determination of Issue
Price in the Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 467, 468,
482, 483, 1288, 7520, 7872.)
Rev. Rul. 2019-23
This revenue ruling provides various
prescribed rates for federal income tax
purposes for October 2019 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable feder-
al rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. Howev-
er, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, shall not be less than 9%. Final-
ly, Table 5 contains the federal rate for de-
termining the present value of an annuity,
an interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
REV. RUL. 2019-23 TABLE 1
Applicable Federal Rates (AFR) for October 2019
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR 1.69%1.68%1.68% 1.67%
110% AFR 1.86%1.85%1.85%1.84%
120% AFR 2.03%2.02%2.01%2.01%
130% AFR 2.19%2.18%2.17%2.17%
Mid-term
AFR1.51%1.50%1.50%1.50%
110% AFR1.66%1.65%1.65%1.64%
120% AFR1.81%1.80%1.80%1.79%
130% AFR1.96%1.95%1.95%1.94%
150% AFR2.26%2.25%2.24%2.24%
175% AFR2.65%2.63%2.62%2.62%
Long-term
AFR1.86% 1.85%1.85%1.84%
110% AFR2.05%2.04%2.03%2.03%
120% AFR2.23%2.22%2.21%2.21%
130% AFR2.42%2.41%2.40%2.40%
REV. RUL. 2019-23 TABLE 2
Adjusted AFR for October 2019
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted AFR 1.28%1.28%1.28%1.28%
Mid-term adjusted AFR1.14%1.14%1.14%1.14%
Long-term adjusted AFR 1.40%1.40%1.40%1.40%
Bulletin No. 2019–41 807 October 7, 2019

October 7, 2019 808 Bulletin No. 2019–41
REV. RUL. 2019-23 TABLE 3
Rates Under Section 382 for October 2019
Adjusted federal long-term rate for the current month1.40%
Long-term tax-exempt rate for ownership changes during the current month (the highest of
the adjusted federal long-term rates for the current month and the prior two months.)
1.77%
REV. RUL. 2019-23 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for October 2019
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.39%
Appropriate percentage for the 30% present value low-income housing credit 3.17%
REV. RUL. 2019-23 TABLE 5
Rate Under Section 7520 for October 2019
Applicable federal rate for determining the present value of an annuity, an interest for life or
a term of years, or a remainder or reversionary interest
1.8%
Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of October 2019. See
Rev. Rul. 2019-23, page 807.

Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2019. See Rev. Rul. 2019-23, page 807.

Section 7520.—Valuation
Tables
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Section 7872.—Treatment
of Loans With Below-
Market Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2019. See Rev. Rul. 2019-23, page 807.

Bulletin No. 2019–41 809 October 7, 2019
26 CFR 1.168(k)-2
T.D. 9874
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Additional First Year
Depreciation Deduction
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that provide guidance
regarding the additional first year depre-
ciation deduction under section 168(k) of
the Internal Revenue Code (Code). The
final regulations reflect and clarify the in-
crease of the benefit and expansion of the
universe of qualifying property, particu-
larly to certain classes of used property,
authorized by the Tax Cuts and Jobs Act.
The final regulations affect taxpayers who
deduct depreciation for qualified property
acquired and placed in service after Sep-
tember 27, 2017.
DATES: Effective date: These regulations
are effective on September 24, 2019.
Applicability date: For dates of applica-
bility, see §§1.48-12(a)(2)(i), 1.167(a)-
14(e)(3), 1.168(b)-1(b)(2), 1.168(d)-
1(d)(2), 1.168(i)-4(g)(2), 1.168(i)-6(k)
(4), 1.168(k)-2(h), 1.169-3(g), 1.179-6,
1.312-15(e), 1.704-1(b)(1)(ii)(a), 1.704-
3(f), and 1.743-1(l). A taxpayer may
choose to apply these final regulations,
in their entirety, to qualified property ac-
quired and placed in service or planted
or grafted, as applicable, after September
27, 2017, by the taxpayer during taxable
years ending on or after September 28,
2017, provided the taxpayer consistent-
ly applies all rules in these final regula-
tions. Additionally, a taxpayer may rely
on the proposed regulations under sec-
tion 168(k) in regulation project REG-
104397-18 (2018-41 I.R.B. 558), for
qualified property acquired and placed
in service or planted or grafted, as appli-
cable, after September 27, 2017, by the
taxpayer during taxable years ending on
or after September 28, 2017, and ending
before September 24, 2019.
FOR FURTHER INFORMATION CON-
TACT: Elizabeth R. Binder or Kathleen
Reed at (202) 317-7005 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under section 168(k). On August
8, 2018, the Department of the Treasury
(Treasury Department) and the IRS pub-
lished a notice of proposed rulemaking
(REG-104397-18) in the Federal Reg-
ister (83 FR 39292) containing pro-
posed regulations under section 168(k)
(the August Proposed Regulations). The
Summary of Comments and Explana-
tion of Revisions section summarizes
the provisions of section 168(k) and the
provisions of the August Proposed Reg-
ulations, which are explained in greater
detail in the preamble to the August Pro-
posed Regulations.
The Treasury Department and the IRS
received written and electronic comments
responding to the August Proposed Reg-
ulations and held a public hearing on the
proposed regulations on November 28,
2018. After full consideration of the com-
ments received on the August Proposed
Regulations and the testimony heard at
the public hearing, this Treasury decision
adopts the August Proposed Regulations
with modifications in response to certain
comments and testimony, as described in
the Summary of Comments and Explana-
tion of Revisions section. Concurrently
with the publication of these final regu-
lations, the Treasury Department and the
IRS are publishing in the Proposed Rule
section of this edition of the Federal Reg-
ister a notice of proposed rulemaking pro-
viding, also in response to the above-cited
comments and testimony, additional pro-
posed regulations under section 168(k)
(REG-106808-19).
Summary of Comments and
Explanation of Revisions
The Treasury Department and the IRS
received comments from approximately
20 commenters in response to the August
Proposed Regulations. All comments were
considered and are available at https://
www.regulations.gov or upon request.
The comments addressing the August Pro-
posed Regulations are summarized in this
Summary of Comments and Explanation
of Revisions section.
Section 168(k) was amended on De-
cember 22, 2017, by sections 12001(b)
(13), 13201, and 13204 of the Tax Cuts
and Jobs Act, Public Law 115-97 (131
Stat. 2054) (the “Act”). Because of these
amendments, the August Proposed Regu-
lations and these final regulations update
existing regulations in §1.168(k)-1 by
providing a new section at §1.168(k)-2
for property acquired and placed in ser-
vice after September 27, 2017, and make
conforming amendments to the existing
regulations.
As discussed in the preamble to the
August Proposed Regulations, the Au-
gust Proposed Regulations and these fi-
nal regulations describe and clarify the
statutory requirements that must be met
for depreciable property to qualify for the
additional first year depreciation deduc-
tion provided by section 168(k). Further,
the August Proposed Regulations and
these final regulations provide guidance
to taxpayers in determining the additional
first year depreciation deduction and the
amount of depreciation otherwise allow-
able for this property.
Part I of this section provides an over-
view of section 168(k). Part II of this sec-
tion addresses the operational rules. Part
III of this section addresses the compu-
tation of the additional first year depre-
ciation deduction and the elections under
section 168(k). Part IV addresses the spe-
cial rules for certain situations described
in §1.168(k)-2(g) of the final regulations
(§1.168(k)-2(f) of the August Proposed
Regulations).
I. Overview
Section 167(a) allows as a depreciation
deduction a reasonable allowance for the
exhaustion, wear and tear, and obsoles-

October 7, 2019 810 Bulletin No. 2019–41
cence of property used in a trade or busi-
ness or of property held for the production
of income. The depreciation deduction al-
lowable for tangible depreciable property
placed in service after 1986 generally is
determined under the Modified Acceler-
ated Cost Recovery System provided by
section 168 (MACRS property). The de-
preciation deduction allowable for com-
puter software that is placed in service
after August 10, 1993, and is not an amor-
tizable section 197 intangible, is deter-
mined under section 167(f)(1).
Section 168(k) was added to the Code
by section 101 of the Job Creation and
Worker Assistance Act of 2002, Pub-
lic Law 107-147 (116 Stat. 21). Section
168(k) allows an additional first year de-
preciation deduction in the placed-in-ser-
vice year of qualified property. Subsequent
amendments to section 168(k) increased
the percentage of the additional first year
depreciation deduction from 30 percent
to 50 percent (to 100 percent for prop-
erty acquired and placed in service after
September 8, 2010, and generally before
January 1, 2012), extended the placed-in-
service date generally through December
31, 2019, and made other changes.
Section 168(k), prior to amendment by
the Act, allowed an additional first year
depreciation deduction for the placed-in-
service year equal to 50 percent of the
adjusted basis of qualified property. Qual-
ified property was defined in part as prop-
erty the original use of which begins with
the taxpayer; that is, the property had to be
new property.
Section 13201 of the Act made sever-
al amendments to the allowance for ad-
ditional first year depreciation deduction
in section 168(k). For example, the ad-
ditional first year depreciation deduction
percentage is increased from 50 to 100
percent. In addition, the property eligible
for the additional first year depreciation
deduction is expanded to include certain
used depreciable property and certain
film, television, or live theatrical produc-
tions. Also, the placed-in-service date is
extended from before January 1, 2020, to
before January 1, 2027 (from before Jan-
uary 1, 2021, to before January 1, 2028,
for longer production period property or
certain aircraft property described in sec-
tion 168(k)(2)(B) or (C)). A final example
of the amendments by the Act to section
168(k) is the date on which a specified
plant is planted or grafted by the taxpayer
is extended from before January 1, 2020,
to before January 1, 2027.
Section 168(k), as amended by the Act,
allows a 100-percent additional first year
depreciation deduction for qualified prop-
erty acquired and placed in service after
September 27, 2017, and placed in service
before January 1, 2023 (before January 1,
2024, for longer production period prop-
erty or certain aircraft property described
in section 168(k)(2)(B) or (C)). If a tax-
payer elects to apply section 168(k)(5),
the 100-percent additional first year de-
preciation deduction also is allowed for
a specified plant planted or grafted after
September 27, 2017, and before January
1, 2023. The 100-percent additional first
year depreciation deduction is decreased
by 20 percentage points annually for qual-
ified property placed in service, or a speci-
fied plant planted or grafted, after Decem-
ber 31, 2022 (after December 31, 2023,
for longer production period property or
certain aircraft property described in sec-
tion 168(k)(2)(B) or (C)).
Section 168(k)(2)(A), as amended by
the Act, defines “qualified property” as
meaning, in general, property (1) to which
section 168 applies that has a recovery pe-
riod of 20 years or less, (2) which is com-
puter software as defined in section 167(f)
(1)(B), for which a deduction is allowable
under section 167(a) without regard to
section 168(k), (3) which is water utility
property, (4) which is a qualified film or
television production as defined in sec-
tion 181(d), for which a deduction would
have been allowable under section 181
without regard to section 181(a)(2) or (g)
or section 168(k), or (5) which is a qual-
ified live theatrical production as defined
in section 181(e), for which a deduction
would have been allowable under section
181 without regard to section 181(a)(2) or
(g) or section 168(k). “Qualified proper-
ty” also is defined in section 168(k)(2)(A)
as meaning property, the original use of
which begins with the taxpayer or the ac-
quisition of which by the taxpayer meets
the requirements of section 168(k)(2)(E)
(ii); and which is placed in service by the
taxpayer before January 1, 2027. Section
168(k)(2)(E)(ii) requires that the acquired
property was not used by the taxpayer at
any time prior to such acquisition and the
acquisition of such property meets the re-
quirements of section 179(d)(2)(A), (B),
and (C) and section 179(d)(3).
However, section 168(k)(2)(D) pro-
vides that qualified property does not in-
clude any property to which the alternative
depreciation system specified in section
168(g) applies, determined without regard
to section 168(g)(7) (relating to election to
have the alternative depreciation system
apply), and after application of section
280F(b) (relating to listed property with
limited business use).
Section 13201(h) of the Act provides
the effective dates of the amendments to
section 168(k) made by section 13201
of the Act. Except as provided in section
13201(h)(2) of the Act, section 13201(h)
(1) of the Act provides that these amend-
ments apply to property acquired and
placed in service after September 27,
2017. However, property is not treated as
acquired after the date on which a written
binding contract, as defined in §1.168(k)-
2(b)(5)(iii) of these final regulations, is
entered into for such acquisition. Section
13201(h)(2) provides that the amend-
ments apply to specified plants planted or
grafted after September 27, 2017.
Additionally, section 12001(b)(13) of
the Act repealed section 168(k)(4) (relat-
ing to the election to accelerate alternative
minimum tax credits in lieu of the addi-
tional first year depreciation deduction)
for taxable years beginning after Decem-
ber 31, 2017. Further, section 13204(a)(4)
(B)(ii) repealed section 168(k)(3) (relating
to qualified improvement property) for
property placed in service after December
31, 2017.
Unless otherwise indicated, all ref-
erences to section 168(k) hereinafter are
references to section 168(k) as amended
by the Act.
II. Operational Rules
A. Eligibility Requirements for
Additional First Year Depreciation
Deduction
The August Proposed Regulations
and these final regulations follow section
168(k)(2) and section 13201(h) of the Act
to provide that depreciable property must
meet four requirements to be qualified
property. These requirements are (1) the

Bulletin No. 2019–41 811 October 7, 2019
depreciable property must be of a speci-
fied type; (2) the original use of the de-
preciable property must commence with
the taxpayer or used depreciable property
must meet the acquisition requirements of
section 168(k)(2)(E)(ii); (3) the deprecia-
ble property must be placed in service by
the taxpayer within a specified time pe-
riod or must be planted or grafted by the
taxpayer before a specified date; and (4)
the depreciable property must be acquired
by the taxpayer after September 27, 2017.
The written and electronic comments that
the Treasury Department and the IRS re-
ceived with respect to each of these re-
quirements are discussed below.
B. Property of a Specified Type
1. Property Eligible for the Additional
First Year Depreciation Deduction
a. In General
The August Proposed Regulations and
these final regulations follow the defini-
tion of qualified property in section 168(k)
(2)(A)(i) and (k)(5) and provide that quali-
fied property must be one of the following:
(1) MACRS property that has a recovery
period of 20 years or less; (2) computer
software as defined in, and depreciated
under, section 167(f)(1); (3) water utility
property as defined in section 168(e)(5)
and depreciated under section 168; (4) a
qualified film or television production as
defined in section 181(d) and for which
a deduction would have been allowable
under section 181 without regard to sec-
tion 181(a)(2) and (g) or section 168(k);
(5) a qualified live theatrical production as
defined in section 181(e) and for which a
deduction would have been allowable un-
der section 181 without regard to section
181(a)(2) and (g) or section 168(k); or
(6) a specified plant as defined in section
168(k)(5)(B) and for which the taxpay-
er has made an election to apply section
168(k)(5).
b. Qualified Improvement Property
The August Proposed Regulations and
these final regulations provide that qual-
ified property also includes qualified im-
provement property that is acquired by
the taxpayer after September 27, 2017,
and placed in service by the taxpayer after
September 27, 2017, and before January
1, 2018. Multiple commenters requested
clarification that qualified improvement
property placed in service after 2017
also is qualified property eligible for the
additional first year depreciation deduc-
tion. Another commenter requested that
the IRS not challenge or audit taxpayers
that treat qualified improvement proper-
ty placed in service after 2017 as 15-year
property eligible for the additional first
year depreciation deduction.
For property placed in service after
December 31, 2017, section 13204 of the
Act amended section 168(k) to eliminate
qualified improvement property as a spe-
cific category of qualified property, and
amended section 168(e) to eliminate the
15-year MACRS property classification
for qualified leasehold improvement prop-
erty, qualified restaurant property, and
qualified retail improvement property. The
legislative history of section 13204 of the
Act provides that the MACRS recovery
period is 15 years for qualified improve-
ment property. Conf. Rep. No. 115-466,
at 367 (2017). However, section 168(e),
as amended by section 13204 of the Act,
does not classify qualified improvement
property as having a recovery period of
20 years or less. Consequently, a legisla-
tive change must be enacted to provide for
a recovery period of 20 years or less for
qualified improvement property placed in
service after 2017 to be qualified proper-
ty. Accordingly, the Treasury Department
and the IRS decline to adopt these com-
ments.
c. Qualified Restaurant Property and
Qualified Retail Improvement Property
The August Proposed Regulations
and these final regulations provide that
MACRS property with a recovery period
of 20 years or less includes the following
MACRS property that is acquired by the
taxpayer after September 27, 2017, and
placed in service by the taxpayer after
September 27, 2017, and before January
1, 2018: (1) Qualified leasehold improve-
ment property; (2) qualified restaurant
property that is qualified improvement
property; and (3) qualified retail improve-
ment property. One commenter requested
clarification that qualified retail improve-
ment property, and qualified restaurant
property that is qualified improvement
property, also are qualified property eligi-
ble for the additional first year deprecia-
tion deduction. In making this request, the
Treasury Department and the IRS assume
the commenter is concerned about such
property that is placed in service after
2017.
For property placed in service after
December 31, 2017, section 13204 of the
Act amended section 168(e) to eliminate
the 15-year MACRS property classifica-
tions for qualified leasehold improvement
property, qualified restaurant property,
and qualified retail improvement property.
Because these property classifications are
no longer in effect for property placed in
service after 2017, the Treasury Depart-
ment and the IRS decline to adopt this
comment.
d. Qualified Film, Television, or Live
Theatrical Production
Consistent with section 168(k)(2)(A)(i)
(IV) and (V), the August Proposed Reg-
ulations provide that qualified property
includes a qualified film or television pro-
duction, or a qualified live theatrical pro-
duction, for which a deduction would have
been allowable under section 181 without
regard to section 181(a)(2) and (g), or
section 168(k). One commenter request-
ed guidance on when a qualified film had
to be produced by an unrelated party so
that a taxpayer acquiring the film now can
claim additional first year depreciation. In
making this request, the Treasury Depart-
ment and the IRS assume the commenter
interpreted the rule as allowing the addi-
tional first year depreciation deduction
for a used film production. Another com-
menter requested clarification on whether
a used film or television production qual-
ifies for the additional first year deprecia-
tion deduction. These requests involve the
interaction of sections 168(k) and 181.
Section 181 allows a taxpayer to elect
to deduct up to $15 million of the aggre-
gate production costs of a qualified film,
television, or live theatrical production
for the taxable year in which the costs are
paid or incurred by the taxpayer instead
of capitalizing the costs and recovering
such costs through depreciation deduc-
tions. See §1.181-1(a)(1). Pursuant to

October 7, 2019 812 Bulletin No. 2019–41
§1.181-1(a)(3), production costs do not
include the cost of obtaining a production
after its initial release or broadcast. Fur-
ther, §1.181-1(a)(1) provides that only
an owner of the qualified film or televi-
sion production is eligible to a make a
section 181 election. Section 1.181-1(a)
(2)(i) defines an owner, for purposes
of §§1.181-1 through -6, as any per-
son that is required under section 263A
to capitalize the costs of producing the
production into the cost basis of the pro-
duction, or that would be required to do
so if section 263A applied to that person.
Pursuant to §1.181-1(a)(2)(ii), a person
that acquires a finished or partially-fin-
ished production is treated as an owner
of that production for purposes §§1.181-
1 through -6, but only if the production
is acquired prior to its initial release or
broadcast. Section 1.181-1(a)(7) defines
initial release or broadcast, for purposes
of §§1.181-1 through 1.181-6, as the first
commercial exhibition or broadcast of a
production to an audience.
The Treasury Department and the
IRS agree that clarification is needed on
whether section 168(k) applies to a used
qualified film, television, or live theatrical
production. The deduction which would
have been allowable under section 181
and §§1.181-1 through1.181-6 for a quali-
fied film, television, or live theatrical pro-
duction is only for production costs paid
or incurred by an owner of the qualified
film or television production prior to its
initial release or broadcast or by an owner
of the qualified live theatrical production
prior to its initial live staged performance.
Accordingly, section 168(k) does not ap-
ply to a used qualified film, television, or
live theatrical production (that is, such
production acquired after its initial release
or broadcast, or after its initial live staged
performance, as applicable). However, the
final regulations clarify that only produc-
tion costs of the qualified film, television,
or live theatrical production for which a
deduction would have been allowable un-
der section 181 and the regulations under
section 181 are eligible for the additional
first year depreciation deduction. The final
regulations also clarify that the owner, as
defined in §1.181-1(a)(2), of the qualified
film, television, or live theatrical produc-
tion is the only taxpayer eligible to claim
the additional first year depreciation for
such production and must be the taxpayer
that places such production in service.
A commenter requested clarification
that a licensee may deduct the additional
first year depreciation for the cost of ac-
quiring a license to a qualified film (for
example, the cost of acquiring a license
of video on demand rights for a limited
term or the cost of acquiring a license of
rights in a foreign country for a limited
term). As stated in the preceding para-
graphs, only the owner of the qualified
film, television, or live theatrical produc-
tion is eligible to make a section 181 elec-
tion. Section 1.181-1(a)(2)(ii) provides
that a person that acquires only a limited
license or right to exploit a production is
not an owner of a production for purposes
of §§1.181-1 through 1.181-6. Therefore,
for the reasons stated above, the Treasury
Department and the IRS decline to adopt
this comment.
One commenter suggested that the fi-
nal regulations clarify when a qualified
film, television, or live theatrical pro-
duction had to be produced to be eligible
for the additional first year depreciation
deduction. Section 181 is effective for a
qualified film or television production
commencing after October 22, 2004, and
for a qualified live theatrical production
commencing after December 31, 2015.
Because this suggestion concerns the ef-
fective dates of section 181, the sugges-
tion is beyond the scope of these final
regulations. Accordingly, the Treasury
Department and the IRS decline to adopt
this suggestion.
2. Property Not Eligible for the
Additional First Year Depreciation
Deduction
a. In General
The August Proposed Regulations and
these final regulations provide that quali-
fied property does not include (1) proper-
ty excluded from the application of sec-
tion 168 as a result of section 168(f); (2)
property that is required to be depreciated
under the alternative depreciation system
of section 168(g) (ADS); (3) any class of
property for which the taxpayer elects not
to deduct the additional first year depreci-
ation under section 168(k)(7); (4) a speci-
fied plant placed in service by the taxpay-
er in the taxable year and for which the
taxpayer made an election to apply section
168(k)(5) for a prior year under section
168(k)(5)(D); (5) any class of property for
which the taxpayer elects to apply section
168(k)(4), as in effect before the enact-
ment of the Act, to property placed in ser-
vice in any taxable year beginning before
January 1, 2018; or (6) property described
in section 168(k)(9)(A) or (B).
b. Property Required to Be Depreciated
Under the ADS
Property described in section 168(g)(1)
(A), (B), (C), (D), (F), or (G) is required
to be depreciated under the ADS. In ad-
dition, other provisions of the Code re-
quire property to be depreciated under the
ADS. For example, property described in
section 263A(e)(2)(A) if the taxpayer or
any related person (as defined in section
263A(e)(2)(B)) has made an election un-
der section 263A(d)(3), and property de-
scribed in section 280F(b)(1) is required
to be depreciated under the ADS.
The Treasury Department and the IRS
are aware that taxpayers and practitioners
have questioned whether using the ADS
to determine the adjusted basis of the tax-
payer’s qualified business asset invest-
ment pursuant to section 250(b)(2)(B) or
951A(d)(3) causes the taxpayer’s tangible
property to be ineligible for the additional
first year depreciation deduction. The final
regulations clarify that it does not make
that property ineligible for the additional
first year depreciation deduction. The final
regulations also clarify that using the ADS
to determine the adjusted basis of the tax-
payer’s tangible assets for allocating busi-
ness interest expense between excepted and
non-excepted trades or businesses under
section 163(j) does not make that property
ineligible for the additional first year depre-
ciation deduction. In both instances, how-
ever, this rule does not apply if the property
is required to be depreciated under the ADS
pursuant to section 168(g)(1)(A), (B), (C),
(D), (F), or (G), or other provisions of the
Code other than section 163(j), 250(b)(2)
(B), or 951A(d)(3).
If section 168(h)(6) applies (property
owned by partnerships treated as tax-ex-
empt use property), the Treasury Depart-
ment and the IRS also are aware that tax-
payers and practitioners have questioned

Bulletin No. 2019–41 813 October 7, 2019
whether only the tax-exempt entity’s
proportionate share of the property or the
entire property is not eligible for the addi-
tional first year depreciation deduction. If
section 168(h)(6) applies, section 168(h)
(6)(A) provides that the tax-exempt en-
tity’s proportionate share of the proper-
ty is treated as tax-exempt use property.
Accordingly, the final regulations clarify
that only the tax-exempt entity’s propor-
tionate share of the property is described
in section 168(g)(1)(B) and is not eligible
for the additional first year depreciation
deduction.
c. Property Described in
Section 168(k)(9)
i. In General
Consistent with section 168(k)(9)(A),
the August Proposed Regulations and
these final regulations provide that quali-
fied property does not include any proper-
ty that is primarily used in a trade or busi-
ness described in section 163(j)(7)(A)(iv).
Further, consistent with section 168(k)
(9)(B), the August Proposed Regulations
and these final regulations provide that
qualified property does not include any
property used in a trade or business that
has had floor plan financing indebtedness
if the floor plan financing interest related
to such indebtedness is taken into account
under section 168(j)(1)(C). Because sec-
tion 163(j) applies to taxable years begin-
ning after December 31, 2017, the August
Proposed Regulations and these final reg-
ulations also provide that these exclusions
from the additional first year depreciation
deduction apply to property placed in ser-
vice in any taxable year beginning after
December 31, 2017. The August Proposed
Regulations did not provide any further
guidance under section 168(k)(9).
Several commenters requested guid-
ance on whether a taxpayer that leases
property to a trade or business described
in section 168(k)(9) is eligible to claim
the additional first year depreciation for
the property. Concurrently with the pub-
lication of these final regulations, the
Treasury Department and the IRS are pub-
lishing elsewhere in this issue of the Fed-
eral Register proposed regulations under
section 168(k) (REG-106808-19) that ad-
dress these comments.
ii. Property Described in Section
168(k)(9)(A) (Regulated Public Utility
Property)
The Treasury Department and the IRS
are aware that taxpayers and practitioners
have questioned how to determine wheth-
er property is primarily used in a trade or
business described in section 168(k)(9)
(A). Concurrently with the publication of
these final regulations, the Treasury De-
partment and the IRS are publishing else-
where in this issue of the Federal Reg-
ister proposed regulations under section
168(k) (REG-106808-19) that address this
question.
Several commenters requested guid-
ance on whether property acquired before
September 28, 2017, by a trade or busi-
ness described in section 168(k)(9)(A) is
eligible for the additional first year de-
preciation deduction provided by section
168(k) as in effect before the enactment
of the Act. This comment is related to the
comment discussed in part II(D)(3) of
this Summary of Comments and Expla-
nation of Revisions section regarding the
election provided in section 3.02(2)(b) of
Rev. Proc. 2011-26 (2011-16 I.R.B. 664).
Concurrently with the publication of these
final regulations, the Treasury Department
and the IRS are publishing elsewhere in
this issue of the Federal Register pro-
posed regulations under section 168(k)
(REG-106808-19) that address both com-
ments.
Another commenter requested that the
Treasury Department and the IRS change
the position in the August Proposed Regu-
lations so that qualified property does not
include property that is primarily used in a
trade business described in section 168(k)
(9)(A), acquired after September 27,
2017, and placed in service before January
1, 2018. The commenter asserted that the
definition of a trade or business in section
163(j)(7)(A)(iv) is not new, and regulated
public utility companies were not expect-
ing such property to be eligible for the
additional first year depreciation deduc-
tion. The definition of a trade or business
under section 163(j)(7)(A)(iv) is outside
the scope of these final regulations. Fur-
ther, because section 163(j) applies to tax-
able years beginning after December 31,
2017, the Treasury Department and the
IRS believe that the exclusion of proper-
ty described in section 168(k)(9)(A) from
the additional first year depreciation de-
duction applies to such property placed
in service in taxable years beginning af-
ter December 31, 2017. Accordingly, the
Treasury Department and the IRS decline
to adopt this suggestion.
iii. Property Described in Section
168(k)(9)(B) (Floor Plan Financing
Indebtedness)
A commenter requested guidance on
when floor plan financing interest is “tak-
en into account” for purposes of section
168(k)(9)(B). If section 168(k)(9)(B) ap-
plies for a taxable year, the Treasury De-
partment and the IRS also are aware that
taxpayers and practitioners have ques-
tioned whether “has had floor plan financ-
ing indebtedness” in section 168(k)(9)(B)
means that the additional first year depre-
ciation deduction is not allowed for prop-
erty placed in service by a trade or busi-
ness described in section 168(k)(9)(B) in
any subsequent taxable year. Concurrently
with the publication of these final regula-
tions, the Treasury Department and the
IRS are publishing elsewhere in this issue
of the Federal Register proposed regula-
tions under section 168(k) (REG-106808-
19) that address both matters.
C. New and Used Property
1. New Property
The August Proposed Regulations and
these final regulations generally retain the
original use rules in §1.168(k)-1(b)(3).
Pursuant to section 168(k)(2)(A)(ii), the
August Proposed Regulations and these
final regulations do not provide any date
by which the original use of the property
must commence with the taxpayer.
The August Proposed Regulations and
these final regulations define original use
as meaning the first use to which the prop-
erty is put, whether or not that use corre-
sponds to the use of the property by the
taxpayer. A commenter requested that this
definition be revised to provide that origi-
nal use means the first use of the property
within the United States. The definition
of original use in the August Proposed
Regulations and in §1.168(k)-1(b)(3) is
the same as the definition of such term

October 7, 2019 814 Bulletin No. 2019–41
in the legislative history of the Job Cre-
ation and Worker Assistance Act of 2002,
Public Law 107-147 (116 Stat. 21), that
added section 168(k) to the Code. There
is no indication in the legislative history
of section 13201 of the Act that Congress
intended to change the definition of orig-
inal use. Accordingly, the Treasury De-
partment and the IRS decline to adopt this
comment.
2. Used Property
a. In General
Pursuant to section 168(k)(2)(A)(ii)
and (k)(2)(E)(ii), the August Proposed
Regulations and these final regulations
provide that the acquisition of used prop-
erty is eligible for the additional first year
depreciation deduction if such acquisition
meets the following three requirements:
(1) The property was not used by the tax-
payer or a predecessor at any time prior to
the acquisition; (2) the acquisition of the
property meets the related party and carry-
over basis requirements of section 179(d)
(2)(A), (B), and (C) and §1.179-4(c)(1)
(ii), (iii), and (iv), or §1.179-4(c)(2); and
(3) the acquisition of the property meets
the cost requirements of section 179(d)(3)
and §1.179-4(d).
Several commenters requested a defi-
nition of “predecessor.” One commenter
suggested that the term be limited to a
transfer described in section 381. Anoth-
er commenter suggested that the term be
comprehensively defined, including trans-
actions between partners and partnerships,
or shareholders and corporations. This
commenter also asserted that restrictions
based on use by a predecessor should be
removed because the language is not in
section 168(k).
Besides the used property requirements
in the August Proposed Regulations, the
term “predecessor” is used in the acqui-
sition requirements in the proposed reg-
ulations and in §1.168(k)-1(b)(4). The
Treasury Department and the IRS have
determined that the inclusion of predeces-
sor in both requirements is necessary and
appropriate to prevent abuse by taxpayers
to churn assets. Accordingly, the Treasury
Department and the IRS do not adopt the
suggestion to remove the term “predeces-
sor.”
However, the Treasury Department
and the IRS agree that a definition of pre-
decessor is needed. The final regulations
provide that a predecessor includes (i) a
transferor of an asset to a transferee in a
transaction to which section 381(a) ap-
plies, (ii) a transferor of an asset to a trans-
feree in a transaction in which the trans-
feree’s basis in the asset is determined, in
whole or in part, by reference to the basis
of the asset in the hands of the transfer-
or, (iii) a partnership that is considered as
continuing under section 708(b)(2), (iv)
the decedent in the case of an asset ac-
quired by an estate, or (v) a transferor of
an asset to a trust.
b. Depreciable Interest
The August Proposed Regulations and
these final regulations provide that the
property is treated as used by the taxpayer
or a predecessor at any time prior to acqui-
sition by the taxpayer or predecessor if the
taxpayer or the predecessor had a depre-
ciable interest in the property at any time
prior to such acquisition, whether or not
the taxpayer or the predecessor claimed
depreciation deductions for the property.
i. Definition
A commenter requested a definition of
“depreciable interest” or a clarification
that the term has the meaning as applied
for purposes of section 167. The term “de-
preciable interest” in the August Proposed
Regulations and these final regulations
has the same meaning as that term is used
for purposes of section 167. The proper-
ty must be used in the taxpayer’s trade or
business or held by the taxpayer for the
production of income pursuant to section
167(a). In addition, case law provides that
the person who made the capital invest-
ment in the property is the person entitled
to a return on that capital by means of
claiming a depreciation deduction. Glad-
ding Dry Goods Co. v. Commissioner, 2
B.T.A. 336, 338 (1925). Legal title and
the right of possession are not determina-
tive. Hopkins Partners v. Commissioner,
T.C. Memo. 2009-107 (citing Gladding
Dry Goods, 2 B.T.A. at 338). Instead, the
question is which party actually invested
in the property. Id.
The issue of whether a taxpayer has a
depreciable interest in property generally
arises when a lessor or a lessee makes im-
provements to property. If a lessor makes
improvements at the lessor’s own expense,
the lessor is entitled to depreciation deduc-
tions even though the lessee has the use of
the improvements. Gladding Dry Goods,
2 B.T.A. at 338-339; Hopkins Partners. If
a lessee makes improvements and the title
to the improvements vests immediately in
the lessor, the lessor’s bare legal title does
not preclude the lessee from recovering its
investment in the improvements through
depreciation deductions. Hopkins Part-
ners; see also McGrath v. Commissioner,
T.C. Memo. 2002-231. However, when
the lessee makes improvements as a sub-
stitute for rent, the lessee has no deprecia-
ble interest in the leasehold improvement.
Hopkins Partners (citing Your Health
Club, Inc. v. Commissioner, 4 T.C. 385,
390 (1944), acq., 1945 C.B. 7). Because
the determination of whether a person has
a depreciable interest in the property de-
pends on the facts and circumstances and
concerns whether the property is eligible
for the depreciation deduction under sec-
tion 167, the request is beyond the scope
of these final regulations. Accordingly, the
Treasury Department and the IRS decline
to adopt this comment.
ii. Safe Harbor
The preamble to the August Proposed
Regulations requested comments on
whether a safe harbor should be provided
on how many taxable years a taxpayer or
a predecessor should look back to deter-
mine if the taxpayer or the predecessor
previously had a depreciable interest in
the property. Multiple commenters made
suggestions. One commenter suggested a
look-back period of five years from the
placed-in-service date of the property,
with a rebuttable presumption that neither
the taxpayer nor a predecessor held a de-
preciable interest in the property prior to
the 5-year period. Other commenters sug-
gested a look-back period of three years,
including the current taxable year. An-
other commenter suggested that the prior
use rule apply only to property initially
owned on or after the date of enactment
of the Act and a look-back period that is
the shorter of the applicable recovery pe-

Bulletin No. 2019–41 815 October 7, 2019
riod of the property or 10 years. Another
commenter suggested no look-back period
for used property to be used in the United
States for the first time. Finally, another
commenter suggested the following three
alternatives for determining if property is
previously used by the taxpayer or a pre-
decessor: the prior use or disposition of
the property occurred pursuant to a plan
that included the taxpayer’s reacquisition
of the property; the person possesses actu-
al or constructive knowledge of the prior
use of the property; or provide a look-back
period measured by reference to the prop-
erty’s recovery period, such as the lesser
of the property’s recovery period or a set
number of years.
After considering these suggestions,
the Treasury Department and the IRS have
decided to provide a look-back period of
five calendar years immediately prior to
the taxpayer’s current placed-in-service
year of the property. We believe that five
years is the appropriate number of years
to reduce the potential for churning assets.
Most assets have a recovery period of five
or seven years under section 168(c). In
addition, we believe that this bright-line
test will be easy for both taxpayers and
the IRS to administer. Therefore, the final
regulations provide that to determine if
the taxpayer or a predecessor had a depre-
ciable interest in the property at any time
prior to acquisition, only the five calendar
years immediately prior to the taxpayer’s
current placed-in-service year of the prop-
erty are taken into account. If the taxpayer
and a predecessor have not been in exis-
tence for this entire 5-year period, only the
number of calendar years the taxpayer and
the predecessor have been in existence is
taken into account.
iii. Used in the United States for the First
Time
A commenter requested the August
Proposed Regulations be revised to allow
the used property requirements be met for
property that will be used in the United
States for the first time and that is acquired
at its fair market value by a U.S. taxpay-
er from a non-U.S. related party, and for
property that is acquired by a U.S. affili-
ate from a non-U.S. parent corporation in
an arm’s-length transaction. The statutory
language of section 168(k)(2)(E)(ii) and
the legislative history of section 13201 of
the Act do not support such a rule. Conf.
Rep. No. 115-466, at 353. Accordingly,
the Treasury Department and the IRS de-
cline to adopt this comment.
iv. Substantial Renovation of Property
The Treasury Department and the IRS
are aware that taxpayers and practitioners
have questioned whether a taxpayer that
purchases substantially renovated proper-
ty is eligible to claim the additional first
year depreciation deduction for such prop-
erty (assuming all other requirements are
met).
The August Proposed Regulations and
these final regulations retain the original
use rules in §1.168(k)-1(b)(3)(i). Under
these rules, the cost of reconditioned or re-
built property does not satisfy the original
use requirement. However, if the cost of
the used parts in such property is not more
than 20 percent of the total cost of the
property, whether acquired or self-con-
structed, the property is treated as meeting
the original use requirement.
Consistent with the original use rules,
the final regulations provide that if a
taxpayer acquires and places in service
substantially renovated property and the
taxpayer or a predecessor previously had
a depreciable interest in the property be-
fore it was substantially renovated, that
taxpayer’s or predecessor’s depreciable
interest is not taken into account for de-
termining whether the substantially reno-
vated property was used by the taxpayer
or a predecessor at any time before its ac-
quisition by the taxpayer. For this purpose
and consistent with the original use rules,
property is substantially renovated if the
cost of the used parts is not more than 20
percent of the total cost of the substantial-
ly renovated property, whether acquired or
self-constructed.
c. Section 336(e) Election
Section 1.179-4(c)(2) provides that
property deemed to have been acquired
by a new target corporation as a result
of a section 338 election will be consid-
ered acquired by purchase for purposes of
§1.179-4(c)(1). Upon a section 338 elec-
tion, the target corporation (old target) is
treated as transferring all of its assets to
an unrelated person in exchange for con-
sideration that includes the discharge of
its liabilities, and a different corporation
(new target) is treated as acquiring all of
its assets from an unrelated person in ex-
change for consideration that includes the
assumption of those liabilities. Section
1.338-1(a)(1). Although both old target
and new target are a single corporation
under corporate law, §1.338-1(a)(1) pro-
vides that they generally are considered to
exist as separate corporations for purposes
of subtitle A of the Code.
The Federal income tax consequences
of a section 336(e) election made with re-
spect to a qualified stock disposition not
described, in whole or in part, in section
355(d)(2) or (e)(2) are similar to the Fed-
eral income tax consequences of a section
338 election. See §1.336-2(b)(1). Accord-
ingly, the August Proposed Regulations
and these final regulations modify §1.179-
4(c)(2) to include property deemed to have
been acquired by a new target corporation
pursuant to a section 336(e) election made
with respect to such a qualified stock dis-
position. Thus, property deemed to have
been acquired by a new target corporation
as a result of either a section 338 election
or a section 336(e) election made with re-
spect to a qualified stock disposition not
described, in whole or in part, in section
355(d)(2) or (e)(2) is considered acquired
by purchase for purposes of §1.179-4(c)
(1).
Conversely, if a section 336(e) election
is made with respect to a qualified stock
disposition that is described, in whole or
in part, in section 355(d)(2) or (e)(2), old
target is treated as selling its assets to an
unrelated person but then purchasing the
assets back (sale-to-self model). Section
1.336-2(b)(2). Because the sale-to-self
model does not deem a new target corpo-
ration to acquire the assets from an unre-
lated person, commenters have questioned
whether assets deemed purchased in such
a qualified stock disposition should be
considered acquired by purchase for pur-
poses of §1.179-4(c)(1). The final regula-
tions clarify that the reference to section
336(e) in §1.179-4(c)(2) does not include
dispositions described in section 355(d)
(2) or (e)(2) because, under the sale-to-
self model, old target will be treated as
acquiring the assets in which it previously
had a depreciable interest.

October 7, 2019 816 Bulletin No. 2019–41
d. Rules Applying to Consolidated
Groups
The August Proposed Regulations treat
a member of a consolidated group as pre-
viously having a depreciable interest in all
property in which the consolidated group
is treated as previously having a deprecia-
ble interest. For purposes of this proposed
rule, a consolidated group is treated as
having a depreciable interest in proper-
ty if any current or previous member of
the group had a depreciable interest in the
property while a member of the group.
The August Proposed Regulations also do
not allow the additional first year depreci-
ation deduction when, as part of a series of
related transactions, one or more members
of a consolidated group acquire both the
stock of a corporation that previously had
a depreciable interest in the property and
the property itself. Additionally, if the ac-
quisition of property is part of a series of
related transactions that also includes one
or more transactions in which the transfer-
ee of the property ceases to be a member
of a consolidated group, then whether the
taxpayer is a member of a consolidated
group is tested immediately after the last
transaction in the series.
Multiple commenters requested clari-
fication of these rules. Concurrently with
the publication of the final regulations,
the Treasury Department and the IRS are
publishing elsewhere in this issue of the
Federal Register proposed regulations
under section 168(k) (REG-106808-19)
that address these comments.
e. Series of Related Transactions
Section 1.168(k)-2(b)(3)(iii)(C) of the
August Proposed Regulations provides
that, in the case of a series of related
transactions, property is treated as direct-
ly transferred from the original transferor
to the ultimate transferee, and the relation
between the original transferor and the
ultimate transferee is tested immediately
after the last transaction in the series (re-
lated transactions rule). We received com-
ments requesting clarification on the ap-
plication of the related transactions rule in
certain circumstances. Concurrently with
the publication of the final regulations,
the Treasury Department and the IRS are
publishing elsewhere in this issue of the
Federal Register proposed regulations
under section 168(k) (REG-106808-19)
that address these comments.
f. Application to Partnerships
The August Proposed Regulations and
these final regulations address wheth-
er certain section 704(c) allocations, the
basis of distributed property determined
under section 732, and basis adjustments
under sections 734(b) and 743(b) qualify
for the additional first year depreciation
deduction. One commenter recommended
applying the principles underlying section
197(f)(9) to analyze these issues under
section 168(k). The Treasury Department
and the IRS considered this approach and
determined that it was not appropriate for
purposes of section 168(k). Although the
regulations under section 197(f)(9) apply
an aggregate approach with respect to ba-
sis adjustments under sections 732, 734,
and 743 (as well as certain section 704(c)
allocations), the Treasury Department and
the IRS looked to the purpose of section
168(k), not section 197(f)(9), to determine
how to best approach the entity versus
aggregate theory question. Furthermore,
the statutory language found in section
197(f)(9)(E), which treats each partner in
a partnership as having owned and used
the partner’s proportionate share of the
partnership’s assets for purposes of de-
termining basis increases under sections
732, 734, and 743, is not in section 168(k).
Therefore, the August Proposed Regula-
tions and these final regulations determine
the proper treatment of each basis adjust-
ment under section 168(k) on a case-by-
case basis.
One commenter to the August Pro-
posed Regulations asked for clarification
regarding a partner’s depreciable interest
in property held by a partnership. Concur-
rently with the publication of the final reg-
ulations, the Treasury Department and the
IRS are publishing elsewhere in this issue
of the Federal Register proposed regula-
tions under section 168(k) (REG-106808-
19) that address this comment.
i. Section 704(c) Remedial Allocations
The August Proposed Regulations and
these final regulations provide that reme-
dial allocations under section 704(c) do
not qualify for the additional first year
depreciation deduction. The same rule ap-
plies in the case of revaluations of part-
nership property (reverse section 704(c)
allocations).
One commenter requested that the final
regulations permit immediate expensing
of excess book basis under the remedi-
al allocation method in §1.704-3(d) and
corresponding remedial allocations of in-
come and depreciation. The Treasury De-
partment and the IRS decline to adopt this
comment because the underlying property
that gives rise to remedial allocations was
contributed to the partnership in a section
721 transaction and has a basis described
in section 179(d)(2)(C), which is in viola-
tion of section 168(k)(2)(E)(ii)(I), as well
as the original use requirement.
ii. Section 734(b) Adjustments
The August Proposed Regulations and
these final regulations provide that sec-
tion 734(b) basis adjustments are not eli-
gible for the additional first year deprecia-
tion deduction.
One commenter suggested that the
Treasury Department and the IRS should
permit immediate expensing of basis ad-
justments under section 734(b)(1)(A) allo-
cable to qualified property. Section 734(b)
(1)(A) provides that, in the case of a dis-
tribution of property to a partner with re-
spect to which a section 754 election is in
effect (or when there is a substantial basis
reduction under section 734(d)), the part-
nership will increase the adjusted basis of
partnership property by the amount of any
gain recognized to the distributee partner
under section 731(a)(1). The Treasury De-
partment and the IRS decline to adopt this
comment because section 734(b) adjust-
ments are made to the common basis of
partnership property and do not satisfy the
original use clause of section 168(k)(2)
(A)(ii) or the used property requirement
of section 168(k)(2)(E)(ii)(I).
iii. Section 743(b) Adjustments
The August Proposed Regulations and
these final regulations provide that, in de-
termining whether a section 743(b) basis
adjustment meets the used property acqui-
sition requirements of section 168(k)(2)
(E)(ii), each partner is treated as having

Bulletin No. 2019–41 817 October 7, 2019
owned and used the partner’s proportion-
ate share of partnership property. In the
case of a transfer of a partnership interest,
section 168(k)(2)(E)(ii)(I) will be satisfied
if the partner acquiring the interest, or a
predecessor of such partner, has not used
the portion of the partnership property to
which the section 743(b) basis adjustment
relates at any time prior to the acquisition
(that is, the transferee has not used the
transferor’s portion of partnership proper-
ty prior to the acquisition), notwithstand-
ing the fact that the partnership itself has
previously used the property. Similarly,
for purposes of applying section 179(d)
(2)(A), (B), and (C), the partner acquiring
a partnership interest is treated as acquir-
ing a portion of partnership property, and
the partner who is transferring a partner-
ship interest is treated as the person from
whom the property is acquired.
The August Proposed Regulations pro-
vide that a section 743(b) basis adjust-
ment in a class of property (not including
the property class for section 743(b) basis
adjustments) may be recovered using the
additional first year depreciation deduc-
tion under section 168(k) without regard
to whether the partnership elects out of the
additional first year depreciation deduc-
tion under section 168(k)(7) for all other
qualified property in the same class of
property and placed in service in the same
taxable year. Similarly, a partnership may
make the election out of the additional first
year depreciation deduction under section
168(k)(7) for a section 743(b) basis ad-
justment in a class of property (not includ-
ing the property class for section 743(b)
basis adjustments), and this election will
not bind the partnership to such election
for all other qualified property of the part-
nership in the same class of property and
placed in service in the same taxable year.
One commenter recommended that the
final regulations require consistent treat-
ment for section 743(b) adjustments in a
class of property and all other qualified
property in the same class and placed in
service in the same taxable year. The Trea-
sury Department and the IRS believe that
taxpayers should have the flexibility to
use or elect out of the additional first year
depreciation deduction for section 743(b)
adjustments in a class of property without
being bound to that choice for all other
qualified property in the same class and
placed in service in the same taxable year.
Therefore, the final regulations retain the
rule of the August Proposed Regulations.
One commenter requested that up-
per-tier partnerships be able to make an
election under section 168(k)(7), or not,
for both qualified property held directly
by the upper-tier partnership and qualified
property held indirectly through lower-ti-
er partnerships. The Treasury Department
and the IRS believe that a system of up-
per-tier partnerships making this election
on behalf of lower-tier partnerships would
be difficult to administer, and decline to
adopt this comment. Lower-tier partner-
ships can make a section 168(k)(7) sep-
arately or may choose not to make that
election.
One commenter suggested that there
could be potential confusion with the lan-
guage that would be added to §1.743-1(j)
(4)(i)(B)(1) by the August Proposed Reg-
ulations. This commenter stated that the
addition of “notwithstanding the above”
to that provision could be read to negate
other provisions of §1.743-1(j)(4)(i)(B).
The Treasury Department and the IRS did
not intend this implication. In these final
regulations, the Treasury Department and
the IRS have clarified this section by re-
moving “notwithstanding the above.”
The preamble to the August Proposed
Regulations provides that a section 743(b)
basis adjustment is eligible for the addi-
tional first year depreciation deduction
provided all of the requirements of section
168(k) are met and assuming §1.743-1(j)
(4)(i)(B)(2) does not apply. Some com-
menters asked for clarification regarding
the application of §1.743-1(j)(4)(i)(B)(2).
Section 1.743-1(j)(4)(i)(B)(2) provides
that, if a partnership uses the remedial al-
location method under §1.704-3(d) with
respect to an item of the partnership’s re-
covery property, then the portion of any
section 743(b) basis increase for that prop-
erty that is attributable to section 704(c)
built-in gain is recovered over the remain-
ing recovery period for the ‘s excess book
basis in the as determined in the final
sentence of §1.704-3(d)(2). This would
preclude the partner from taking the ad-
ditional first year depreciation deduction
for the portion of the section 743(b) ba-
sis increase attributable to section 704(c)
built-in gain. Section 1.743-1(j)(4)(i)(B)
(2) further provides that any remaining
portion of a section 743(b) basis increase
is recovered under §1.743-1(j)(4)(i)(B)
(1), which treats a section 743(b) basis
increase as newly-purchased property
placed in service when the transfer of the
partnership interest occurs. Section 1.743-
1(j)(4)(i)(B)(1) also provides that any ap-
plicable recovery period and method may
be used for the basis increase. Therefore,
under the August Proposed Regulations,
the additional first year depreciation de-
duction is available for the portion of a
section 743(b) basis increase that is not
attributable to section 704(c) built-in gain,
regardless of the section 704(c) method
used, assuming all the requirements of
section 168(k) are satisfied.
One commenter requested that the
final regulations permit a partnership to
use the additional first year depreciation
deduction with respect to the portion of
the section 743(b) basis increase that is
attributable to section 704(c) built-in
gain, even if the partnership is using the
remedial allocation method with respect
to the property. The Treasury Depart-
ment and the IRS agree with this com-
ment. However, an exception to this rule
is needed in the case of publicly traded
partnerships (within the meaning of sec-
tion 7704(b)) to maintain fungibility for
publicly traded partnership units. Thus,
the final regulations amend §1.743-1(j)
(4)(i)(B)(2) to provide an exception
to the rule that the portion of a section
743(b) basis increase that is attributable
to section 704(c) built-in gain is recov-
ered over the remaining recovery period
for the ‘s excess book basis in the . This
exception applies only in the case of a
partnership that is not a publicly traded
partnership and that is recovering a sec-
tion 743(b) basis increase using the ad-
ditional first year depreciation deduction
under section 168(k). If this exception
applies, the entire section 743(b) basis
increase is eligible for the additional first
year depreciation. For publicly traded
partnerships, the rules of the August Pro-
posed Regulations described in the pre-
ceding paragraph continue to apply.
g. Syndication Transaction
The syndication transaction rule in the
August Proposed Regulations and these
final regulations is based on the rules in

October 7, 2019 818 Bulletin No. 2019–41
section 168(k)(2)(E)(iii) for syndication
transactions.
For new or used property, the August
Proposed Regulations provide that if (1)
a lessor has a depreciable interest in the
property and the lessor and any predeces-
sor did not previously have a depreciable
interest in the property, (2) the property
is sold by the lessor or any subsequent
purchaser within three months after the
date the property was originally placed
in service by the lessor (or, in the case
of multiple units of property subject to
the same lease, within three months after
the date the final unit is placed in service,
so long as the period between the time
the first unit is placed in service and the
time the last unit is placed in service does
not exceed 12 months), and (3) the user
(lessee) of the property after the last sale
during the three-month period remains
the same as when the property was orig-
inally placed in service by the lessor,
then the purchaser of the property in the
last sale during the three-month period is
considered the taxpayer that acquired the
property, has a depreciable interest in the
property, and the taxpayer that originally
placed the property in service, but not ear-
lier than the date of the last sale. Thus, if
a transaction is within the rules described
above, the purchaser of the property in the
last sale during the three-month period is
eligible to claim the additional first year
depreciation for the property assuming all
requirements are met, and the earlier pur-
chasers of the property are not.
If the lessor reacquires the property, a
commenter requested that the August Pro-
posed Regulations be clarified to provide
that the lessor did not previously have a
depreciable interest in the property. The
Treasury Department and the IRS agree
with this suggestion. Accordingly, the fi-
nal regulations clarify that, if a transaction
is within the rules described in the preced-
ing paragraph, the purchaser of the prop-
erty in the last sale during the three-month
period is the original user of the property,
if the lessor acquired and placed in service
new property, and is the taxpayer having
a depreciable interest in the property, if
the lessor acquired and placed in service
used property. Neither the lessor nor any
intermediate purchaser is treated as previ-
ously having a depreciable interest in the
property.
h. Sale-leaseback Transaction
Because section 13201 of the Act re-
moved the rules regarding sale-leasebacks,
the August Proposed Regulations did not
retain the original use rules in §1.168(k)-
1(b)(3)(iii)(A) and (C) regarding such
transactions, including a sale-leaseback
transaction followed by a syndication
transaction. A commenter requested that
the depreciable interest rule in the August
Proposed Regulations be changed to a
never-have-depreciated test so that a sell-
er-lessee in a sale-leaseback transaction
that exercises the option to purchase the
property at the end of the lease term will
meet the used property rules in the pro-
posed regulations. Alternatively, the com-
menter suggested §1.168(k)-2(f)(1) of the
August Proposed Regulations be revised
to allow the additional first year depreci-
ation deduction in the situation described
in the preceding sentence provided the
sale-leaseback occurred in the same tax-
able year in which the seller-lessee placed
the property in service. The commenter
asserted that leased assets should not be
treated differently than other used prop-
erty. Another commenter asserted that a
rule similar to the one in §1.168(k)-1(b)
(3)(iii)(A) should be provided when the
sale-leaseback occurs within a very short
period of time after the property is placed
in service by the seller-lessee.
The Treasury Department and the IRS
have decided not to adopt these comments,
because section 13201 of the Act removed
the rules regarding sale-leasebacks. How-
ever, the Treasury Department and the IRS
believe that an exception to the depreciable
interest rule is appropriate when the tax-
payer disposes of property within a short
period of time after the taxpayer placed
such property in service. Concurrently with
the publication of these final regulations,
the Treasury Department and the IRS are
publishing elsewhere in this issue of the
Federal Register proposed regulations un-
der section 168(k) (REG-106808-19) that
provide this proposed rule.
D. Date of Acquisition
1. In General
The August Proposed Regulations and
these final regulations provide rules appli-
cable to the acquisition requirements of
the effective date under section 13201(h)
of the Act. The August Proposed Regula-
tions and these final regulations provide
that these rules apply to all property, in-
cluding self-constructed property or prop-
erty described in section 168(k)(2)(B) or
(C).
Pursuant to section 13201(h)(1)(A) of
the Act, the August Proposed Regulations
and these final regulations provide that the
property must be acquired by the taxpayer
after September 27, 2017, or, acquired by
the taxpayer pursuant to a written binding
contract entered into by the taxpayer after
September 27, 2017.
The August Proposed Regulations also
provide that property that is manufactured,
constructed, or produced for the taxpayer
by another person under a written binding
contract that is entered into prior to the
manufacture, construction, or production
of the property for use by the taxpayer in
its trade or business or for its production
of income is acquired pursuant to a writ-
ten binding contract. Many commenters
disagreed with this position because it is
not supported by the legislative history of
section 13201 of the Act, it is a departure
from the self-constructed property rules in
§1.168(k)-1(b)(4)(iii), and it is administra-
tively burdensome. The Treasury Depart-
ment and the IRS have reconsidered their
decision. Accordingly, §1.168(k)-2(b)(5)
(ii)(A) and (b)(5)(iv) of the final regula-
tions provide that property that is manu-
factured, constructed, or produced for the
taxpayer by another person under a writ-
ten binding contract that is entered into
prior to the manufacture, construction, or
production of the property for use by the
taxpayer in its trade or business or for its
production of income is not acquired pur-
suant to a written binding contract but is
self-constructed property.
The August Proposed Regulations also
provide that if the written binding contract
states the date on which the contract was
entered into and a closing date, delivery
date, or other similar date, the date on
which the contract was entered into is the
date the taxpayer acquired the property.
The Treasury Department and the IRS are
aware that some contracts are not bind-
ing contracts on the date the contract is
entered into (for example, due to a con-
tingency clause). Accordingly, §1.168(k)-

2(b)(5)(ii)(B) of the final regulations pro-
vides that the acquisition date of property
that the taxpayer acquired pursuant to a
written binding contract is the later of (1)
the date on which the contract was entered
into; (2) the date on which the contract
is enforceable under State law; (3) if the
contract has one or more cancellation pe-
riods, the date on which all cancellation
periods end; or (4) if the contract has one
or more contingency clauses, the date on
which all conditions subject to such claus-
es are satisfied. For this purpose, a cancel-
lation period is the number of days stated
in the contract for any party to cancel the
contract without penalty, and a contingen-
cy clause is one that provides for a condi-
tion (or conditions) or action (or actions)
that is within the control of any party or a
predecessor.
2. Written Binding Contract
A commenter requested clarification
on whether the liquidated damages rule
in §1.168(k)-2(b)(5)(iii)(A) in the August
Proposed Regulations applies only to a
breach by the purchaser. A similar ques-
tion was raised in comments on §1.168(k)-
1T regarding the rule stating that if the
contract provided for a full refund of the
purchase price in lieu of any damages al-
lowable by law in the event of breach or
cancellation, the contract is not consid-
ered binding. At that time, the Treasury
Department and the IRS decided that the
limitations should fall on both parties, the
purchaser and the seller. The same should
apply in the instant case. Accordingly, the
Treasury Department and the IRS decline
to adopt this comment.
The Treasury Department and the
IRS are aware that taxpayers and practi-
tioners have questioned how to apply the
5-percent liquidated damages rule in the
August Proposed Regulations when the
contract has multiple damage provisions.
The Treasury Department and the IRS
intended that only the provision with the
highest damages be taken into account in
determining whether the contract limits
damages. The final regulations clarify this
intention.
Another commenter requested clar-
ification on whether any of the costs of
property acquired before September 28,
2017, pursuant to a written binding con-
tract, and placed in service after 2017 are
eligible for the additional first year depre-
ciation deduction under section 168(k). If
some, but not all, of the costs are eligible,
or if the costs are subject to the different
applicable percentages, the commenter
also requested that a basis allocation rule
be provided. This comment is related to
the comment discussed in part II(D)(3) of
this Summary of Comments and Expla-
nation of Revisions section regarding the
election provided in section 3.02(2)(b) of
Rev. Proc. 2011-26 (2011-16 I.R.B. 664).
Concurrently with the publication of these
final regulations, the Treasury Department
and the IRS are publishing elsewhere in
this issue of the Federal Register pro-
posed regulations under section 168(k)
(REG-106808-19) that address these com-
ments.
The Treasury Department and the IRS
are aware that taxpayers and practitioners
are having difficulty applying the bind-
ing contract rules in the August Proposed
Regulations to transactions involving the
acquisition of an entity. Because those
rules were written to apply to the purchase
of an asset instead of an entity, the Trea-
sury Department and the IRS recognize
that a binding contract rule for an acquisi-
tion of a trade or business, or an entity, is
needed. The Treasury Department and the
IRS also are aware that, in some cases, a
taxpayer did not acquire property pursuant
to a written binding contract. Concurrent-
ly with the publication of these final reg-
ulations, the Treasury Department and the
IRS are publishing elsewhere in this issue
of the Federal Register proposed regula-
tions under section 168(k) (REG-106808-
19) that address these issues.
3. Self-Constructed Property
If a taxpayer manufactures, constructs,
or produces property for its own use, the
Treasury Department and the IRS recog-
nize that the written binding contract rule
in section 13201(h)(1) of the Act does not
apply. In such case, the August Proposed
Regulations and these final regulations
provide that the acquisition rules in sec-
tion 13201(h)(1) of the Act are treated as
met if the taxpayer begins manufacturing,
constructing, or producing the property
after September 27, 2017. As stated in part
II(D)(1) of this Summary of Comments
and Explanation of Revisions section,
the final regulations provide that proper-
ty that is manufactured, constructed, or
produced for the taxpayer by another per-
son under a written binding contract that
is entered into prior to the manufacture,
construction, or production of the proper-
ty is self-constructed property by the tax-
payer. In this case, these final regulations
also provide that the acquisition rules in
section 13201(h)(1) of the Act are treated
as met if the taxpayer begins manufac-
turing, constructing, or producing such
property after September 27, 2017. The
August Proposed Regulations and these
final regulations provide rules similar to
those in §1.168(k)-1(b)(4)(iii)(B) for de-
fining when manufacturing, construction,
or production begins, including the safe
harbor, and in §1.168(k)-1(b)(4)(iii)(C)
for a contract to acquire, or for the man-
ufacture, construction, or production of, a
component of the larger self-constructed
property.
Two commenters requested clarifica-
tion on whether the cost of a component
of a larger self-constructed property that is
acquired under a binding contract entered
into before September 28, 2017, is includ-
ed in the safe harbor for determining when
manufacturing, construction, or produc-
tion of the larger self-constructed property
begins. Consistent with §1.168(k)-1(b)(4)
(iii)(B)(2), the safe harbor in the August
Proposed Regulations and these final regu-
lations do not provide a date restriction for
calculation of the 10 percent. Accordingly,
examples in §1.168(k)-2(d)(3)(iv), which
has the same safe harbor as in §1.168(k)-
2(b)(5)(iv), illustrate that the cost of such
component is taken into account for deter-
mining whether the taxpayer has paid or
incurred more than 10 percent of the total
cost of the property (excluding the cost of
any land and preliminary activities such as
planning or designing, securing financing,
exploring, or researching) under the safe
harbor. If the cost of the acquired compo-
nent is more than 10 percent of the total
cost of the property (excluding the cost of
any land and preliminary activities such as
planning or designing, securing financing,
exploring, or researching), the manufac-
ture, construction, or production of the
larger self-constructed property begins on
the date on which the taxpayer paid or in-
curred the cost of such component.
Bulletin No. 2019–41 819 October 7, 2019

October 7, 2019 820 Bulletin No. 2019–41
A commenter requested clarification
on whether the 100-percent additional
first year depreciation deduction is allow-
able for self-constructed property owned
by a trade or business described in section
163(j)(7)(A)(iv) (regulated public utility)
where the construction of such property
begins after September 27, 2017, and the
property is placed in service in a taxable
year beginning after 2017. In such case,
the property is not eligible for the 100-per-
cent additional first year depreciation de-
duction pursuant to section 168(k)(9)(A).
Example 11 is provided in §1.168(k)-2(b)
(5)(viii)(K) of these final regulations to il-
lustrate this point.
Multiple commenters requested that
the final regulations provide an election
similar to the one provided in section
3.02(2)(b) of Rev. Proc. 2011-26 for com-
ponents acquired or self-constructed after
September 27, 2017, of larger self-con-
structed property when the manufacture,
construction, or production of the larger
self-constructed property begins before
September 28, 2017. Concurrently with
the publication of these final regulations,
the Treasury Department and the IRS are
publishing elsewhere in this issue of the
Federal Register proposed regulations
under section 168(k) (REG-106808-19)
that address these comments.
III. Computation of Additional First Year
Depreciation Deduction and Elections
Under Section 168(k)
A. Computation of Additional First Year
Depreciation Deduction
Pursuant to section 168(k)(1)(A), the
August Proposed Regulations and these fi-
nal regulations provide that the allowable
additional first year depreciation deduc-
tion for qualified property is equal to the
applicable percentage (as defined in sec-
tion 168(k)(6)) of the unadjusted depre-
ciable basis (as defined in §1.168(b)-1(a)
(3)) of the property. For qualified property
described in section 168(k)(2)(B), the un-
adjusted depreciable basis (as defined in
§1.168(b)-1(a)(3)) of the property is lim-
ited to the property’s basis attributable to
manufacture, construction, or production
of the property before January 1, 2027,
as provided in section 168(k)(2)(B)(ii).
Pursuant to section 168(k)(2)(G), the Au-
gust Proposed Regulations and these final
regulations also provide that the addition-
al first year depreciation deduction is al-
lowed for both regular tax and alternative
minimum tax (AMT) purposes. The Au-
gust Proposed Regulations and these final
regulations provide rules similar to those
in §1.168(k)-1(d)(2) for determining the
amount of depreciation otherwise allow-
able for qualified property.
A commenter requested clarification on
whether the deduction under section 181
for a qualified film, television, or live the-
atrical production is taken before the addi-
tional first year depreciation deduction for
the same production. Section 181(b) pro-
vides that with respect to the basis of any
qualified film or television production or
any qualified live theatrical production to
which an election under section 181(a) is
made, no other depreciation or amortiza-
tion deduction shall be allowable. Conse-
quently, if the owner of the qualified film,
television, or live theatrical production
makes an election under section 181(a),
the basis of the production is reduced by
the amount of the section 181 deduction
before the additional first year deprecia-
tion deduction is computed. According-
ly, the final regulations revise the defi-
nition of unadjusted depreciable basis in
§1.168(b)-1(a)(3) to reflect the reduction
in basis for the amount the taxpayer elects
to treat as an expense under section 181.
B. Elections Under Section 168(k)
The August Proposed Regulations and
these final regulations provide rules for
making the election out of the additional
first year depreciation deduction pursuant
to section 168(k)(7) and for making the
election to apply section 168(k)(5) to a
specified plant. Additionally, the August
Proposed Regulations and these final reg-
ulations provide rules for making the elec-
tion under section 168(k)(10) to deduct 50
percent, instead of 100 percent, additional
first year depreciation for qualified prop-
erty acquired after September 27, 2017,
by the taxpayer and placed in service or
planted or grafted, as applicable, by the
taxpayer during its taxable year that in-
cludes September 28, 2017.
Several commenters requested relief to
make late elections under section 168(k)
(7) or (10) for property placed in service
during the taxpayer’s taxable year that
includes September 28, 2017, because
some taxpayers already filed their Feder-
al tax returns for that taxable year before
the proposed regulations were issued. The
commenters also noted that a taxpayer
with a due date, with extensions, of Sep-
tember 15, 2018, or October 15, 2018, for
its Federal tax return for the taxable year
that includes September 28, 2017, may
not have had sufficient time to analyze
the proposed regulations to make a timely
election under section 168(k)(7) or (10).
The IRS issued Revenue Procedure 2019-
33 (2019-34 I.R.B. 662) to address this re-
quest by providing an additional period of
time for taxpayers to make an election, or
revoke an election, under section 168(k)
(5), (7), or (10) for property acquired after
September 27, 2017, and placed in service
during the taxpayer’s taxable year that in-
cludes September 28, 2017.
IV. Special Rules
The August Proposed Regulations and
these final regulations provide special
rules similar to those in §1.168(k)-1(f)
for the following situations: (1) Qualified
property placed in service or planted or
grafted, as applicable, and disposed of in
the same taxable year; (2) redetermination
of basis of qualified property; (3) recap-
ture of additional first year depreciation
for purposes of section 1245 and section
1250; (4) a certified pollution control fa-
cility that is qualified property; (5) like-
kind exchanges and involuntary conver-
sions of qualified property; (6) a change
in use of qualified property; (7) the com-
putation of earnings and profits; (8) the
increase in the limitation of the amount of
depreciation for passenger automobiles;
(9) the rehabilitation credit under section
47; and (10) computation of depreciation
for purposes of section 514(a)(3).
The August Proposed Regulations and
these final regulations provide a special
rule for qualified property that is placed in
service in a taxable year and then contrib-
uted to a partnership under section 721(a)
in the same taxable year when one of the
other partners previously had a deprecia-
ble interest in the property. Situation 1 of
Rev. Rul. 99-5 (1999-1 C.B. 434) is an
example of such a fact pattern. In this sit-
uation, the August Proposed Regulations

Bulletin No. 2019–41 821 October 7, 2019
provide that the additional first year de-
preciation deduction with respect to the
contributed property is not allocated under
the general rules of §1.168(d)-1(b)(7)(ii).
Instead, the additional first year deprecia-
tion deduction is allocated entirely to the
contributing partner prior to the section
721(a) transaction and not to the partner-
ship.
In the fact pattern described in the pre-
ceding paragraph, a commenter requested
clarification on whether the property is
placed in service by the contributing part-
ner prior to the section 721(a) transaction.
Another commenter requested clarifica-
tion on whether the contributing partner
deducts the additional first year deprecia-
tion for the qualified property or the part-
nership allocates the additional first year
depreciation deduction for the qualified
property to the contributing partner. The
final regulations provide that the contrib-
uting partner is deemed to place in service
the qualified property prior to the section
721(a) transaction, and that the contribut-
ing partner deducts the entire additional
first year depreciation for such property.
The contributing partner will contribute
the property to the partnership with a zero
basis, and the contributed property will be
section 704(c) property in the hands of the
partnership.
Several commenters questioned how
the August Proposed Regulations apply to
a section 743(b) adjustment when there is a
purchase of a partnership interest followed
by a subsequent transfer of that partner-
ship interest. Under the August Proposed
Regulations, if qualified property is placed
into service or planted or grafted, as appli-
cable, and disposed of in the same taxable
year, the additional first year depreciation
deduction generally is not allowed. How-
ever, there is an exception to this rule in
the case of nonrecognition transfers under
section 168(i)(7). These rules in the Au-
gust Proposed Regulations apply only to
transfers of qualified property and not to
section 743(b) adjustments resulting from
transfers of partnership interests. Several
commenters recommended that parallel
rules should apply to transfers of partner-
ship interests. The Treasury Department
and the IRS agree with this comment.
These final regulations provide that, if
a partnership interest is acquired and dis-
posed of during the same taxable year, the
additional first year depreciation deduc-
tion is not allowed for any section 743(b)
adjustment arising from the initial acqui-
sition. However, if a partnership interest
is purchased and disposed of in a section
168(i)(7) transaction in the same taxable
year, the section 743(b) adjustment is al-
lowable, provided all of the requirements
of section 168(k) are satisfied. The section
743(b) adjustment is apportioned between
the purchaser/transferor and the transferee
under the same rules that apply to trans-
fers of qualified property.
A commenter requested a rule allow-
ing dealerships that purchase replacement
vehicles for use in their fleet of rental or
leased vehicles to deduct the addition-
al first year depreciation deduction in
transactions that are similar to like-kind
exchanges when at least 10 vehicles are
traded in during the same taxable year.
The treatment requested is similar to that
given to like-kind exchanges under sec-
tion 1031 as in effect before the enactment
of the Act. The Treasury Department and
the IRS decline to adopt this comment be-
cause it is outside the scope of these final
regulations.
The Treasury Department and the IRS
are aware that taxpayers and practitioners
have questioned whether the unadjust-
ed basis of qualified property for which
the additional first year depreciation de-
duction is claimed is taken into account
in determining whether the mid-quar-
ter convention under section 168(d) and
§1.168(d)-1 applies for the taxable year.
Consistent with the definition of deprecia-
ble basis in §1.168(d)-1(b)(4), the basis is
not reduced by the allowed or allowable
additional first year depreciation deduc-
tion in determining whether the mid-quar-
ter convention applies for the taxable year.
Concurrently with the publication of these
final regulations, the Treasury Department
and the IRS are publishing elsewhere in
this issue of the Federal Register pro-
posed regulations under section 168(k)
(REG-106808-19) that provide this pro-
posed rule.
Statement of Availability of IRS
Documents
The IRS Revenue Procedures and Rev-
enue Rulings cited in this document are
published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the
IRS website at http://www.irs.gov.
Effective/Applicability Date
These final regulations apply to quali-
fied property placed in service or planted
or grafted, as applicable, by the taxpay-
er during or after the taxpayer’s taxable
year that includes September 24, 2019.
However, a taxpayer may choose to ap-
ply these final regulations, in their en-
tirety, to qualified property acquired and
placed in service or planted or grafted, as
applicable, after September 27, 2017, by
the taxpayer during taxable years ending
on or after September 28, 2017, provided
the taxpayer consistently applies all rules
in these final regulations. Additionally, a
taxpayer may rely on the proposed regu-
lations under section 168(k) in regulation
project REG-104397-18 (2018-41 I.R.B.
558), to qualified property acquired and
placed in service or planted or grafted, as
applicable, after September 27, 2017, by
the taxpayer during taxable years ending
on or after September 28, 2017, and end-
ing before September 24, 2019.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 12866 and 13563 di-
rect agencies to assess costs and benefits
of available regulatory alternatives and, if
regulation is necessary, to select regulato-
ry approaches that maximize net benefits
(including (i) potential economic, envi-
ronmental, and public health and safety
effects, (ii) potential distributive impacts,
and (iii) equity). Executive Order 13563
emphasizes the importance of quantifying
both costs and benefits, reducing costs, har-
monizing rules, and promoting flexibility.
These regulations have been desig-
nated as subject to review under Execu-
tive Order 12866 pursuant to the Mem-
orandum of Agreement (April 11, 2018)
(MOA) between the Treasury Department
and the Office of Management and Budget
(OMB) regarding review of tax regula-
tions. The Office of Information and Reg-

October 7, 2019 822 Bulletin No. 2019–41
ulatory Affairs has designated these regu-
lations as economically significant under
section 1(c) of the MOA. Accordingly, the
OMB has reviewed these regulations.
A. Background
1. Bonus Depreciation Generally
In general, section 167 allows taxpay-
ers to claim a “reasonable allowance for
the exhaustion, wear and tear” of property
used in a trade or business or held for the
production of income. For most tangible
property, the amount of the deduction is
determined under section 168, which ef-
fectively provides schedules of deductions
(as a share of the initial basis) for differ-
ent types of assets. The baseline schedule
generally provides for the deduction to be
spread over a number of years.
In the Job Creation and Worker Assis-
tance Act of 2002, Congress put in place
section 168(k), creating what is colloquial-
ly known as “bonus depreciation.” Under
this initial legislation, firms were allowed
to take a deduction equal to 30 percent of
the initial basis of qualified property in
the year in which it was placed in service;
the remaining 70 percent was depreciated
according to the usual schedule. Broadly
speaking, “qualified property” included
personal property that had a class life of
20 years or less; additionally, the property
was required to be “new,” meaning that
the original use of the property must have
commenced with the taxpayer in ques-
tion. By shifting depreciation deductions
forward in time, section 168(k) generally
increased the present value of the depre-
ciation deductions attributable to a given
piece of property, increasing the incentive
to invest in new property. Since 2001,
Congress has changed the “bonus percent-
age” several times, in accordance with the
following table, including the 2005-2007
period when bonus depreciation was not
in effect for most property.
Table 1 Percent additional depreciation (for most qualified property), by date placed in service
Property placed in service:
Beginning dateEnd dateBonus percentage
9/11/20015/4/200330%
5/5/200312/31/200450%
1/1/200512/31/20070%
1/1/20089/8/201050%
9/9/201012/31/2011100%
1/1/201212/31/201750%
2. Bonus Depreciation Under the Act
The Act changed section 168(k) in
several ways. First, the Act increased
the bonus percentage. Under the pre-Act
section 168(k), the bonus percentage for
most property was 50 percent in 2017, 40
percent in 2018, 30 percent in 2019, and
zero thereafter. The Act amended these
percentages to 100 percent for most prop-
erty placed in service between September
28, 2017 and the end of 2022, 80 percent
in 2023, 60 percent in 2024, 40 percent
in 2025, 20 percent in 2026, and 0 there-
after. The Act also removed the “original
use” requirement, meaning that taxpayers
could claim bonus depreciation on “used”
property.
The Act made several other modest
changes to the operation of section 168(k).
First, it excluded from the definition of
qualified property any property used by
rate-regulated utilities and firms (primar-
ily automobile dealerships) with “floor
plan financing indebtedness” as defined
under section 163(j). Similarly, section
168(g)(1)(G) provides that certain proper-
ty used by real property and agricultural
businesses that make an election to be ex-
cluded from the section 163(j) limitation
are required to use the Alternative Depre-
ciation System (ADS) for certain property
which does not qualify for bonus depre-
ciation. Furthermore, section 168(k)(2)
(a)(ii)(IV) and (V) allowed qualified film,
television, and live theatrical productions
(as defined under section 181) to qualify
for bonus depreciation.
3. Proposed and Final Regulations
The August Proposed Regulations and
these final regulations create §1.168(k)-2
which applies generally to property ac-
quired and placed in service after Sep-
tember 27, 2017. The August Proposed
Regulations and these final regulations
largely draw upon language in existing
§1.168(k)-1, which generally continues
to apply to property acquired or placed
in service prior to September 27, 2017,
with minor edits being made to conform
to changes made by the Act. For provi-
sions of section 168 that were generally
unchanged by the Act, §1.168(k)-2 pre-
dominantly follows §1.168(k)-1 directly,
with only minor changes. Additionally,
§1.168(k)-2 provides rules that clarify
how the changes to section 168 made by
the Act apply to property acquired after
September 27, 2017.
In some instances the final regulations
repeat unambiguous rules provided in the
statute. However, there were a number of
areas where clarification was necessary,
and the analysis below focuses on these
substantive portions of the regulation.
These final regulations finalize certain
provisions of the August Proposed Regu-
lations with no change. In addition, these
final regulations include provisions from
the August Proposed Regulations that

Bulletin No. 2019–41 823 October 7, 2019
were modified to take into account com-
ments received. The provisions discussed
in this special analysis include (1) rules re-
garding film, television, and live theatrical
performances, (2) clarifications regarding
property depreciated under ADS for pur-
poses other than section 168, (3) the eligi-
bility of partnership basis adjustments un-
der section 743(b) for bonus depreciation,
(4) the treatment of tax-exempt use prop-
erty, as defined by section 168(h)(6), (5)
the definition of “prior use” for determin-
ing whether “used” property is eligible for
bonus depreciation, and (6) clarifications
regarding the date at which property is
considered to be acquired in the case of
self-constructed property.
B. No-action Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of
these final regulations relative to a no-ac-
tion baseline reflecting anticipated Feder-
al income tax-related behavior in the ab-
sence of these final regulations.
C. Economic Analysis of Regulation
This section describes the main provi-
sions of these final regulations, (including
those finalized with no change from the
August Proposed Regulations) and ana-
lyzes the economic effects of each one.
1. Film, Television, and Live Theatrical
Performances
Sections 168(k)(2)(A)(i)(IV) and (V)
provide that a qualified film or television
production, or a qualified live theatrical
production, is eligible for bonus depreci-
ation, borrowing definitions from section
181. There was ambiguity in determining
whether “used” film, television, and the-
atrical performances were eligible – i.e.,
those properties whose production began
under a different taxpayer. Following ex-
isting rules under section 181, these final
regulations provide that direct production
costs and acquisition costs are eligible
for bonus depreciation in the hands of
the owner, so long as the production was
acquired before the initial date of release
(or initial live staged performance). The
Treasury Department and the IRS have
determined that this is the proper interpre-
tation of the statute, and that other statuto-
ry readings were not legally supportable.
Nevertheless, this result provides a middle
ground between two extreme positions:
one in which only the initial owner was
eligible for bonus depreciation, and one in
which all acquisition costs of film, televi-
sion, or live theatrical performances were
eligible for section 168(k) under nearly all
circumstances. Thus, the incentives for in-
vestment – and therefore the potential link
to economic growth and efficiency – cre-
ated by this interpretation are also in the
middle of these two extremes. The Trea-
sury Department and IRS expect that most
taxpayers would have come to a similar
interpretation of the treatment of used tele-
vision, film, and theatrical performances
in the absence of these final regulations.
Therefore, the Treasury Department and
IRS project that this clarification will have
only small economic effects.
Additionally, while section 181 and the
regulations thereunder provide a definition
for when a film or television production is
placed in service, they do not do so for live
theatrical performances. The August Pro-
posed Regulations and these final regula-
tions provide such a definition for live the-
atrical performances, directly adapting the
rules for film and television productions to
live theatrical performances. Specifically,
a live theatrical performance is considered
placed in service when it begins com-
mercial exhibition (i.e., performances in
front of paying audiences); an exhibition
designed to attract further funding, or to
determine whether the production should
proceed, does not qualify as a commer-
cial exhibition. This rule delays the placed
in service date relative to the alternative
choice (in which such an earlier exhibition
would cause a live theatrical performance
to be placed in service). This choice has
two potential offsetting economic effects.
First, this choice potentially delays the
date in which the taxpayer could claim
bonus depreciation for the performance,
which could slightly reduce the incentive
to invest in such a performance. Second,
this choice increases the length of time
over which a potential buyer could ac-
quire the performance and remain eligi-
ble to claim bonus depreciation (since the
acquisition of a production is only eligi-
ble until the date of its initial live staged
performance); this could slightly increase
the incentive to invest in such productions
by increasing resale opportunities. The
Treasury Department and the IRS project
that these offsetting effects will have only
small net effects on investment in live the-
atrical performances.
2. Depreciation Using ADS for Purposes
Other than Section 168
In general, property that is required
to be depreciated under the ADS is not
eligible for bonus depreciation. Addition-
ally, some provisions of the code (such
as sections 250(b)(2)(B) and 951A(d)
(3)) require the use of ADS to deter-
mine aggregate basis for the purpose of
that provision (but not for the purpose of
calculating depreciation deductions un-
der section 168). These final regulations
clarifies that such a requirement does not
cause a property to be ineligible for bonus
depreciation. The Treasury Department
and the IRS project that most taxpayers
would have come to this interpretation
in the absence of this final regulation,
so this provision is likely to have mod-
est economic effects. Nevertheless, this
decision might give certainty to a small
number of taxpayers that their property
is, in fact, eligible for bonus depreciation
despite interactions with other Code pro-
visions, potentially creating a small in-
centive for additional investment.
3. Eligibility of Partnership Basis
Adjustments Under Section 743(b)
Under the August Proposed Regula-
tions, basis increases under section 743(b)
(which generally occur when partnership
interests are transferred) are generally
eligible for bonus depreciation. These fi-
nal regulations generally finalize this rule
with only minor clarifications.
The effect of allowing a section 743(b)
adjustment to be eligible for bonus de-
preciation can best be explained by the
following example. Suppose taxpayers A
and B contribute $100,000 each in cash
to start Partnership X. Partnership X pur-
chases a $150,000 piece of equipment Y
(of a character that is eligible for bonus
depreciation) and holds a $50,000 non-de-
preciable asset. After some number of
years, the basis of Partnership X in Y (that
is, the “inside basis” of Y in the hands of

October 7, 2019 824 Bulletin No. 2019–41
Partnership X) has been adjusted down to
0 through depreciation, but the fair market
value (FMV) of Y is $60,000. Assume no
other earnings of the partnership or fluc-
tuations in asset FMV. At this point, total
FMV of the assets held by Partnership X
are $110,000, and A and B each have a
$25,000 basis in their interest in Partner-
ship X.
Suppose, at this point, that B sells
her interest to C, an unrelated party, for
$55,000 (equal to half of the FMV of the
assets held by the partnership). As a re-
sult, C has basis of $55,000 in his inter-
est in Partnership X, and B realizes a gain
of $30,000 (equal to $55,000 minus her
basis of $25,000). Under the usual rules
of partnership taxation, this would cause
a disconnect between C’s outside basis –
that is, the basis of C in Partnership X,
which in this case is $55,000 – and C’s
inside basis in the assets held by Partner-
ship X, which in this case equals $25,000.
This disconnect can produce undesired
results, such as a certain gain being con-
verted from capital to ordinary, or being
taxed sooner than economically realized.
Therefore, section 754 allows taxpayers
to make certain adjustments, if elected.
Assuming that a section 754 election is
in place for Partnership X, section 743(b)
causes the basis of Y to be increased by
$30,000, equal to the gain recognized by
B, and this basis adjustment would explic-
itly be assigned to C (meaning that any fu-
ture cost recovery, through depreciation or
otherwise, would be allocated to C). This
causes C’s inside basis and outside basis
to come back into alignment, at $55,000
in this example.
Under section 168(k) prior to the Act,
such section 743(b) adjustments were
determined to be ineligible for bonus de-
preciation, since the tangible property ac-
quired was, by construction, not “new.”
Economically, this meant that the transfer
of the partnership interest caused an im-
mediate realization of gain by the seller,
and a deferred realization of deduction
items by the buyer. This created a mod-
est incentive for sellers to hold onto their
assets for longer periods of time, in order
to defer tax payments. As has been well
studied, this incentive can lead to portfo-
lio misallocation, hindering the allocation
of capital to its most efficient use. (This
problem is often referred to as “lock-in.”)
The Treasury Department and the IRS
concluded that the Act’s allowance of
“used” property to qualify for bonus de-
preciation (subject to the other restrictions
discussed in detail in the August Proposed
Regulations and these final regulations)
should extend to section 743(b) adjust-
ments as well. This has the economic ef-
fect of mitigating the lock-in problem for
transfers of certain partnership interests
with built-in gains (to the extent that the
section 743(b) adjustment is attributable to
property that is of a character that qualifies
for bonus depreciation). In the previous
example discussed in this part I(C)(3) of
this Special Analysis section, this would
have the effect of allowing Partnership X
to claim an immediate $30,000 deduction
(which would be allocated to C) for its
$30,000 section 743(b) adjustment. This
$30,000 deduction precisely equals the
$30,000 in gain realized by B. Therefore,
the aggregate tax consequences faced by
B and C cancel out, eliminating the lock-
in effect in this simple example.
Reducing the lock-in effect for trans-
fers of partnership interests can improve
the efficiency of capital allocations
throughout the economy. The Treasury
Department and the IRS engaged in an
analysis of the potential increase in output
due to this potential increase in allocative
efficiency. Based on projections regarding
which partnerships will make adjustments
under section 743(b) and assumptions
about frictions to adjusting the capital
stock, the Treasury Department and the
IRS have concluded that the total econ-
omy-wide gain to output caused by this
reduction in lock-in would be less than $5
million per year.
Relatedly, allowing section 743(b)
adjustments to be eligible for bonus de-
preciation increases the incentive for
a new partner to acquire an interest in a
partnership from another partner, poten-
tially increasing the value of the partner-
ship slightly. This can have the effect of
making a previous investment in tangible
property more attractive, which has an ef-
fect similar to a small reduction in the cost
of capital for such partnerships. Based
on an analysis of tax data, and applying
estimates of the elasticity of capital with
respect to the cost of capital, the Treasury
Department and the IRS project that this
effect will increase investment by no more
than $20 million in any year, with smaller
effects in most years.
4. Property Owned by Partnerships
Treated as Tax-exempt Use Property
Section 168(h)(6) provides that prop-
erty held by a partnership in which one
partner is a tax-exempt entity and another
partner is not is “tax-exempt use property.”
Section 168(g)(1)(B) requires tax-exempt
use property to be depreciated according
to the ADS, which renders tax-exempt
use property ineligible for bonus depreci-
ation. These final regulations clarify that
only the tax-exempt entity’s proportion-
al share of the property is ineligible for
bonus depreciation, which is consistent
with other rules in the August Proposed
Regulations and these final regulations
providing that partners have a depreciable
interest in only their proportionate share
of assets held by a partnership. Relative to
an interpretation defining all property held
by such a partnership with a tax-exempt
partner to be ineligible, this provision will
generally have the effect of increasing the
amount of property eligible for bonus de-
preciation, which will slightly increase the
incentive for such partnerships to invest in
physical capital.
Based on entities filing Form 990 (for
certain tax-exempt entities) and Form
5500 (for certain pension plans), the Trea-
sury Department and the IRS have de-
termined that there were approximately
100,000 partnerships in 2015 (out of near-
ly 4 million partnerships total) that were
owned directly by at least one tax-exempt
partner and at least one taxable partner.
This figure could potentially be an under-
estimate, as it will not count partnerships
that have a common structure in which
the tax-exempt partner owns the partner-
ship through a “blocker” C corporation
(which could be treated tax-exempt under
the rules of section 168(h)(6)(F)). Further-
more, this estimate does not take account
of multi-tiered partnership structures. On
the other hand, not all such partnerships
would make depreciable investments that
are affected by this final regulation.
5. New and Used Property
In order for a property to be eligible
for bonus depreciation, it must generally

Bulletin No. 2019–41 825 October 7, 2019
satisfy one of two conditions: (1) the orig-
inal use of the property begins with the
taxpayer, or (2) “such property was not
used by the taxpayer at any time prior to
such acquisition” (section 168(k)(2)(E)(ii)
(I)). Neither the August Proposed Regula-
tions nor these final regulations make any
substantial changes to the “original use”
rules in §1.168(k)-1(b)(3). However, clar-
ification was needed regarding the deter-
mination of whether “such property was
... used by the taxpayer ... prior to such
acquisition”. One common circumstance
in which this could be ambiguous is when
a lessee uses (but does not own) a piece of
property and then purchases that proper-
ty upon the expiration of the lease. These
final regulations follow the intent of Con-
gress (as indicated by the Joint Commit-
tee on Taxation, General Explanation of
Public Law 115-97 (JCS-1-18) at 125 fn.
542 (Dec. 20, 2018)) to define “used” as
meaning that the taxpayer previously held
a “depreciable interest” in the property. In
general, this would allow the former les-
see in such an example to claim bonus de-
preciation upon the subsequent purchase
of the property in question (assuming all
other requirements are met).
These final regulations make several
additional clarifications regarding what
is meant by “prior depreciable interest.”
First, these final regulations provide that
a taxpayer will be considered to have had
a prior depreciable interest in a piece of
property if his/her predecessor had such a
prior depreciable interest; likewise, these
final regulations provide a definition of
“predecessor,” as requested by comment-
ers. Second, these final regulations pro-
vide a safe harbor look-back period of five
calendar years for determining whether a
taxpayer had a prior depreciable interest.
The Treasury Department and the IRS
chose a five-year period because the vast
majority of bonus-eligible assets have
General Depreciation Schedule (GDS)
lives of 5 years or more (3-year proper-
ty is uncommon), and thus taxpayers will
tend to have readily accessible records for
these assets.
These rules will help ease administra-
tive and compliance burdens: taxpayers
will be able to more clearly identify their
predecessors, if any, and the limited look-
back period will mitigate the infeasibility
of the implicit infinite lookback period
some might interpret as a requirement
of the statute. Both of these rules should
help provide clarity and help reassure
taxpayers that they will not accidentally
run afoul of the prior depreciable interest
rules, potentially encouraging more firms
to take advantage of the investment incen-
tives created by section 168(k).
Third, these final regulations provide
that “substantially renovated property”
can be eligible for bonus depreciation,
even if the taxpayer had a prior depre-
ciable interest in the property prior to the
renovation. For this purpose, a property
is a “substantially renovated property” if
the cost of the used parts is less than or
equal to 20 percent of the total cost of the
(post-renovation) property, whether ac-
quired or self-constructed. The Treasury
Department and the IRS project that this
provision will have limited economic ef-
fects, as it will come into play only in the
relatively rare circumstance in which a
taxpayer is purchasing substantially reno-
vated property and held a prior deprecia-
ble interest in the pre-renovation property.
Nevertheless, this provision will generally
increase the amount of property eligible
for bonus depreciation, increasing the in-
centive to invest.
6. Date of Acquisition
The Act provides that property must
be acquired by the taxpayer after Septem-
ber 27, 2017, or acquired by the taxpayer
pursuant to a “written binding contract”
entered into after September 27, 2017, in
order for the property to be eligible for
the 100 percent bonus depreciation rate.
There was some ambiguity regarding
whether third-party constructed property
– that is, property that is produced for the
taxpayer by a third party under a written
binding contract – is acquired “pursuant
to a written binding contract” or whether
it is considered self-constructed property.
The August Proposed Regulations reflect-
ed the interpretation that third party con-
structed property is not self-constructed
property and the contract for such proper-
ty must have been entered into after Sep-
tember 27, 2017, in order to be eligible for
100 percent bonus depreciation. However,
the final regulations under §1.168(k)-1
took a different interpretation, such that
the acquisition date of all self-constructed
property (including third party construct-
ed property) is equal to the (usually later)
date when substantial construction begins.
These final regulations provide for the
latter interpretation: third-party construct-
ed property is treated as self-constructed
property, meaning that more taxpayers
will be eligible for 100 percent bonus de-
preciation for property where contracts
were entered into prior to September 27,
2017, but for which substantial construc-
tion began after that date. Given that this
provision affects only investment that has
already been made, the Treasury Depart-
ment and the IRS expect it to have virtu-
ally no effect on economic growth or effi-
ciency going forward, except to the extent
that it changes taxpayers’ expectations
about future policy.
II. Paperwork Reduction Act
These final regulations do not impose
any additional information collection re-
quirements in the form of reporting, re-
cordkeeping requirements, or third-party
disclosure requirements. However, tax-
payers that want to make or revoke the
election under section 168(k)(5), (7), or
(10), are required to attach a statement
to their Federal tax returns pursuant to
the instructions for Form 4562, “De-
preciation and Amortization (Including
Information on Listed Property)”. Also,
pursuant to Rev. Proc. 2019-33 (2019-
34 I.R.B. 662), taxpayers may make or
revoke the election under section 168(k)
(5), (7), or (10) by filing, within a spec-
ified time period, amended Federal tax
returns, or Form 3115, “Application for
Change in Accounting Method,” with
their Federal tax returns and submit a
copy of the Form 3115 to the IRS office
in Ogden, Utah.
For purposes of the Paperwork Re-
duction Act of 1995 (44 U.S.C. 3507(d))
(PRA), the reporting burden associated
with these collections of information will
be reflected in the PRA submission asso-
ciated with income tax returns in the Form
1120 series, Form 1040 series, Form 1041
series, and Form 1065 series (see chart at
the end of this part II for OMB control
numbers). The estimate for the number of
impacted filers with respect to the collec-
tion of information described in this part is
0 to 141,550 respondents. Historical data

October 7, 2019 826 Bulletin No. 2019–41
was not available to directly estimate the
number of impacted filers. This estimate
assumes that no more than 5 percent of
income tax return filers with a Form 4562
and relevant activity on lines 14 and/or
19(a-f) will make these elections, due to
the limited scope of the elections. The IRS
estimates the number of affected filers to
be the following:
Tax Forms Impacted
Collection of information
Number of respondents
(estimated)
Forms to which the
information may be attached
Section 1.168(k)-2(f)(1) Election not to de-
duct additional first year depreciation
0-41,685Form 1120 series, Form 1040 series, Form 1041
series, and Form 1065 series
Section 1.168(k)-2(f)(2) Election to apply
section 168(k)(5) for specified plants
0-790Form 1120 series, Form 1040 series, Form 1041
series, and Form 1065 series
Section 1.168(k)-2(f)(3) Election for qual-
ified property placed in service during the
2017 taxable year
0-90,275Form 1120 series, Form 1040 series, Form 1041
series, and Form 1065 series
Section 1.168(k)-2(f)(5)(ii) (Revocation of
election – Automatic 6-month extension) and
§1.168(k)-2(f)(6) (Special rules for 2016 and
2017 returns)
0-8,800Form 1120 series, Form 1040 series, Form 1041
series, and Form 1065 series
Source: IRS:RAAS:KDA (CDW 6-1-19)
If the time under Rev. Proc. 2019-33
for filing amended returns or Form 3115
has expired to revoke the election under
section 168(k)(5), (7), or (10), taxpayers
then are required to submit a request for
a private letter ruling to revoke such elec-
tion in accordance with Rev. Proc. 2019-1
(2019-1 I.R.B. 1) (or its successors). For
purposes of the PRA, the reporting bur-
den associated with these collections of
information will be reflected in the PRA
submission associated with income tax re-
turns in the Form 1120 series and Form
1065 series (see chart at the end of this
part II for OMB control numbers). The
estimate for the number of impacted filers
with respect to the collection of informa-
tion described in this part is 0 to 10 re-
spondents. This estimate is based on the
number of private letter ruling requests
filed by taxpayers from 2005 through
2018 to revoke elections under section
168(k). The IRS estimates the number of
affected filers to be the following:
Tax Forms Impacted
Collection of information
Number of respondents
(estimated)
Forms to which the information may be
attached
Section 1.168(k)-2(f)(5)(i) Revocation of election 0-10Form 1120 series and Form 1065 series
Source: IRS:CC:ITA (CASE-MIS 5-21-19)
The current status of the PRA sub-
missions related to the tax forms and the
revenue procedure that will be revised as
a result of the information collections in
these final regulations is provided in the
accompanying table. As described above,
the reporting burdens associated with the
information collections in the regulations
are included in the aggregated burden es-
timates for OMB control numbers 1545-
0123 (which represents a total estimated
burden time for all forms and schedules
for corporations of 3.157 billion hours
and total estimated monetized costs of
$58.148 billion ($2017)), 1545-0074
(which represents a total estimated bur-
den time, including all other related forms
and schedules for individuals, of 1.784
billion hours and total estimated mone-
tized costs of $31.764 billion ($2017)),
and 1545-0092 (which represents a total
estimated burden time, including all other
related forms and schedules for trusts and
estates, of 307,844,800 hours and total es-
timated monetized costs of $9.950 billion
($2016)).
The overall burden estimates provided
in the preceding paragraph for the OMB
control numbers below are aggregate
amounts that relate to the entire package
of forms or revenue procedure, as applica-
ble, associated with the applicable OMB
control number and will in the future in-
clude, but not isolate, the estimated bur-
den of the tax forms or the revenue proce-
dure, as applicable, that will be created or
revised as a result of the information col-
lections in the regulations. These numbers
are therefore unrelated to the future cal-
culations needed to assess the burden im-
posed by the regulations. These burdens
have been reported for other regulations
that rely on the same OMB control num-
bers to conduct information collections
under the PRA, and the Treasury Depart-
ment and the IRS urge readers to recog-
nize that these numbers are duplicates and
to guard against over counting the burden
that the regulations that cite these OMB
control numbers imposed prior to the Act.
No burden estimates specific to the forms
affected by the regulations are currently
available. The Treasury Department and
the IRS have not estimated the burden,

Bulletin No. 2019–41 827 October 7, 2019
including that of any new information col-
lections, related to the requirements un-
der the regulations. For the OMB control
numbers discussed in the preceding para-
graphs, the Treasury Department and the
IRS estimate PRA burdens on a taxpay-
er-type basis rather than a provision-spe-
cific basis. Those estimates would capture
both changes made by the Act and those
that arise out of discretionary authority
exercised in these final regulations and
other regulations that affect the compli-
ance burden for those forms.
The Treasury Department and the IRS
request comments on all aspects of infor-
mation collection burdens related to the
proposed regulations, including estimates
for how much time it would take to com-
ply with the paperwork burdens described
above for each relevant form or revenue
procedure, as applicable, and ways for
the IRS to minimize the paperwork bur-
den. In addition, when available, drafts
of IRS forms are posted for comment at
https://apps.irs.gov/app/picklist/list/draft-
TaxForms.htm. IRS forms are available
at https://www.irs.gov/forms-instructions.
Forms will not be finalized until after they
have been approved by OMB under the
PRA.
FormType of Filer
OMB
Number(s)
Status
Form 1040
Individual
(NEW Model)
1545-0074
Published in the Federal Register on 7/20/18. Public Comment peri-
od closed on 9/18/18.
Link: https://www.federalregister.gov/documents/2018/07/20/2018-15627/proposed-collection-comment-re-
quest-for-regulation-project
Form 1041
Trusts and
estates
1545-0092
Published in the Federal Register on 4/4/18. Public Comment period
closed on 6/4/18.
Link: https://www.federalregister.gov/documents/2018/04/04/2018-06892/proposed-collection-comment-re-
quest-for-form-1041
Forms 1065 and
1120
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment peri-
od closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-
request-for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Form 3115
All other Filers
(mainly trusts
and estates)
(Legacy system)
1545-2070
Published in the Federal Register on 2/15/17 by IRS. Public Com-
ment period closed on 4/17/17.
Link: https://www.federalregister.gov/documents/2017/02/15/2017-02985/proposed-information-collec-
tion-comment-request
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-
request-for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
Individual
(NEW Model)
1545-0074
Published in the Federal Register on 7/20/18. Public Comment period
closed on 9/18/18.
Link: https://www.federalregister.gov/documents/2018/07/20/2018-15627/proposed-collection-comment-re-
quest-for-regulation-project
Revenue Procedure
2019-1 (previously
2018-1)
Business (NEW
Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment
period closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-
request-for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
III. Regulatory Flexibility Act
It is hereby certified that these final
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities within the meaning of sec-
tion 601(6) of the Regulatory Flexibility
Act (5 U.S.C. chapter 6).
Section 168(k) generally affects tax-
payers that own and use depreciable
property in their trades or businesses or
for their production of income. The re-
porting burdens in §1.168(k)-2(f)(1),
(2), and (3), (f)(5)(i) and (ii), and (f)
(6) generally affect taxpayers that elect

October 7, 2019 828 Bulletin No. 2019–41
to make or revoke certain elections un-
der section 168(k). For purposes of the
PRA, the Treasury Department and the
IRS estimate that there are 0 to 141,550
respondents of all sizes that are likely to
be impacted by these collections of in-
formation. Most of these filers are like-
ly to be small entities (business entities
with gross receipts of $25 million or less
pursuant to section 448(c)(1)). The Trea-
sury Department and the IRS estimate the
number of filers affected by §1.168(k)-
2(f)(1), (2), and (3), (f)(5)(i) and (ii), and
(f)(6) to be the following:
FormGross receipts of $25 million or lessGross receipts over $25 million
Form 1040 0-59,000
Respondents (estimated)
0-70
Respondents (estimated)
Form 10650-30,125
Respondents (estimated)
0-935
Respondents (estimated)
Form 1120 0-11,400
Respondents (estimated)
0-1,560
Respondents (estimated)
Form 1120S 0-35,900
Respondents (estimated)
0-2,560
Respondents (estimated)
TOTAL0-136,425
Respondents (estimated)
0-5,125
Respondents (estimated)
Source: IRS:RAAS:KDA (CDW 6-1-19)
Regardless of the number of small en-
tities potentially affected by these final
regulations, the Treasury Department and
the IRS have concluded that §1.168(k)-
2(f)(1), (2), and (3), (f)(5)(i) and (ii), and
(f)(6) will not have a significant economic
impact on a substantial number of small
entities. This conclusion is based on the
fact that: (1) Many small businesses are
not required to capitalize under section
263(a) the amount paid or incurred for the
acquisition of depreciable tangible prop-
erty that costs $5,000 or less if the busi-
ness has an applicable financial statement
or costs $500 or less if the business does
not have an applicable financial statement,
pursuant to §1.263(a)-1(f)(1); (2) many
small businesses are no longer required to
capitalize under section 263A the costs to
construct, build, manufacture, install, im-
prove, raise, or grow depreciable property
if their average annual gross receipts are
$25,000,000 or less; and (3) a small busi-
ness that capitalizes costs of depreciable
tangible property may deduct under sec-
tion 179 up to $1,020,000 (2019 inflation
adjusted amount) of the cost of such prop-
erty placed in service during the taxable
year if the total cost of depreciable tangi-
ble property placed in service during the
taxable year does not exceed $2,550,000
(2019 inflation adjusted amount). Further,
§1.168(k)-2(f)(1), (2), and (3), (f)(5)(i) and
(ii), and (f)(6) apply only if the taxpayer
chooses to make an election or revoke an
election under section 168(k). Finally, no
comments regarding the economic impact
of these regulations on small entities were
received. Consequently, the Treasury De-
partment and the IRS hereby certify that
these final regulations will not have a sig-
nificant economic impact on a substantial
number of small entities.
Pursuant to section 7805(f) of the
Code, the proposed rule preceding this fi-
nal rule was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its impact
on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2019,
that threshold is approximately $154 mil-
lion. These final regulations do not in-
clude any Federal mandate that may result
in expenditures by state, local, or tribal
governments, or by the private sector in
excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes sub-
stantial, direct compliance costs on state
and local governments, and is not required
by statute, or preempts state law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive Order. These final regulations
do not have federalism implications and
do not impose substantial direct compli-
ance costs on state and local governments
or preempt state law within the meaning
of the Executive Order.
VI. Congressional Review Act
The Administrator of the Office of In-
formation and Regulatory Affairs of the
OMB has determined that this Treasury
decision is a major rule for purposes of the
Congressional Review Act (5 U.S.C. 801
et seq.) (“CRA”). Under section 801(3) of
the CRA, a major rule takes effect 60 days
after the rule is published in the Federal
Register. Notwithstanding this require-
ment, section 808(2) of the CRA allows

Bulletin No. 2019–41 829 October 7, 2019
agencies to dispense with the require-
ments of section 801 of the CRA when
the agency for good cause finds that such
procedure would be impracticable, unnec-
essary, or contrary to the public interest
and that the rule shall take effect at such
time as the agency promulgating the rule
determines.
Pursuant to section 808(2) of the CRA,
the Treasury Department and the IRS find,
for good cause, that a 60-day delay in the
effective date is unnecessary and contrary
to the public interest. The statutory provi-
sions to which these rules relate were en-
acted on December 22, 2017 and apply to
property acquired and placed in service af-
ter September 27, 2017. In most cases, two
taxable years in which such property may
have been placed in service have ended.
This means that the statutory provisions are
currently effective, and taxpayers may be
subject to Federal income tax liability for
their 2017 or 2018 taxable years reflecting
these provisions. In many cases, taxpayers
may be required to file returns reflecting
this Federal income liability during the 60-
day period that begins after this rule is pub-
lished in the Federal Register.
These final regulations provide crucial
guidance for taxpayers on how to apply
the relevant statutory rules, compute their
tax liability and accurately file their Fed-
eral income tax returns. These final reg-
ulations resolve statutory ambiguity, pre-
vent abuse and grant taxpayer relief that
would not be available based solely on the
statute. Because taxpayers must already
comply with the statute, a 60-day delay in
the effective date of the final regulations
is unnecessary and contrary to the public
interest. A delay would place certain tax-
payers in the unusual position of having
to determine whether to file tax returns
during the pre-effective date period based
on final regulations that are not yet effec-
tive. If taxpayers chose not to follow the
final regulations and did not amend their
returns after the regulations became effec-
tive, it would place significant strain on
the IRS to ensure that taxpayers correctly
calculated their tax liabilities. For exam-
ple, in cases where taxpayers self-con-
struct property, a delayed effective date
may hamper the IRS’ ability to determine
if such property was acquired after Sep-
tember 27, 2017. Moreover, a delayed
effective date could create uncertainty
and possible restatements with respect to
financial statement audits. Therefore, the
rules in this Treasury decision are effec-
tive on the date of publication in the Fed-
eral Register and taxpayers may apply
these rules to qualified property acquired
and placed in service after September 27,
2017 in a taxable year ending on or after
September 28, 2017.
The foregoing good cause statement
only applies to the 60-day delayed effec-
tive date provision of section 801(3) of
the CRA and is permitted under section
808(2) of the CRA. The Treasury Depart-
ment and the IRS hereby comply with all
aspects of the CRA and the Administrative
Procedure Act (5 U.S.C. 551 et seq.).
Drafting Information
The principal authors of these final reg-
ulations are Kathleen Reed and Elizabeth
R. Binder of the Office of Associate Chief
Counsel (Income Tax and Accounting).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.48-12 is amended:
1. In the last sentence in paragraph (a)
(2)(i), by removing “The last sen-
tence” and adding “The next to last
sentence” in its place;
2. By adding three sentences at the end
of paragraph (a)(2)(i); and
3. By adding a sentence to the end of
paragraph (c)(8)(i).
The additions read as follows:
§1.48-12 Qualified rehabilitated build-
ing; expenditures incurred after Decem-
ber 31, 1981.
(a) * * *
(2) * * *
(i) * * * The last sentence of paragraph
(c)(8)(i) of this section applies to qualified
rehabilitation expenditures that are quali-
fied property under section 168(k)(2) and
placed in service by a taxpayer during or
after the taxpayer’s taxable year that in-
cludes September 24, 2019. However, a
taxpayer may choose to apply the last sen-
tence in paragraph (c)(8)(i) of this section
for qualified rehabilitation expenditures
that are qualified property under section
168(k)(2) and acquired and placed in
service after September 27, 2017, by the
taxpayer during taxable years ending on
or after September 28, 2017. A taxpayer
may rely on the last sentence in paragraph
(c)(8)(i) of this section in regulation proj-
ect REG-104397-18 (2018-41 I.R.B. 558)
(see §601.601(d)(2)(ii)(b) of this chapter)
for qualified rehabilitation expenditures
that are qualified property under section
168(k)(2) and acquired and placed in
service after September 27, 2017, by the
taxpayer during taxable years ending on
or after September 28, 2017, and ending
before the taxpayer’s taxable year that in-
cludes September 24, 2019.
* * * * *
(c) * * *
(8) * * *
(i) * * * Further, see §1.168(k)-2(g)
(9) if the qualified rehabilitation expendi-
tures are qualified property under section
168(k), as amended by the Tax Cuts and
Jobs Act, Public Law 115-97 (131 Stat.
2054 (December 22, 2017)).
* * * * *
Par. 3. Section 1.167(a)-14 is amended:
1. In the third sentence in paragraph
(b)(1), by removing “under section
168(k)(2) or §1.168(k)-1,” and add-
ing “under section 168(k)(2) and
§1.168(k)-1 or §1.168(k)-2, as appli-
cable,” in its place;
2. In the last sentence in paragraph (e)
(3), by removing “and before 2010”;
and
3. By adding three sentences at the end
of paragraph (e)(3).
The additions read as follows:
§1.167(a)-14 Treatment of certain in-
tangible property excluded from section
197.
* * * * *
(e) * * *

October 7, 2019 830 Bulletin No. 2019–41
(3) * * * The language “or §1.168(k)-
2, as applicable,” in the third sentence in
paragraph (b)(1) of this section applies to
computer software that is qualified prop-
erty under section 168(k)(2) and placed
in service by a taxpayer during or after
the taxpayer’s taxable year that includes
September 24, 2019. However, a taxpay-
er may choose to apply the language “or
§1.168(k)-2, as applicable,” in the third
sentence in paragraph (b)(1) of this sec-
tion for computer software that is quali-
fied property under section 168(k)(2) and
acquired and placed in service after Sep-
tember 27, 2017, by the taxpayer during
taxable years ending on or after Septem-
ber 28, 2017. A taxpayer may rely on the
language “or §1.168(k)-2, as applicable,”
in the third sentence in paragraph (b)(1)
of this section in regulation project REG-
104397-18 (2018-41 I.R.B. 558) (see
§601.601(d)(2)(ii)(b) of this chapter) for
computer software that is qualified prop-
erty under section 168(k)(2) and acquired
and placed in service after September 27,
2017, by the taxpayer during taxable years
ending on or after September 28, 2017,
and ending before the taxpayer’s taxable
year that includes September 24, 2019.
Par. 4. Section 1.168(b)-1 is amended:
1. In the second sentence in paragraph
(a)(3), by removing “under section
179, section 179C, or any similar pro-
vision,” and adding “under section
179, section 179C, section 181, or
any similar provision,” in its place;
2. By adding paragraph (a)(5); and
3. By revising paragraph (b).
The addition and revision read as fol-
lows:
§1.168(b)-1 Definitions.
(a) * * *
(5) Qualified improvement property. (i)
Is any improvement that is section 1250
property to an interior portion of a build-
ing, as defined in §1.48-1(e)(1), that is
nonresidential real property, as defined in
section 168(e)(2)(B), if the improvement
is placed in service by the taxpayer after
the date the building was first placed in
service by any person and if—
(A) For purposes of section 168(e)(6),
the improvement is placed in service by
the taxpayer after December 31, 2017;
(B) For purposes of section 168(k)
(3) as in effect on the day before amend-
ment by section 13204(a)(4)(B) of the
Tax Cuts and Jobs Act, Public Law 115-
97 (131 Stat. 2054 (December 22, 2017))
(“Act”), the improvement is acquired by
the taxpayer before September 28, 2017,
the improvement is placed in service by
the taxpayer before January 1, 2018, and
the improvement meets the original use
requirement in section 168(k)(2)(A)(ii) as
in effect on the day before amendment by
section 13201(c)(1) of the Act; or
(C) For purposes of section 168(k)(3)
as in effect on the day before amendment
by section 13204(a)(4)(B) of the Act, the
improvement is acquired by the taxpayer
after September 27, 2017; the improve-
ment is placed in service by the taxpayer
after September 27, 2017, and before Jan-
uary 1, 2018; and the improvement meets
the requirements in section 168(k)(2)(A)
(ii) as amended by section 13201(c)(1) of
the Act; and
(ii) Does not include any qualified im-
provement for which an expenditure is
attributable to—
(A) The enlargement, as defined in
§1.48-12(c)(10), of the building;
(B) Any elevator or escalator, as de-
fined in §1.48-1(m)(2); or
(C) The internal structural framework,
as defined in §1.48-12(b)(3)(iii), of the
building.
(b) Applicability date—(1) In general.
Except as provided in paragraph (b)(2) of
this section, this section is applicable on
or after February 27, 2004.
(2) Application of paragraph (a)(5) of
this section and addition of “section 181”
in paragraph (a)(3) of this section—(i)
In general. Except as provided in para-
graphs (b)(2)(ii) and (iii) of this section,
paragraph (a)(5) of this section and the
language “section 181,” in the second sen-
tence in paragraph (a)(3) of this section
are applicable on or after September 24,
2019.
(ii) Early application of paragraph (a)
(5) of this section and addition of “section
181” in paragraph (a)(3) of this section. A
taxpayer may choose to apply paragraph
(a)(5) of this section and the language
“section 181,” in the second sentence in
paragraph (a)(3) of this section for the
taxpayer’s taxable years ending on or after
September 28, 2017.
(iii) Early application of regulation
project REG-104397-18. A taxpayer may
rely on the provisions of paragraph (a)
(5) of this section in regulation project
REG-104397-18 (2018-41 I.R.B 558) (see
§601.601(d)(2)(ii)(b) of this chapter) for
the taxpayer’s taxable years ending on
or after September 28, 2017, and ending
before the taxpayer’s taxable year that in-
cludes September 24, 2019.
Par. 5. Section 1.168(d)-1 is amended
by adding a sentence at the end of para-
graphs (b)(3)(ii) and (b)(7)(ii) and adding
three sentences at the end of paragraph (d)
(2) to read as follows:
§1.168(d)-1 Applicable conventions—
half-year and mid-quarter conventions.
* * * * *
(b) * * *
(3) * * *
(ii) * * * Further, see §1.168(k)-2(g)
(1) for rules relating to qualified property
under section 168(k), as amended by the
Tax Cuts and Jobs Act, Public Law 115-
97 (131 Stat. 2054 (December 22, 2017)),
that is placed in service by the taxpayer
in the same taxable year in which either
a partnership is terminated as a result of a
technical termination under section 708(b)
(1)(B) or the property is transferred in a
transaction described in section 168(i)(7).
* * * * *
(7) * * *
(ii) * * * However, see §1.168(k)-2(g)
(1)(iii) for a special rule regarding the
allocation of the additional first year de-
preciation deduction in the case of certain
contributions of property to a partnership
under section 721.
* * * * *
(d) * * *
(2) * * * The last sentences in para-
graphs (b)(3)(ii) and (b)(7)(ii) of this
section apply to qualified property under
section 168(k)(2) placed in service by a
taxpayer during or after the taxpayer’s
taxable year that includes September 24,
2019. However, a taxpayer may choose
to apply the last sentences in paragraphs
(b)(3)(ii) and (b)(7)(ii) of this section to
qualified property under section 168(k)(2)
acquired and placed in service after Sep-
tember 27, 2017, by the taxpayer during
taxable years ending on or after Septem-
ber 28, 2017. A taxpayer may rely on the
last sentences in paragraphs (b)(3)(ii) and
(b)(7)(ii) of this section in regulation proj-
ect REG-104397-18 (2018-41 I.R.B. 558)
(see §601.601(d)(2)(ii)(b) of this chap-
ter) for qualified property under section

Bulletin No. 2019–41 831 October 7, 2019
168(k)(2) acquired and placed in service
after September 27, 2017, by the taxpay-
er during taxable years ending on or after
September 28, 2017, and ending before
the taxpayer’s taxable year that includes
September 24, 2019.
* * * * *
Par. 6. Section 1.168(i)-4 is amended:
1. In the penultimate sentence in
paragraph (b)(1), by remov-
ing “§§1.168(k)-1T(f)(6)(iii) and
1.1400L(b)-1T(f)(6)” and adding
Ҥ1.168(k)-1(f)(6)(iii) or 1.168(k)-
2(g)(6)(iii), as applicable, and
§1.1400L(b)-1(f)(6)” in its place;
2. In the fifth sentence in paragraph
(c), by removing “§§1.168(k)-1T(f)
(6)(ii) and 1.1400L(b)-1T(f)(6)”
and adding Ҥ1.168(k)-1(f)(6)(ii) or
1.168(k)-2(g)(6)(ii), as applicable,
and §1.1400L(b)-1(f)(6)” in its place;
3. In the second sentence in paragraph (d)
(3)(i)(C), by removing “§§1.168(k)-
1T(f)(6)(iv) and 1.400L(b)-1T(f)(6)”
and adding Ҥ1.168(k)-1(f)(6)(iv) or
1.168(k)-2(g)(6)(iv), as applicable,
and §1.400L(b)-1(f)(6)” in its place;
4. In the last sentence in paragraph (d)
(4)(i), by removing “§§1.168(k)-
1T(f)(6)(iv) and 1.1400L(b)-1T(f)
(6)” and adding “§1.168(k)-1(f)(6)
(iv) or 1.168(k)-2(g)(6)(iv), as appli-
cable, and §1.400L(b)-1(f)(6)” in its
place;
5. By revising the first sentence in para-
graph (g)(1); and
6. By redesignating paragraph (g)(2)
as paragraph (g)(3) and adding new
paragraph (g)(2).
The revision and addition read as fol-
lows:
§1.168(i)-4 Changes in use.
* * * * *
(g) * * *
(1) * * * Except as provided in para-
graph (g)(2) of this section, this sec-
tion applies to any change in the use of
MACRS property in a taxable year ending
on or after June 17, 2004. * * *
(2) Qualified property under section
168(k) acquired and placed in service
after September 27, 2017—(i) In gener-
al. The language “or §1.168(k)-2(g)(6)
(iii), as applicable” in paragraph (b)(1) of
this section, the language “or §1.168(k)-
2(g)(6)(ii), as applicable” in paragraph
(c) of this section, and the language “or
§1.168(k)-2(g)(6)(iv), as applicable” in
paragraphs (d)(3)(i)(C) and (d)(4)(i) of
this section applies to any change in use
of MACRS property, which is qualified
property under section 168(k)(2), by a
taxpayer during or after the taxpayer’s
taxable year that includes September 24,
2019.
(ii) Early application. A taxpayer
may choose to apply the language “or
§1.168(k)-2(g)(6)(iii), as applicable” in
paragraph (b)(1) of this section, the lan-
guage “or §1.168(k)-2(g)(6)(ii), as appli-
cable” in paragraph (c) of this section, and
the language “or §1.168(k)-2(g)(6)(iv), as
applicable” in paragraphs (d)(3)(i)(C) and
(d)(4)(i) of this section for any change in
use of MACRS property, which is quali-
fied property under section 168(k)(2) and
acquired and placed in service after Sep-
tember 27, 2017, by the taxpayer during
taxable years ending on or after Septem-
ber 28, 2017.
(iii) Early application of regulation
project REG-104397-18. A taxpayer
may rely on the language “or §1.168(k)-
2(f)(6)(iii), as applicable” in paragraph
(b)(1) of this section, the language “or
§1.168(k)-2(f)(6)(ii), as applicable” in
paragraph (c) of this section, and the lan-
guage “or §1.168(k)-2(f)(6)(iv), as appli-
cable” in paragraphs (d)(3)(i)(C) and (d)
(4)(i) of this section in regulation project
REG-104397-18 (2018-41 I.R.B. 558)
(see §601.601(d)(2)(ii)(b) of this chap-
ter) for any change in use of MACRS
property, which is qualified property
under section 168(k)(2) and acquired
and placed in service after September
27, 2017, by the taxpayer during taxable
years ending on or after September 28,
2017, and ending before the taxpayer’s
taxable year that includes September 24,
2019.
* * * * *
Par. 7. Section 1.168(i)-6 is amended:
1. In paragraph (d)(3)(ii)(B), by remov-
ing “1.168(k)-1(f)(5) or §1.1400L(b)-
1(f)(5)” wherever it appears and add-
ing “1.168(k)-1(f)(5), §1.168(k)-2(g)
(5), or §1.1400L(b)-1(f)(5)” in its
place;
2. In paragraph (d)(3)(ii)(E), by remov-
ing “1.168(k)-1(f)(5) or §1.1400L(b)-
1(f)(5)” and adding “1.168(k)-1(f)(5),
§1.168(k)-2(g)(5), or §1.1400L(b)-
1(f)(5)” in its place;
3. By adding a sentence at the end of
paragraph (d)(4);
4. By adding a sentence at the end of
paragraph (h);
5. By revising paragraph (k)(1); and
6. By adding paragraph (k)(4).
The additions and revision read as fol-
lows:
§1.168(i)-6 Like-kind exchanges and
involuntary conversions.
* * * * *
(d) * * *
(4) * * * Further, see §1.168(k)-2(g)
(5)(iv) for replacement MACRS proper-
ty that is qualified property under section
168(k), as amended by the Tax Cuts and
Jobs Act, Public Law 115-97 (131 Stat.
2054 (December 22, 2017)).
* * * * *
(h) * * * Further, see §1.168(k)-2(g)
(5) for qualified property under section
168(k), as amended by the Tax Cuts and
Jobs Act, Public Law 115-97 (131 Stat.
2054 (December 22, 2017)).
* * * * *
(k) ***
(1) In general. Except as provided in
paragraphs (k)(3) and (4) of this section,
this section applies to a like-kind ex-
change or an involuntary conversion of
MACRS property for which the time of
disposition and the time of replacement
both occur after February 27, 2004.
* * * * *
(4) Qualified property under section
168(k) acquired and placed in service af-
ter September 27, 2017—(i) In general.
The language “1.168(k)-2(g)(5),” in para-
graphs (d)(3)(ii)(B) and (E) of this section
and the final sentence in paragraphs (d)
(4) and (h) of this section apply to a like-
kind exchange or an involuntary conver-
sion of MACRS property, which is quali-
fied property under section 168(k)(2), for
which the time of replacement occurs on
or after September 24, 2019.
(ii) Early application. A taxpayer may
choose to apply the language “1.168(k)-
2(g)(5),” in paragraphs (d)(3)(ii)(B) and
(E) of this section and the final sentence
in paragraphs (d)(4) and (h) of this sec-
tion to a like-kind exchange or an invol-
untary conversion of MACRS property,
which is qualified property under section
168(k)(2), for which the time of replace-
ment occurs on or after September 28,
2017.

October 7, 2019 832 Bulletin No. 2019–41
(iii) Early application of regulation
project REG-104397-18. A taxpayer may
rely on the language “1.168(k)-2(f)(5),”
in paragraphs (d)(3)(ii)(B) and (E) of this
section and the final sentence in para-
graphs (d)(4) and (h) of this section in
regulation project REG-104397-18 (2018-
41 I.R.B. 558) (see §601.601(d)(2)(ii)(b)
of this chapter) for a like-kind exchange
or an involuntary conversion of MACRS
property, which is qualified property un-
der section 168(k)(2), for which the time
of replacement occurs on or after Septem-
ber 28, 2017, and occurs before Septem-
ber 24, 2019.
Par. 8. Section 1.168(k)-0 is amended
by revising the introductory text and add-
ing an entry for §1.168(k)-2 in numerical
order to the table of contents to read as
follows:
§1.168(k)-0 Table of contents.
This section lists the major paragraphs
contained in §§1.168(k)-1 and 1.168(k)-2.
* * * * *
§1.168(k)-2 Additional first year depre-
ciation deduction for property acquired
and placed in service after September 27,
2017.
(a) Scope and definitions.
(1) Scope.
(2) Definitions.
(b) Qualified property.
(1) In general.
(2) Description of qualified property.
(i) In general.
(ii) Property not eligible for additional
first year depreciation deduction.
(iii) Examples.
(3) Original use or used property acqui-
sition requirements.
(i) In general.
(ii) Original use.
(A) In general.
(B) Conversion to business or income-
producing use.
(C) Fractional interests in property.
(iii) Used property acquisition require-
ments.
(A) In general.
(B) Property was not used by the tax-
payer at any time prior to acquisition.
(C) [Reserved]
(iv) Application to partnerships.
(A) Section 704(c) remedial alloca-
tions.
(B) Basis determined under section
732.
(C) Section 734(b) adjustments.
(D) Section 743(b) adjustments.
(v) [Reserved]
(vi) Syndication transaction.
(vii) Examples.
(4) Placed-in-service date.
(i) In general.
(ii) Specified plant.
(iii) Qualified film, television, or live
theatrical production.
(A) Qualified film or television produc-
tion.
(B) Qualified live theatrical produc-
tion.
(iv) Syndication transaction.
(v) Technical termination of a partner-
ship.
(vi) Section 168(i)(7) transactions.
(5) Acquisition of property.
(i) In general.
(ii) Acquisition date.
(A) In general.
(B) Determination of acquisition date
for property acquired pursuant to a written
binding contract.
(iii) Definition of binding contract.
(A) In general.
(B) Conditions.
(C) Options.
(D) Letter of intent.
(E) Supply agreements.
(F) Components.
(G) [Reserved]
(iv) Self-constructed property.
(A) In general.
(B) When does manufacture, construc-
tion, or production begin.
(C) Components of self-constructed
property.
(v) [Reserved]
(vi) Qualified film, television, or live
theatrical production.
(A) Qualified film or television produc-
tion.
(B) Qualified live theatrical produc-
tion.
(vii) Specified plant.
(viii) Examples.
(c) [Reserved]
(d) Property described in section
168(k)(2)(B) or (C).
(1) In general.
(2) Definition of binding contract.
(3) Self-constructed property.
(i) In general.
(ii) When does manufacture, construc-
tion, or production begin.
(A) In general.
(B) Safe harbor.
(iii) Components of self-constructed
property.
(A) Acquired components.
(B) Self-constructed components.
(iv) Examples.
(e) Computation of depreciation de-
duction for qualified property.
(1) Additional first year depreciation
deduction.
(i) Allowable taxable year.
(ii) Computation.
(iii) Property described in section
168(k)(2)(B).
(iv) Alternative minimum tax.
(A) In general.
(B) Special rules.
(2) Otherwise allowable depreciation
deduction.
(i) In general.
(ii) Alternative minimum tax.
(3) Examples.
(f) Elections under section 168(k).
(1) Election not to deduct additional
first year depreciation.
(i) In general.
(ii) Definition of class of property.
(iii) Time and manner for making elec-
tion.
(A) Time for making election.
(B) Manner of making election.
(iv) Failure to make election.
(2) Election to apply section 168(k)(5)
for specified plants.
(i) In general.
(ii) Time and manner for making elec-
tion.
(A) Time for making election.
(B) Manner of making election.
(iii) Failure to make election.
(3) Election for qualified property
placed in service during the 2017 taxable
year.
(i) In general.
(ii) Time and manner for making elec-
tion.
(A) Time for making election.
(B) Manner of making election.
(iii) Failure to make election.
(4) Alternative minimum tax.
(5) Revocation of election.
(i) In general.
(ii) Automatic 6-month extension.
(6) Special rules for 2016 and 2017 re-
turns.
(g) Special rules.

Bulletin No. 2019–41 833 October 7, 2019
(1) Property placed in service and dis-
posed of in the same taxable year.
(i) In general.
(ii) Technical termination of a partner-
ship.
(iii) Section 168(i)(7) transactions.
(iv) Examples.
(2) Redetermination of basis.
(i) Increase in basis.
(ii) Decrease in basis.
(iii) Definitions.
(iv) Examples.
(3) Sections 1245 and 1250 deprecia-
tion recapture.
(4) Coordination with section 169.
(5) Like-kind exchanges and involun-
tary conversions.
(i) Scope.
(ii) Definitions.
(iii) Computation.
(A) In general.
(B) Year of disposition and year of re-
placement.
(C) Property described in section
168(k)(2)(B).
(D) Effect of §1.168(i)-6(i)(1) election.
(E) Alternative minimum tax.
(iv) Replacement MACRS property or
replacement computer software that is ac-
quired and placed in service before dispo-
sition of relinquished MACRS property or
relinquished computer software.
(v) Examples.
(6) Change in use.
(i) Change in use of MACRS property.
(ii) Conversion to personal use.
(iii) Conversion to business or in-
come-producing use.
(A) During the same taxable year.
(B) Subsequent to the acquisition year.
(iv) Depreciable property changes use
subsequent to the placed-in-service year.
(v) Examples.
(7) Earnings and profits.
(8) Limitation of amount of deprecia-
tion for certain passenger automobiles.
(9) Coordination with section 47.
(i) In general.
(ii) Example.
(10) Coordination with section 514(a)
(3).
(11) [Reserved]
(h) Applicability dates.
(1) In general.
(2) Early application of this section.
(3) Early application of regulation
project REG-104397-18.
Par. 9. Section 1.168(k)-2 is added to
read as follows:
§1.168(k)-2 Additional first year depre-
ciation deduction for property acquired
and placed in service after September 27,
2017.
(a) Scope and definitions—(1) Scope.
This section provides rules for determin-
ing the additional first year depreciation
deduction allowable under section 168(k)
for qualified property acquired and placed
in service after September 27, 2017.
(2) Definitions. For purposes of this
section—
(i) Act is the Tax Cuts and Jobs Act,
Public Law 115-97 (131 Stat. 2054 (De-
cember 22, 2017));
(ii) Applicable percentage is the per-
centage provided in section 168(k)(6);
(iii) Initial live staged performance is
the first commercial exhibition of a pro-
duction to an audience. However, the term
initial live staged performance does not
include limited exhibition prior to com-
mercial exhibition to general audiences if
the limited exhibition is primarily for pur-
poses of publicity, determining the need
for further production activity, or raising
funds for the completion of production.
For example, an initial live staged perfor-
mance does not include a preview of the
production if the preview is primarily to
determine the need for further production
activity; and
(iv) Predecessor includes—
(A) A transferor of an asset to a trans-
feree in a transaction to which section
381(a) applies;
(B) A transferor of an asset to a trans-
feree in a transaction in which the trans-
feree’s basis in the asset is determined, in
whole or in part, by reference to the basis
of the asset in the hands of the transferor;
(C) A partnership that is considered as
continuing under section 708(b)(2) and
§1.708-1;
(D) The decedent in the case of an asset
acquired by the estate; or
(E) A transferor of an asset to a trust.
(b) Qualified property—(1) In general.
Qualified property is depreciable proper-
ty, as defined in §1.168(b)-1(a)(1), that
meets all the following requirements in
the first taxable year in which the property
is subject to depreciation by the taxpayer
whether or not depreciation deductions for
the property are allowable:
(i) The requirements in §1.168(k)-2(b)
(2) (description of qualified property);
(ii) The requirements in §1.168(k)-2(b)
(3) (original use or used property acquisi-
tion requirements);
(iii) The requirements in §1.168(k)-
2(b)(4) (placed-in-service date); and
(iv) The requirements in §1.168(k)-
2(b)(5) (acquisition of property).
(2) Description of qualified property—
(i) In general. Depreciable property will
meet the requirements of this paragraph
(b)(2) if the property is—
(A) MACRS property, as defined in
§1.168(b)-1(a)(2), that has a recovery
period of 20 years or less. For purposes
of this paragraph (b)(2)(i)(A) and section
168(k)(2)(A)(i)(I), the recovery period is
determined in accordance with section
168(c) regardless of any election made by
the taxpayer under section 168(g)(7). This
paragraph (b)(2)(i)(A) includes the fol-
lowing MACRS property that is acquired
by the taxpayer after September 27, 2017,
and placed in service by the taxpayer after
September 27, 2017, and before January
1, 2018:
(1) Qualified leasehold improvement
property as defined in section 168(e)(6) as
in effect on the day before amendment by
section 13204(a)(1) of the Act;
(2) Qualified restaurant property, as
defined in section 168(e)(7) as in effect
on the day before amendment by sec-
tion 13204(a)(1) of the Act, that is qual-
ified improvement property as defined in
§1.168(b)-1(a)(5)(i)(C) and (a)(5)(ii); and
(3) Qualified retail improvement prop-
erty as defined in section 168(e)(8) as in
effect on the day before amendment by
section 13204(a)(1) of the Act;
(B) Computer software as defined in,
and depreciated under, section 167(f)(1)
and §1.167(a)-14;
(C) Water utility property as defined in
section 168(e)(5) and depreciated under
section 168;
(D) Qualified improvement property as
defined in §1.168(b)-1(a)(5)(i)(C) and (a)
(5)(ii) and depreciated under section 168;
(E) A qualified film or television pro-
duction, as defined in section 181(d) and
§1.181-3, for which a deduction would
have been allowable under section 181
and §§1.181-1 through 1.181-6 with-
out regard to section 181(a)(2) and (g),
§1.181-1(b)(1)(i) and (ii), and (b)(2)(i),

October 7, 2019 834 Bulletin No. 2019–41
or section 168(k). Only production costs
of a qualified film or television production
are allowable as a deduction under section
181 and §§1.181-1 through 1.181-6 with-
out regard, for purposes of section 168(k),
to section 181(a)(2) and (g), §1.181-1(b)
(1)(i) and (ii), and (b)(2)(i). The taxpayer
that claims the additional first year depre-
ciation deduction under this section for
the production costs of a qualified film or
television production must be the owner,
as defined in §1.181-1(a)(2), of the qual-
ified film or television production. See
§1.181-1(a)(3) for the definition of pro-
duction costs;
(F) A qualified live theatrical produc-
tion, as defined in section 181(e), for
which a deduction would have been al-
lowable under section 181 and §§1.181-1
through 1.181-6 without regard to section
181(a)(2) and (g), §1.181-1(b)(1)(i) and
(ii), and (b)(2)(i), or section 168(k). Only
production costs of a qualified live the-
atrical production are allowable as a de-
duction under section 181 and §§1.181-1
through 1.181-6 without regard, for pur-
poses of section 168(k), to section 181(a)
(2) and (g), §1.181-1(b)(1)(i) and (ii), and
(b)(2)(i). The taxpayer that claims the ad-
ditional first year depreciation deduction
under this section for the production costs
of a qualified live theatrical production
must be the owner, as defined in §1.181-
1(a)(2), of the qualified live theatrical
production. In applying §1.181-1(a)(2)
(ii) to a person that acquires a finished or
partially-finished qualified live theatrical
production, such person is treated as an
owner of that production, but only if the
production is acquired prior to its initial
live staged performance. Rules similar to
the rules in §1.181-1(a)(3) for the defini-
tion of production costs of a qualified film
or television production apply for defining
production costs of a qualified live theatri-
cal production; or
(G) A specified plant, as defined in sec-
tion 168(k)(5)(B), for which the taxpayer
has properly made an election to apply
section 168(k)(5) for the taxable year in
which the specified plant is planted, or
grafted to a plant that has already been
planted, by the taxpayer in the ordinary
course of the taxpayer’s farming business,
as defined in section 263A(e)(4) (for fur-
ther guidance, see paragraph (f) of this
section).
(ii) Property not eligible for addition-
al first year depreciation deduction. De-
preciable property will not meet the re-
quirements of this paragraph (b)(2) if the
property is—
(A) Described in section 168(f) (for
example, automobiles for which the tax-
payer uses the optional business standard
mileage rate);
(B) Required to be depreciated under
the alternative depreciation system of sec-
tion 168(g) pursuant to section 168(g)(1)
(A), (B), (C), (D), (F), or (G), or other pro-
visions of the Internal Revenue Code (for
example, property described in section
263A(e)(2)(A) if the taxpayer or any re-
lated person, as defined in section 263A(e)
(2)(B), has made an election under section
263A(d)(3), or property described in sec-
tion 280F(b)(1)). If section 168(h)(6) ap-
plies to the property, only the tax-exempt
entity’s proportionate share of the proper-
ty, as determined under section 168(h)(6),
is treated as tax-exempt use property de-
scribed in section 168(g)(1)(B) and in this
paragraph (b)(2)(ii)(B). This paragraph
(b)(2)(ii)(B) does not apply to property
for which the adjusted basis is required to
be determined using the alternative depre-
ciation system of section 168(g) pursuant
to section 250(b)(2)(B) or 951A(d)(3), as
applicable, or to property for which the
adjusted basis is required to be determined
using the alternative depreciation system
of section 168(g) for allocating business
interest expense between excepted and
non-excepted trades or businesses under
section 163(j), but only if the property is
not required to be depreciated under the
alternative depreciation system of sec-
tion 168(g) pursuant to section 168(g)(1)
(A), (B), (C), (D), (F), or (G), or other
provisions of the Code, other than section
163(j), 250(b)(2)(B), or 951A(d)(3), as
applicable;
(C) Included in any class of property
for which the taxpayer elects not to deduct
the additional first year depreciation (for
further guidance, see paragraph (f) of this
section);
(D) A specified plant that is placed in
service by the taxpayer during the taxable
year and for which the taxpayer made an
election to apply section 168(k)(5) for a
prior taxable year;
(E) Included in any class of property
for which the taxpayer elects to apply sec-
tion 168(k)(4). This paragraph (b)(2)(ii)
(E) applies to property placed in service
by the taxpayer in any taxable year begin-
ning before January 1, 2018;
(F) Primarily used in a trade or busi-
ness described in section 163(j)(7)(A)(iv),
and placed in service by the taxpayer in
any taxable year beginning after Decem-
ber 31, 2017; or
(G) Used in a trade or business that has
had floor plan financing indebtedness, as
defined in section 163(j)(9), if the floor
plan financing interest, as defined in sec-
tion 163(j)(9), related to such indebted-
ness is taken into account under section
163(j)(1)(C) for the taxable year. Such
property also must be placed in service by
the taxpayer in any taxable year beginning
after December 31, 2017.
(iii) Examples. The application of this
paragraph (b)(2) is illustrated by the fol-
lowing examples. Unless the facts specif-
ically indicate otherwise, assume that the
parties are not related within the meaning
of section 179(d)(2)(A) or (B) and §1.179-
4(c), and are not described in section
163(j)(3):
(A) Example 1. On February 8, 2018, A finish-
es the production of a qualified film, as defined in
§1.181-3. On June 4, 2018, B acquires this finished
production from A. The initial release or broadcast,
as defined in §1.181-1(a)(7), of this qualified film is
on July 28, 2018. Because B acquired the qualified
film before its initial release or broadcast, B is treat-
ed as the owner of the qualified film for purposes of
section 181 and §1.181-1(a)(2). Assuming all other
requirements of this section are met and all require-
ments of section 181 and §§1.181-1 through 1.181-6,
other than section 181(a)(2) and (g), and §1.181-1(b)
(1)(i) and (ii), and (b)(2)(i), are met, B’s acquisition
cost of the qualified film qualifies for the additional
first year depreciation deduction under this section.
(B) Example 2. The facts are the same as in Ex-
ample 1 of paragraph (b)(2)(iii)(A) of this section,
except that B acquires a limited license or right to
release the qualified film in Europe. As a result, B is
not treated as the owner of the qualified film pursuant
to §1.181-1(a)(2). Accordingly, paragraph (b)(2)(i)
(E) of this section is not satisfied, and B’s acquisition
cost of the license or right does not qualify for the
additional first year depreciation deduction.
(C) Example 3. C owns a film library. All of the
films in this film library are completed and have been
released or broadcasted. In 2018, D buys this film
library from C. Because D acquired the films after
their initial release or broadcast, D’s acquisition cost
of the film library does not qualify for a deduction
under section 181. As a result, paragraph (b)(2)(i)(E)
of this section is not satisfied, and D’s acquisition
cost of the film library does not qualify for the addi-
tional first year depreciation deduction.
(D) Example 4. During 2019, E Corporation, a
domestic corporation, acquired new equipment for

Bulletin No. 2019–41 835 October 7, 2019
use in its manufacturing trade or business in Mexico.
To determine its qualified business asset investment
for purposes of section 250, E Corporation must
determine the adjusted basis of the new equipment
using the alternative depreciation system of sec-
tion 168(g) pursuant to sections 250(b)(2)(B) and
951A(d)(3). E Corporation also is required to depre-
ciate the new equipment under the alternative depre-
ciation system of section 168(g) pursuant to section
168(g)(1)(A). As a result, the new equipment does
not qualify for the additional first year depreciation
deduction pursuant to paragraph (b)(2)(ii)(B) of this
section.
(E) Example 5. The facts are the same as in Ex-
ample 4 of paragraph (b)(2)(iii)(D) of this section,
except E Corporation acquired the new equipment
for use in its manufacturing trade or business in Cal-
ifornia. The new equipment is not described in sec-
tion 168(g)(1)(A), (B), (C), (D), (F), or (G). No other
provision of the Internal Revenue Code, other than
section 250(b)(2)(B) or 951A(d)(3), requires the new
equipment to be depreciated using the alternative de-
preciation system of section 168(g). To determine its
qualified business asset investment for purposes of
section 250, E Corporation must determine the ad-
justed basis of the new equipment using the alterna-
tive depreciation system of section 168(g) pursuant
to sections 250(b)(2)(B) and 951A(d)(3). Because
E Corporation is not required to depreciate the new
equipment under the alternative depreciation system
of section 168(g), paragraph (b)(2)(ii)(B) of this sec-
tion does not apply to this new equipment. Assuming
all other requirements are met, the new equipment
qualifies for the additional first year depreciation de-
duction under this section.
(3) Original use or used property ac-
quisition requirements—(i) In general.
Depreciable property will meet the re-
quirements of this paragraph (b)(3) if the
property meets the original use require-
ments in paragraph (b)(3)(ii) of this sec-
tion or if the property meets the used prop-
erty acquisition requirements in paragraph
(b)(3)(iii) of this section.
(ii) Original use—(A) In general. De-
preciable property will meet the require-
ments of this paragraph (b)(3)(ii) if the
original use of the property commences
with the taxpayer. Except as provided in
paragraphs (b)(3)(ii)(B) and (C) of this
section, original use means the first use
to which the property is put, whether or
not that use corresponds to the use of the
property by the taxpayer. Additional capi-
tal expenditures paid or incurred by a tax-
payer to recondition or rebuild property
acquired or owned by the taxpayer satisfy
the original use requirement. However,
the cost of reconditioned or rebuilt prop-
erty does not satisfy the original use re-
quirement (but may satisfy the used prop-
erty acquisition requirements in paragraph
(b)(3)(iii) of this section). The question
of whether property is reconditioned or
rebuilt property is a question of fact. For
purposes of this paragraph (b)(3)(ii)(A),
property that contains used parts will not
be treated as reconditioned or rebuilt if the
cost of the used parts is not more than 20
percent of the total cost of the property,
whether acquired or self-constructed.
(B) Conversion to business or in-
come-producing use—(1) Personal use
to business or income-producing use. If
a taxpayer initially acquires new proper-
ty for personal use and subsequently uses
the property in the taxpayer’s trade or
business or for the taxpayer’s production
of income, the taxpayer is considered the
original user of the property. If a person
initially acquires new property for per-
sonal use and a taxpayer subsequently
acquires the property from the person for
use in the taxpayer’s trade or business or
for the taxpayer’s production of income,
the taxpayer is not considered the original
user of the property.
(2) Inventory to business or in-
come-producing use. If a taxpayer initially
acquires new property and holds the prop-
erty primarily for sale to customers in the
ordinary course of the taxpayer’s business
and subsequently withdraws the property
from inventory and uses the property pri-
marily in the taxpayer’s trade or business
or primarily for the taxpayer’s production
of income, the taxpayer is considered the
original user of the property. If a person
initially acquires new property and holds
the property primarily for sale to custom-
ers in the ordinary course of the person’s
business and a taxpayer subsequently ac-
quires the property from the person for
use primarily in the taxpayer’s trade or
business or primarily for the taxpayer’s
production of income, the taxpayer is con-
sidered the original user of the property.
For purposes of this paragraph (b)(3)(ii)
(B)(2), the original use of the property by
the taxpayer commences on the date on
which the taxpayer uses the property pri-
marily in the taxpayer’s trade or business
or primarily for the taxpayer’s production
of income.
(C) Fractional interests in property.
If, in the ordinary course of its business,
a taxpayer sells fractional interests in new
property to third parties unrelated to the
taxpayer, each first fractional owner of the
property is considered as the original user
of its proportionate share of the property.
Furthermore, if the taxpayer uses the prop-
erty before all of the fractional interests of
the property are sold but the property con-
tinues to be held primarily for sale by the
taxpayer, the original use of any fractional
interest sold to a third party unrelated to
the taxpayer subsequent to the taxpayer’s
use of the property begins with the first
purchaser of that fractional interest. For
purposes of this paragraph (b)(3)(ii)(C),
persons are not related if they do not have
a relationship described in section 267(b)
and §1.267(b)-1, or section 707(b) and
§1.707-1.
(iii) Used property acquisition require-
ments—(A) In general. Depreciable prop-
erty will meet the requirements of this
paragraph (b)(3)(iii) if the acquisition of
the used property meets the following re-
quirements:
(1) Such property was not used by the
taxpayer or a predecessor at any time prior
to such acquisition;
(2) The acquisition of such property
meets the requirements of section 179(d)
(2)(A), (B), and (C), and §1.179-4(c)(1)
(ii), (iii), and (iv); or §1.179-4(c)(2) (prop-
erty is acquired by purchase); and
(3) The acquisition of such property
meets the requirements of section 179(d)
(3) and §1.179-4(d) (cost of property) (for
further guidance regarding like-kind ex-
changes and involuntary conversions, see
paragraph (g)(5) of this section).
(B) Property was not used by the tax-
payer at any time prior to acquisition—
(1) In general. Solely for purposes of
paragraph (b)(3)(iii)(A)(1) of this section,
the property is treated as used by the tax-
payer or a predecessor at any time prior
to acquisition by the taxpayer or predeces-
sor if the taxpayer or the predecessor had
a depreciable interest in the property at
any time prior to such acquisition, wheth-
er or not the taxpayer or the predecessor
claimed depreciation deductions for the
property. To determine if the taxpayer or
a predecessor had a depreciable interest
in the property at any time prior to ac-
quisition, only the five calendar years im-
mediately prior to the taxpayer’s current
placed-in-service year of the property is
taken into account. If the taxpayer and a
predecessor have not been in existence
for this entire five-year period, only the
number of calendar years the taxpayer and

October 7, 2019 836 Bulletin No. 2019–41
the predecessor have been in existence is
taken into account. If a lessee has a de-
preciable interest in the improvements
made to leased property and subsequent-
ly the lessee acquires the leased property
of which the improvements are a part, the
unadjusted depreciable basis, as defined
in §1.168(b)-1(a)(3), of the acquired prop-
erty that is eligible for the additional first
year depreciation deduction, assuming
all other requirements are met, must not
include the unadjusted depreciable basis
attributable to the improvements.
(2) Taxpayer has a depreciable interest
in a portion of the property. If a taxpayer
initially acquires a depreciable interest in
a portion of the property and subsequent-
ly acquires a depreciable interest in an
additional portion of the same property,
such additional depreciable interest is not
treated as used by the taxpayer at any time
prior to its acquisition by the taxpayer un-
der paragraphs (b)(3)(iii)(A)(1) and (b)(3)
(iii)(B)(1) of this section. This paragraph
(b)(3)(iii)(B)(2) does not apply if the tax-
payer or a predecessor previously had a
depreciable interest in the subsequently
acquired additional portion. For purposes
of this paragraph (b)(3)(iii)(B)(2), a por-
tion of the property is considered to be
the percentage interest in the property. If
a taxpayer holds a depreciable interest in
a portion of the property, sells that portion
or a part of that portion, and subsequently
acquires a depreciable interest in another
portion of the same property, the taxpay-
er will be treated as previously having a
depreciable interest in the property up to
the amount of the portion for which the
taxpayer held a depreciable interest in the
property before the sale.
(3) Substantial renovation of property.
If a taxpayer acquires and places in ser-
vice substantially renovated property and
the taxpayer or a predecessor previously
had a depreciable interest in the proper-
ty before it was substantially renovated,
the taxpayer’s or predecessor’s deprecia-
ble interest in the property before it was
substantially renovated is not taken into
account for determining whether the sub-
stantially renovated property was used by
the taxpayer or a predecessor at any time
prior to its acquisition by the taxpayer un-
der paragraphs (b)(3)(iii)(A)(1) and (b)(3)
(iii)(B)(1) of this section. For purposes of
this paragraph (b)(3)(iii)(B)(3), property
is substantially renovated if the cost of the
used parts is not more than 20 percent of
the total cost of the substantially renovat-
ed property, whether acquired or self-con-
structed.
(C) [Reserved]
(iv) Application to partnerships—(A)
Section 704(c) remedial allocations. Re-
medial allocations under section 704(c) do
not satisfy the requirements of paragraph
(b)(3) of this section. See §1.704-3(d)(2).
(B) Basis determined under section
732. Any basis of distributed property de-
termined under section 732 does not satis-
fy the requirements of paragraph (b)(3) of
this section.
(C) Section 734(b) adjustments. Any
increase in basis of depreciable property
under section 734(b) does not satisfy the
requirements of paragraph (b)(3) of this
section.
(D) Section 743(b) adjustments—(1)
In general. For purposes of determining
whether the transfer of a partnership inter-
est meets the requirements of paragraph
(b)(3)(iii)(A) of this section, each partner
is treated as having a depreciable inter-
est in the partner’s proportionate share of
partnership property. Any increase in ba-
sis of depreciable property under section
743(b) satisfies the requirements of para-
graph (b)(3)(iii)(A) of this section if–
(i) At any time prior to the transfer of
the partnership interest that gave rise to
such basis increase, neither the transferee
partner nor a predecessor of the transferee
partner had any depreciable interest in the
portion of the property deemed acquired
to which the section 743(b) adjustment is
allocated under section 755 and §1.755-1;
and
(ii) The transfer of the partnership in-
terest that gave rise to such basis increase
satisfies the requirements of paragraphs
(b)(3)(iii)(A)(2) and (3) of this section.
(2) Relatedness tested at partner lev-
el. Solely for purposes of paragraph (b)
(3)(iv)(D)(1)(ii) of this section, whether
the parties are related or unrelated is de-
termined by comparing the transferor and
the transferee of the transferred partner-
ship interest.
(v) [Reserved]
(vi) Syndication transaction. If new
property is acquired and placed in service
by a lessor, or if used property is acquired
and placed in service by a lessor and the
lessor or a predecessor did not previous-
ly have a depreciable interest in the used
property, and the property is sold by the
lessor or any subsequent purchaser with-
in three months after the date the proper-
ty was originally placed in service by the
lessor (or, in the case of multiple units of
property subject to the same lease, within
three months after the date the final unit
is placed in service, so long as the period
between the time the first unit is placed in
service and the time the last unit is placed
in service does not exceed 12 months), and
the user of the property after the last sale
during the three-month period remains
the same as when the property was orig-
inally placed in service by the lessor, the
purchaser of the property in the last sale
during the three-month period is consid-
ered the taxpayer that acquired the prop-
erty for purposes of applying paragraphs
(b)(3)(ii) and (iii) of this section. The
purchaser of the property in the last sale
during the three-month period is treated,
for purposes of applying paragraph (b)(3)
of this section, as—
(A) The original user of the property in
this transaction if the lessor acquired and
placed in service new property; or
(B) The taxpayer having the deprecia-
ble interest in the property in this trans-
action if the lessor acquired and placed in
service used property.
(vii) Examples. The application of this
paragraph (b)(3) is illustrated by the fol-
lowing examples. Unless the facts specif-
ically indicate otherwise, assume that the
parties are not related within the meaning
of section 179(d)(2)(A) or (B) and §1.179-
4(c), no corporation is a member of a con-
solidated or controlled group, and the par-
ties do not have predecessors:
(A) Example 1. (1) On August 1, 2018, A buys a
new machine for $35,000 from an unrelated party for
use in A’s trade or business. On July 1, 2020, B buys
that machine from A for $20,000 for use in B’s trade
or business. On October 1, 2020, B makes a $5,000
capital expenditure to recondition the machine. B did
not have any depreciable interest in the machine be-
fore B acquired it on July 1, 2020.
(2) A’s purchase price of $35,000 satisfies the
original use requirement of paragraph (b)(3)(ii) of
this section and, assuming all other requirements are
met, qualifies for the additional first year deprecia-
tion deduction under this section.
(3) B’s purchase price of $20,000 does not satisfy
the original use requirement of paragraph (b)(3)(ii)
of this section, but it does satisfy the used proper-
ty acquisition requirements of paragraph (b)(3)(iii)
of this section. Assuming all other requirements are

Bulletin No. 2019–41 837 October 7, 2019
met, the $20,000 purchase price qualifies for the ad-
ditional first year depreciation deduction under this
section. Further, B’s $5,000 expenditure satisfies
the original use requirement of paragraph (b)(3)(ii)
of this section and, assuming all other requirements
are met, qualifies for the additional first year depre-
ciation deduction under this section, regardless of
whether the $5,000 is added to the basis of the ma-
chine or is capitalized as a separate asset.
(B) Example 2. C, an automobile dealer, uses
some of its automobiles as demonstrators in order to
show them to prospective customers. The automo-
biles that are used as demonstrators by C are held
by C primarily for sale to customers in the ordinary
course of its business. On November 1, 2017, D buys
from C an automobile that was previously used as a
demonstrator by C. D will use the automobile sole-
ly for business purposes. The use of the automobile
by C as a demonstrator does not constitute a “use”
for purposes of the original use requirement and,
therefore, D will be considered the original user of
the automobile for purposes of paragraph (b)(3)(ii)
of this section. Assuming all other requirements are
met, D’s purchase price of the automobile qualifies
for the additional first year depreciation deduction
for D under this section, subject to any limitation
under section 280F.
(C) Example 3. On April 1, 2015, E acquires a
horse to be used in E’s thoroughbred racing business.
On October 1, 2018, F buys the horse from E and
will use the horse in F’s horse breeding business. F
did not have any depreciable interest in the horse be-
fore F acquired it on October 1, 2018. The use of the
horse by E in its racing business prevents F from sat-
isfying the original use requirement of paragraph (b)
(3)(ii) of this section. However, F’s acquisition of the
horse satisfies the used property acquisition require-
ments of paragraph (b)(3)(iii) of this section. Assum-
ing all other requirements are met, F’s purchase price
of the horse qualifies for the additional first year de-
preciation deduction for F under this section.
(D) Example 4. In the ordinary course of its busi-
ness, G sells fractional interests in its aircraft to un-
related parties. G holds out for sale eight equal frac-
tional interests in an aircraft. On October 1, 2017,
G sells five of the eight fractional interests in the
aircraft to H and H begins to use its proportionate
share of the aircraft immediately upon purchase. On
February 1, 2018, G sells to I the remaining unsold
3
⁄
8
fractional interests in the aircraft. H is considered
the original user as to its
5
⁄
8
fractional interest in the
aircraft and I is considered the original user as to its
3
⁄
8
fractional interest in the aircraft. Thus, assuming
all other requirements are met, H’s purchase price for
its
5
⁄
8
fractional interest in the aircraft qualifies for
the additional first year depreciation deduction under
this section and I’s purchase price for its
3
⁄
8
fractional
interest in the aircraft qualifies for the additional first
year depreciation deduction under this section.
(E) Example 5. On September 1, 2017, J, an
equipment dealer, buys new tractors that are held
by J primarily for sale to customers in the ordinary
course of its business. On October 15, 2017, J with-
draws the tractors from inventory and begins to use
the tractors primarily for producing rental income.
The holding of the tractors by J as inventory does
not constitute a “use” for purposes of the original use
requirement and, therefore, the original use of the
tractors commences with J on October 15, 2017, for
purposes of paragraph (b)(3)(ii) of this section. How-
ever, the tractors are not eligible for the additional
first year depreciation deduction under this section
because J acquired the tractors before September 28,
2017.
(F) Example 6. K is in the trade or business of
leasing equipment to others. During 2016, K buys a
new machine (Machine #1) and then leases it to L
for use in L’s trade or business. The lease between
K and L for Machine #1 is a true lease for Federal
income tax purposes. During 2018, L enters into a
written binding contract with K to buy Machine #1
at its fair market value on May 15, 2018. L did not
have any depreciable interest in Machine #1 before
L acquired it on May 15, 2018. As a result, L’s ac-
quisition of Machine #1 satisfies the used property
acquisition requirements of paragraph (b)(3)(iii) of
this section. Assuming all other requirements are
met, L’s purchase price of Machine #1 qualifies for
the additional first year depreciation deduction for L
under this section.
(G) Example 7. The facts are the same as in Ex-
ample 6 of paragraph (b)(3)(vii)(F) of this section,
except that K and L are related parties within the
meaning of section 179(d)(2)(A) or (B) and §1.179-
4(c). As a result, L’s acquisition of Machine #1 does
not satisfy the used property acquisition require-
ments of paragraph (b)(3)(iii) of this section. Thus,
Machine #1 is not eligible for the additional first year
depreciation deduction for L.
(H) Example 8. The facts are the same as in Ex-
ample 6 of paragraph (b)(3)(vii)(F) of this section,
except L incurred capital expenditures of $5,000
to improve Machine #1 on September 5, 2017, and
has a depreciable interest in such improvements. L’s
purchase price of $5,000 for the improvements to
Machine #1 satisfies the original use requirement of
§1.168(k)-1(b)(3)(i) and, assuming all other require-
ments are met, qualifies for the 50-percent addition-
al first year depreciation deduction. Because L had
a depreciable interest only in the improvements to
Machine #1, L’s acquisition of Machine #1, exclud-
ing L’s improvements to such machine, satisfies the
used property acquisition requirements of paragraph
(b)(3)(iii) of this section. Assuming all other require-
ments are met, L’s unadjusted depreciable basis of
Machine #1, excluding the amount of such unad-
justed depreciable basis attributable to L’s improve-
ments to Machine #1, qualifies for the additional first
year depreciation deduction for L under this section.
(I) Example 9. During 2016, M and N purchased
used equipment for use in their trades or businesses
and each own a 50 percent interest in such equipment.
Prior to this acquisition, M and N did not have any
depreciable interest in the equipment. Assume this
ownership arrangement is not a partnership. During
2018, N enters into a written binding contract with
M to buy M’s interest in the equipment. Pursuant to
paragraph (b)(3)(iii)(B)(2) of this section, N is not
treated as using M’s interest in the equipment prior
to N’s acquisition of M’s interest. As a result, N’s ac-
quisition of M’s interest in the equipment satisfies the
used property acquisition requirements of paragraph
(b)(3)(iii) of this section. Assuming all other require-
ments are met, N’s purchase price of M’s interest in
the equipment qualifies for the additional first year
depreciation deduction for N under this section.
(J) Example 10. The facts are the same as in Ex-
ample 9 of paragraph (b)(3)(vii)(I) of this section,
except N had a 100-percent depreciable interest in
the equipment during 2011 through 2015, and M pur-
chased from N a 50-percent interest in the equipment
during 2016. Pursuant to paragraph (b)(3)(iii)(B)(1)
of this section, the lookback period is 2013 through
2017 to determine if N had a depreciable interest in
M’s 50-percent interest in the equipment N acquired
from M in 2018. Because N had a 100-percent depre-
ciable interest in the equipment during 2013 through
2015, N had a depreciable interest in M’s 50-percent
interest in the equipment during the lookback pe-
riod. As a result, N’s acquisition of M’s interest in
the equipment during 2018 does not satisfy the used
property acquisition requirements of paragraphs (b)
(3)(iii)(A)(1) and (b)(3)(iii)(B)(1) of this section.
Paragraph (b)(3)(iii)(B)(2) of this section does not
apply because N initially acquired a 100-percent
depreciable interest in the equipment. Accordingly,
N’s purchase price of M’s interest in the equipment
during 2018 does not qualify for the additional first
year depreciation deduction for N.
(K) Example 11. The facts are the same as in Ex-
ample 9 of paragraph (b)(3)(vii)(I) of this section,
except N had a 100-percent depreciable interest in
the equipment only during 2011, and M purchased
from N a 50-percent interest in the equipment during
2012. Pursuant to paragraph (b)(3)(iii)(B)(1) of this
section, the lookback period is 2013 through 2017
to determine if N had a depreciable interest in M’s
50-percent interest in the equipment N acquired from
M in 2018. Because N had a depreciable interest in
only its 50-percent interest in the equipment during
this lookback period, N’s acquisition of M’s inter-
est in the equipment during 2018 satisfies the used
property acquisition requirements of paragraphs (b)
(3)(iii)(A)(1) and (b)(3)(iii)(B)(1) of this section. As-
suming all other requirements are met, N’s purchase
price of M’s interest in the equipment during 2018
qualifies for the additional first year depreciation de-
duction for N under this section.
(L) Example 12. The facts are the same as in Ex-
ample 9 of paragraph (b)(3)(vii)(I) of this section,
except during 2018, M also enters into a written
binding contract with N to buy N’s interest in the
equipment. Pursuant to paragraph (b)(3)(iii)(B)(2) of
this section, both M and N are treated as previously
having a depreciable interest in a 50-percent portion
of the equipment. Accordingly, the acquisition by M
of N’s 50-percent interest and the acquisition by N of
M’s 50-percent interest in the equipment during 2018
do not qualify for the additional first year deprecia-
tion deduction.
(M) Example 13. O and P form an equal part-
nership, OP, in 2018. O contributes cash to OP,
and P contributes equipment to OP. OP’s basis in
the equipment contributed by P is determined un-
der section 723. Because OP’s basis in such equip-
ment is determined in whole or in part by reference
to P’s adjusted basis in such equipment, OP’s ac-
quisition of such equipment does not satisfy sec-
tion 179(d)(2)(C) and §1.179-4(c)(1)(iv) and, thus,
does not satisfy the used property acquisition re-
quirements of paragraph (b)(3)(iii) of this section.
Accordingly, OP’s acquisition of such equipment
is not eligible for the additional first year depreci-
ation deduction.

October 7, 2019 838 Bulletin No. 2019–41
(N) Example 14. Q, R, and S form an equal part-
nership, QRS, in 2019. Each partner contributes
$100, which QRS uses to purchase a retail motor
fuels outlet for $300. Assume this retail motor fuels
outlet is QRS’ only property and is qualified prop-
erty under section 168(k)(2)(A)(i). QRS makes an
election not to deduct the additional first year de-
preciation for all qualified property placed in service
during 2019. QRS has a section 754 election in ef-
fect. QRS claimed depreciation of $15 for the retail
motor fuels outlet for 2019. During 2020, when the
retail motor fuels outlet’s fair market value is $600,
Q sells all of its partnership interest to T in a ful-
ly taxable transaction for $200. T never previously
had a depreciable interest in the retail motor fuels
outlet. T takes an outside basis of $200 in the part-
nership interest previously owned by Q. T’s share of
the partnership’s previously taxed capital is $95. Ac-
cordingly, T’s section 743(b) adjustment is $105 and
is allocated entirely to the retail motor fuels outlet
under section 755. Assuming all other requirements
are met, T’s section 743(b) adjustment qualifies for
the additional first year depreciation deduction under
this section.
(O) Example 15. The facts are the same as in Ex-
ample 14 of paragraph (b)(3)(vii)(N) of this section,
except that Q sells his partnership interest to U, a
related person within the meaning of section 179(d)
(2)(A) or (B) and §1.179-4(c). U’s section 743(b) ad-
justment does not qualify for the additional first year
depreciation deduction.
(P) Example 16. The facts are the same as in
Example 14 of paragraph (b)(3)(vii)(N) of this sec-
tion, except that Q dies and his partnership interest is
transferred to V. V takes a basis in Q’s partnership in-
terest under section 1014. As a result, section 179(d)
(2)(C)(ii) and §1.179-4(c)(1)(iv) are not satisfied,
and V’s section 743(b) adjustment does not qualify
for the additional first year depreciation deduction.
(Q) Example 17. The facts are the same as in Ex-
ample 14 of paragraph (b)(3)(vii)(N) of this section,
except that QRS purchased the retail motor fuels
outlet from T prior to T purchasing Q’s partnership
interest in QRS. T had a depreciable interest in such
retail motor fuels outlet. Because T had a deprecia-
ble interest in the retail motor fuels outlet before T
acquired its interest in QRS, T’s section 743(b) ad-
justment does not qualify for the additional first year
depreciation deduction.
(R) Example 18. (1) W, a freight transportation
company, acquires and places in service a used
aircraft during 2019 (Airplane #1). Prior to this ac-
quisition, W never had a depreciable interest in this
aircraft. During September 2020, W enters into a
written binding contract with a third party to reno-
vate Airplane #1. The third party begins to renovate
Airplane #1 in October 2020 and delivers the reno-
vated aircraft (Airplane #2) to W in February 2021.
To renovate Airplane #1, the third party used mostly
new parts but also used parts from Airplane #1. The
cost of the used parts is not more than 20 percent of
the total cost of the renovated airplane, Airplane #2.
W uses Airplane #2 in its trade or business.
(2) Although Airplane #2 contains used parts, the
cost of the used parts is not more than 20 percent of
the total cost of Airplane #2. As a result, Airplane
#2 is not treated as reconditioned or rebuilt property,
and W is considered the original user of Airplane #2,
pursuant to paragraph (b)(3)(ii)(A) of this section.
Accordingly, assuming all other requirements are
met, the amount paid or incurred by W for Airplane
#2 qualifies for the additional first year depreciation
deduction for W under this section.
(S) Example 19. (1) X, a freight transportation
company, acquires and places in service a new air-
craft in 2019 (Airplane #1). During 2022, X sells
Airplane #1 to AB and AB uses Airplane #1 in its
trade or business. Prior to this acquisition, AB never
had a depreciable interest in Airplane #1. During
January 2023, AB enters into a written binding
contract with a third party to renovate Airplane #1.
The third party begins to renovate Airplane #1 in
February 2023 and delivers the renovated aircraft
(Airplane #2) to AB in June 2023. To renovate Air-
plane #1, the third party used mostly new parts but
also used parts from Airplane #1. The cost of the
used parts is not more than 20 percent of the total
cost of the renovated airplane, Airplane #2. AB uses
Airplane #2 in its trade or business. During 2025,
AB sells Airplane #2 to X and X uses Airplane #2 in
its trade or business.
(2) With respect to X’s purchase of Airplane #1
in 2019, X is the original user of this airplane pur-
suant to paragraph (b)(3)(ii)(A) of this section. Ac-
cordingly, assuming all other requirements are met,
X’s purchase price for Airplane #1 qualifies for the
additional first year depreciation deduction for X un-
der this section.
(3) Because AB never had a depreciable interest
in Airplane #1 prior to its acquisition in 2022, the
requirements of paragraphs (b)(3)(iii)(A)(1) and (b)
(3)(ii)(B)(1) of this section are satisfied. According-
ly, assuming all other requirements are met, AB’s
purchase price for Airplane #1 qualifies for the addi-
tional first year depreciation deduction for AB under
this section.
(4) Although Airplane #2 contains used parts, the
cost of the used parts is not more than 20 percent of
the total cost of Airplane #2. As a result, Airplane
#2 is not treated as reconditioned or rebuilt property,
and AB is considered the original user of Airplane #2,
pursuant to paragraph (b)(3)(ii)(A) of this section.
Accordingly, assuming all other requirements are
met, the amount paid or incurred by AB for Airplane
#2 qualifies for the additional first year depreciation
deduction for AB under this section.
(5) With respect to X’s purchase of Airplane #2
in 2025, Airplane #2 is substantially renovated prop-
erty pursuant to paragraph (b)(3)(iii)(B)(3) of this
section. Also, pursuant to paragraph (b)(3)(iii)(B)
(3) of this section, X’s depreciable interest in Air-
plane #1 is not taken into account for determining if
X previously had a depreciable interest in Airplane
#2 prior to its acquisition during 2025. As a result,
Airplane #2 is not treated as used by X at any time
before its acquisition of Airplane #2 in 2025 pursuant
to paragraph (b)(3)(iii)(B)(3) of this section. Accord-
ingly, assuming all other requirements are met, X’s
purchase price of Airplane #2 qualifies for the addi-
tional first year depreciation deduction for X under
this section.
(T) Example 20. In November 2017, AA Corpo-
ration purchases a used drill press costing $10,000
and is granted a trade-in allowance of $2,000 on
its old drill press. The used drill press is qualified
property under section 168(k)(2)(A)(i). The old drill
press had a basis of $1,200. Under sections 1012 and
1031(d), the basis of the used drill press is $9,200
($1,200 basis of old drill press plus cash expended
of $8,000). Only $8,000 of the basis of the used drill
press satisfies the requirements of section 179(d)(3)
and §1.179-4(d) and, thus, satisfies the used property
acquisition requirement of paragraph (b)(3)(iii) of
this section. The remaining $1,200 of the basis of the
used drill press does not satisfy the requirements of
section 179(d)(3) and §1.179-4(d) because it is de-
termined by reference to the old drill press. Accord-
ingly, assuming all other requirements are met, only
$8,000 of the basis of the used drill press is eligible
for the additional first year depreciation deduction
under this section.
(U) Example 21. (1) M Corporation acquires and
places in service a used airplane on March 26, 2018.
Prior to this acquisition, M Corporation never had a
depreciable interest in this airplane. On March 26,
2018, M Corporation also leases the used airplane
to N Corporation, an airline company. On May 27,
2018, M Corporation sells to O Corporation the used
airplane subject to the lease with N Corporation. M
Corporation and O Corporation are related parties
within the meaning of section 179(d)(2)(A) or (B)
and §1.179-4(c). As of May 27, 2018, N Corporation
is still the lessee of the used airplane. Prior to this
acquisition, O Corporation never had a depreciable
interest in the used airplane. O Corporation is a cal-
endar-year taxpayer.
(2) The sale transaction of May 27, 2018, sat-
isfies the requirements of a syndication transaction
described in paragraph (b)(3)(vi) of this section. As
a result, O Corporation is considered the taxpayer
that acquired the used airplane for purposes of ap-
plying the used property acquisition requirements in
paragraph (b)(3)(iii) of this section. In applying these
rules, the fact that M Corporation and O Corporation
are related parties is not taken into account because
O Corporation, not M Corporation, is treated as ac-
quiring the used airplane. Also, O Corporation, not
M Corporation, is treated as having the depreciable
interest in the used airplane. Further, pursuant to
paragraph (b)(4)(iv) of this section, the used airplane
is treated as originally placed in service by O Corpo-
ration on May 27, 2018. Because O Corporation nev-
er had a depreciable interest in the used airplane and
assuming all other requirements are met, O Corpo-
ration’s purchase price of the used airplane qualifies
for the additional first year depreciation deduction
for O Corporation under this section.
(V) Example 22. (1) The facts are the same as
in Example 21 of paragraph (b)(3)(vii)(U)(1) of
this section. Additionally, on September 5, 2018, O
Corporation sells to P Corporation the used airplane
subject to the lease with N Corporation. Prior to this
acquisition, P Corporation never had a depreciable
interest in the used airplane.
(2) Because O Corporation, a calendar-year tax-
payer, placed in service and disposed of the used air-
plane during 2018, the used airplane is not eligible
for the additional first year depreciation deduction
for O Corporation pursuant to paragraph (g)(1)(i) of
this section.
(3) Because P Corporation never had a deprecia-
ble interest in the used airplane and assuming all oth-
er requirements are met, P Corporation’s purchase
price of the used airplane qualifies for the additional

Bulletin No. 2019–41 839 October 7, 2019
first year depreciation deduction for P Corporation
under this section.
(W) Example 23. (1) The facts are the same as
in Example 21 of paragraph (b)(3)(vii)(U)(1) of this
section, except M Corporation and O Corporation
are not related parties within the meaning of section
179(d)(2)(A) or (B) and §1.179-4(c). Additionally,
on March 26, 2020, O Corporation sells to M Cor-
poration the used airplane subject to the lease with
N Corporation.
(2) The sale transaction of May 27, 2018, sat-
isfies the requirements of a syndication transaction
described in paragraph (b)(3)(vi) of this section. As a
result, O Corporation is considered the taxpayer that
acquired the used airplane for purposes of applying
the used property acquisition requirements in para-
graph (b)(3)(iii) of this section. Also, O Corporation,
not M Corporation, is treated as having the deprecia-
ble interest in the used airplane. Further, pursuant to
paragraph (b)(4)(iv) of this section, the used airplane
is treated as originally placed in service by O Cor-
poration on May 27, 2018. Because O Corporation
never had a depreciable interest in the used airplane
before its acquisition in 2018 and assuming all oth-
er requirements are met, O Corporation’s purchase
price of the used airplane qualifies for the additional
first year depreciation deduction for O Corporation
under this section.
(3) Prior to its acquisition of the used airplane on
March 26, 2020, M Corporation never had a depre-
ciable interest in the used airplane pursuant to para-
graph (b)(3)(vi) of this section. Assuming all other
requirements are met, M Corporation’s purchase
price of the used airplane on March 26, 2020, qual-
ifies for the additional first year depreciation deduc-
tion for M Corporation under this section.
(X) Example 24. (1) J, K, and L are corporations
that are unrelated parties within the meaning of sec-
tion 179(d)(2)(A) or (B) and §1.179-4(c). None of J,
K, or L is a member of a consolidated group. J has a
depreciable interest in Equipment #5. During 2018, J
sells Equipment #5 to K. During 2020, J merges into
L in a transaction described in section 368(a)(1)(A).
In 2021, L acquires Equipment #5 from K.
(2) Because J is the predecessor of L, and be-
cause J previously had a depreciable interest in
Equipment #5, L’s acquisition of Equipment #5 does
not satisfy paragraphs (b)(3)(iii)(A)(1) and (b)(3)
(iii)(B)(1) of this section. Thus, L’s acquisition of
Equipment #5 does not satisfy the used property ac-
quisition requirements of paragraph (b)(3)(iii) of this
section. Accordingly, L’s acquisition of Equipment
#5 is not eligible for the additional first year depre-
ciation deduction.
(4) Placed-in-service date—(i) In gen-
eral. Depreciable property will meet the
requirements of this paragraph (b)(4) if
the property is placed in service by the
taxpayer for use in its trade or business or
for production of income after September
27, 2017; and, except as provided in para-
graphs (b)(2)(i)(A) and (D) of this section,
before January 1, 2027, or, in the case of
property described in section 168(k)(2)(B)
or (C), before January 1, 2028.
(ii) Specified plant. If the taxpayer has
properly made an election to apply section
168(k)(5) for a specified plant, the require-
ments of this paragraph (b)(4) are satisfied
only if the specified plant is planted before
January 1, 2027, or is grafted before Jan-
uary 1, 2027, to a plant that has already
been planted, by the taxpayer in the or-
dinary course of the taxpayer’s farming
business, as defined in section 263A(e)(4).
(iii) Qualified film, television, or live
theatrical production—(A) Qualified film
or television production. For purposes of
this paragraph (b)(4), a qualified film or
television production is treated as placed
in service at the time of initial release or
broadcast as defined under §1.181-1(a)(7).
The taxpayer that places in service a qual-
ified film or television production must be
the owner, as defined in §1.181-1(a)(2), of
the qualified film or television production.
(B) Qualified live theatrical produc-
tion. For purposes of this paragraph (b)
(4), a qualified live theatrical production
is treated as placed in service at the time
of the initial live staged performance. The
taxpayer that places in service a qualified
live theatrical production must be the
owner, as defined in paragraph (b)(2)(i)
(F) of this section and in §1.181-1(a)(2),
of the qualified live theatrical production.
(iv) Syndication transaction. If new
property is acquired and placed in service
by a lessor, or if used property is acquired
and placed in service by a lessor and the
lessor and any predecessor did not pre-
viously have a depreciable interest in the
used property, and the property is sold
by the lessor or any subsequent purchas-
er within three months after the date the
property was originally placed in service
by the lessor (or, in the case of multiple
units of property subject to the same lease,
within three months after the date the fi-
nal unit is placed in service, so long as
the period between the time the first unit
is placed in service and the time the last
unit is placed in service does not exceed
12 months), and the user of the property
after the last sale during this three-month
period remains the same as when the prop-
erty was originally placed in service by
the lessor, the property is treated as orig-
inally placed in service by the purchaser
of the property in the last sale during the
three-month period but not earlier than the
date of the last sale for purposes of sec-
tions 167 and 168, and §§1.46-3(d) and
1.167(a)-11(e)(1).
(v) Technical termination of a partner-
ship. For purposes of this paragraph (b)
(4), in the case of a technical termination
of a partnership under section 708(b)(1)
(B) occurring in a taxable year beginning
before January 1, 2018, qualified prop-
erty placed in service by the terminated
partnership during the taxable year of
termination is treated as originally placed
in service by the new partnership on the
date the qualified property is contributed
by the terminated partnership to the new
partnership.
(vi) Section 168(i)(7) transactions. For
purposes of this paragraph (b)(4), if qual-
ified property is transferred in a transac-
tion described in section 168(i)(7) in the
same taxable year that the qualified prop-
erty is placed in service by the transfer-
or, the transferred property is treated as
originally placed in service on the date the
transferor placed in service the qualified
property. In the case of multiple transfers
of qualified property in multiple transac-
tions described in section 168(i)(7) in the
same taxable year, the placed-in-service
date of the transferred property is deemed
to be the date on which the first transferor
placed in service the qualified property.
(5) Acquisition of property—(i) In gen-
eral. This paragraph (b)(5) provides rules
for the acquisition requirements in section
13201(h) of the Act. These rules apply to
all property, including self-constructed
property or property described in section
168(k)(2)(B) or (C).
(ii) Acquisition date—(A) In general.
Except as provided in paragraph (b)(5)
(vi) of this section, depreciable property
will meet the requirements of this para-
graph (b)(5) if the property is acquired
by the taxpayer after September 27, 2017,
or is acquired by the taxpayer pursu-
ant to a written binding contract entered
into by the taxpayer after September 27,
2017. Property that is manufactured, con-
structed, or produced for the taxpayer by
another person under a written binding
contract that is entered into prior to the
manufacture, construction, or production
of the property for use by the taxpayer in
its trade or business or for its production
of income is not acquired pursuant to a
written binding contract but is considered
to be self-constructed property under this

October 7, 2019 840 Bulletin No. 2019–41
paragraph (b)(5). For determination of
acquisition date, see paragraph (b)(5)(ii)
(B) of this section for property acquired
pursuant to a written binding contract and
paragraph (b)(5)(iv) of this section for
self-constructed property.
(B) Determination of acquisition date
for property acquired pursuant to a writ-
ten binding contract. Except as provided
in paragraphs (b)(5)(vi) and (vii) of this
section, the acquisition date of property
that the taxpayer acquired pursuant to a
written binding contract is the later of–
(1) The date on which the contract was
entered into;
(2) The date on which the contract is
enforceable under State law;
(3) If the contract has one or more can-
cellation periods, the date on which all
cancellation periods end. For purposes of
this paragraph (b)(5)(ii)(B)(3), a cancella-
tion period is the number of days stated
in the contract for any party to cancel the
contract without penalty; or
(4) If the contract has one or more con-
tingency clauses, the date on which all
conditions subject to such clauses are sat-
isfied. For purposes of this paragraph (b)
(5)(ii)(B)(4), a contingency clause is one
that provides for a condition (or condi-
tions) or action (or actions) that is within
the control of any party or a predecessor.
(iii) Definition of binding contract—
(A) In general. A contract is binding only
if it is enforceable under State law against
the taxpayer or a predecessor, and does
not limit damages to a specified amount
(for example, by use of a liquidated dam-
ages provision). For this purpose, any
contractual provision that limits damages
to an amount equal to at least 5 percent of
the total contract price will not be treated
as limiting damages to a specified amount.
If a contract has multiple provisions that
limit damages, only the provision with the
highest damages is taken into account in
determining whether the contract limits
damages. Also, in determining whether a
contract limits damages, the fact that there
may be little or no damages because the
contract price does not significantly differ
from fair market value will not be taken
into account. For example, if a taxpayer
entered into an irrevocable written con-
tract to purchase an asset for $100 and the
contract did not contain a provision for
liquidated damages, the contract is con-
sidered binding notwithstanding the fact
that the asset had a fair market value of
$99 and under local law the seller would
only recover the difference in the event the
purchaser failed to perform. If the contract
provided for a full refund of the purchase
price in lieu of any damages allowable by
law in the event of breach or cancellation,
the contract is not considered binding.
(B) Conditions. A contract is binding
even if subject to a condition, as long as
the condition is not within the control of
either party or a predecessor. A contract
will continue to be binding if the parties
make insubstantial changes in its terms
and conditions or if any term is to be de-
termined by a standard beyond the control
of either party. A contract that imposes
significant obligations on the taxpayer or
a predecessor will be treated as binding
notwithstanding the fact that certain terms
remain to be negotiated by the parties to
the contract.
(C) Options. An option to either acquire
or sell property is not a binding contract.
(D) Letter of intent. A letter of intent
for an acquisition is not a binding contract.
(E) Supply agreements. A binding con-
tract does not include a supply or similar
agreement if the amount and design spec-
ifications of the property to be purchased
have not been specified. The contract will
not be a binding contract for the property
to be purchased until both the amount and
the design specifications are specified. For
example, if the provisions of a supply or
similar agreement state the design speci-
fications of the property to be purchased,
a purchase order under the agreement for
a specific number of assets is treated as a
binding contract.
(F) Components. A binding contract to
acquire one or more components of a larg-
er property will not be treated as a binding
contract to acquire the larger property. If a
binding contract to acquire the component
does not satisfy the requirements of this
paragraph (b)(5), the component does not
qualify for the additional first year depre-
ciation deduction under this section.
(G) [Reserved]
(iv) Self-constructed property—(A)
In general. If a taxpayer manufactures,
constructs, or produces property for use
by the taxpayer in its trade or business or
for its production of income, the acqui-
sition rules in paragraph (b)(5)(ii) of this
section are treated as met for the proper-
ty if the taxpayer begins manufacturing,
constructing, or producing the property
after September 27, 2017. Property that
is manufactured, constructed, or produced
for the taxpayer by another person under
a written binding contract, as defined in
paragraph (b)(5)(iii) of this section, that is
entered into prior to the manufacture, con-
struction, or production of the property for
use by the taxpayer in its trade or business
or for its production of income is consid-
ered to be manufactured, constructed, or
produced by the taxpayer. If a taxpay-
er enters into a written binding contract,
as defined in paragraph (b)(5)(iii) of this
section, before September 28, 2017, with
another person to manufacture, construct,
or produce property and the manufacture,
construction, or production of this prop-
erty begins after September 27, 2017, the
acquisition rules in paragraph (b)(5)(ii) of
this section are met.
(B) When does manufacture, construc-
tion, or production begin—(1) In general.
For purposes of paragraph (b)(5)(iv)(A)
of this section, manufacture, construc-
tion, or production of property begins
when physical work of a significant nature
begins. Physical work does not include
preliminary activities such as planning
or designing, securing financing, explor-
ing, or researching. The determination of
when physical work of a significant nature
begins depends on the facts and circum-
stances. For example, if a retail motor fu-
els outlet is to be constructed on-site, con-
struction begins when physical work of a
significant nature commences at the site;
that is, when work begins on the excava-
tion for footings, pouring the pads for the
outlet, or the driving of foundation pilings
into the ground. Preliminary work, such as
clearing a site, test drilling to determine
soil condition, or excavation to change
the contour of the land (as distinguished
from excavation for footings) does not
constitute the beginning of construction.
However, if a retail motor fuels outlet is to
be assembled on-site from modular units
manufactured off-site and delivered to the
site where the outlet will be used, manu-
facturing begins when physical work of a
significant nature commences at the off-
site location.
(2) Safe harbor. For purposes of para-
graph (b)(5)(iv)(B)(1) of this section, a

Bulletin No. 2019–41 841 October 7, 2019
taxpayer may choose to determine when
physical work of a significant nature be-
gins in accordance with this paragraph (b)
(5)(iv)(B)(2). Physical work of a signifi-
cant nature will be considered to begin at
the time the taxpayer incurs (in the case of
an accrual basis taxpayer) or pays (in the
case of a cash basis taxpayer) more than
10 percent of the total cost of the prop-
erty, excluding the cost of any land and
preliminary activities such as planning or
designing, securing financing, exploring,
or researching. When property is manu-
factured, constructed, or produced for the
taxpayer by another person, this safe har-
bor test must be satisfied by the taxpayer.
For example, if a retail motor fuels outlet
or other facility is to be constructed for an
accrual basis taxpayer by another person
for the total cost of $200,000, excluding
the cost of any land and preliminary activ-
ities such as planning or designing, secur-
ing financing, exploring, or researching,
construction is deemed to begin for pur-
poses of this paragraph (b)(5)(iv)(B)(2)
when the taxpayer has incurred more than
10 percent (more than $20,000) of the to-
tal cost of the property. A taxpayer choos-
es to apply this paragraph (b)(5)(iv)(B)(2)
by filing a Federal income tax return for
the placed-in-service year of the property
that determines when physical work of a
significant nature begins consistent with
this paragraph (b)(5)(iv)(B)(2).
(C) Components of self-constructed
property—(1) Acquired components. If a
binding contract, as defined in paragraph
(b)(5)(iii) of this section, to acquire a
component does not satisfy the require-
ments of paragraph (b)(5)(ii) of this sec-
tion, the component does not qualify for
the additional first year depreciation de-
duction under this section. A binding con-
tract described in the preceding sentence
to acquire one or more components of a
larger self-constructed property will not
preclude the larger self-constructed prop-
erty from satisfying the acquisition rules
in paragraph (b)(5)(iv)(A) of this section.
Accordingly, the unadjusted depreciable
basis of the larger self-constructed prop-
erty that is eligible for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, must not include the unadjust-
ed depreciable basis of any component
that does not satisfy the requirements of
paragraph (b)(5)(ii) of this section. If the
manufacture, construction, or production
of the larger self-constructed property
begins before September 28, 2017, the
larger self-constructed property and any
acquired components related to the larger
self-constructed property do not qualify
for the additional first year depreciation
deduction under this section. If a binding
contract to acquire the component is en-
tered into after September 27, 2017, but
the manufacture, construction, or produc-
tion of the larger self-constructed property
does not begin before January 1, 2027, the
component qualifies for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, but the larger self-constructed
property does not.
(2) Self-constructed components. If the
manufacture, construction, or production
of a component does not satisfy the re-
quirements of this paragraph (b)(5)(iv),
the component does not qualify for the ad-
ditional first year depreciation deduction
under this section. However, if the man-
ufacture, construction, or production of a
component does not satisfy the require-
ments of this paragraph (b)(5)(iv), but the
manufacture, construction, or production
of the larger self-constructed property sat-
isfies the requirements of this paragraph
(b)(5)(iv), the larger self-constructed
property qualifies for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, even though the component does
not qualify for the additional first year de-
preciation deduction under this section.
Accordingly, the unadjusted depreciable
basis of the larger self-constructed prop-
erty that is eligible for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, must not include the unadjusted
depreciable basis of any component that
does not qualify for the additional first
year depreciation deduction under this
section. If the manufacture, construction,
or production of the larger self-construct-
ed property began before September 28,
2017, the larger self-constructed property
and any self-constructed components re-
lated to the larger self-constructed prop-
erty do not qualify for the additional first
year depreciation deduction under this
section. If the manufacture, construction,
or production of a component begins after
September 27, 2017, but the manufacture,
construction, or production of the larger
self-constructed property does not begin
before January 1, 2027, the component
qualifies for the additional first year de-
preciation deduction under this section,
assuming all other requirements are met,
but the larger self-constructed property
does not.
(v) [Reserved]
(vi) Qualified film, television, or live
theatrical production—(A) Qualified film
or television production. For purposes of
section 13201(h)(1)(A) of the Act, a quali-
fied film or television production is treated
as acquired on the date principal photog-
raphy commences.
(B) Qualified live theatrical produc-
tion. For purposes of section 13201(h)(1)
(A) of the Act, a qualified live theatrical
production is treated as acquired on the
date when all of the necessary elements
for producing the live theatrical produc-
tion are secured. These elements may in-
clude a script, financing, actors, set, scenic
and costume designs, advertising agents,
music, and lighting.
(vii) Specified plant. If the taxpayer
has properly made an election to apply
section 168(k)(5) for a specified plant, the
requirements of this paragraph (b)(5) are
satisfied if the specified plant is planted af-
ter September 27, 2017, or is grafted after
September 27, 2017, to a plant that has al-
ready been planted, by the taxpayer in the
ordinary course of the taxpayer’s farming
business, as defined in section 263A(e)(4).
(viii) Examples. The application of this
paragraph (b)(5) is illustrated by the fol-
lowing examples. Unless the facts specif-
ically indicate otherwise, assume that the
parties are not related within the meaning
of section 179(d)(2)(A) or (B) and §1.179-
4(c), and the parties do not have predeces-
sors:
(A) Example 1. On September 1, 2017, BB, a cor-
poration, entered into a written agreement with CC,
a manufacturer, to purchase 20 new lamps for $100
each within the next two years. Although the agree-
ment specifies the number of lamps to be purchased,
the agreement does not specify the design of the
lamps to be purchased. Accordingly, the agreement
is not a binding contract pursuant to paragraph (b)(5)
(iii)(E) of this section.
(B) Example 2. The facts are the same as in Ex-
ample 1 of paragraph (b)(5)(viii)(A) of this section.
On December 1, 2017, BB placed a purchase order
with CC to purchase 20 new model XPC5 lamps for

October 7, 2019 842 Bulletin No. 2019–41
$100 each for a total amount of $2,000. Because the
agreement specifies the number of lamps to be pur-
chased and the purchase order specifies the design
of the lamps to be purchased, the purchase order
placed by BB with CC on December 1, 2017, is a
binding contract pursuant to paragraph (b)(5)(iii)(E)
of this section. Accordingly, assuming all other re-
quirements are met, the cost of the 20 lamps qualifies
for the 100-percent additional first year depreciation
deduction.
(C) Example 3. The facts are the same as in Ex-
ample 1 of paragraph (b)(5)(viii)(A) of this section,
except that the written agreement between BB and
CC is to purchase 100 model XPC5 lamps for $100
each within the next two years. Because this agree-
ment specifies the amount and design of the lamps
to be purchased, the agreement is a binding contract
pursuant to paragraph (b)(5)(iii)(E) of this section.
However, because the agreement was entered into
before September 28, 2017, no lamp acquired by BB
under this contract qualifies for the 100-percent addi-
tional first year depreciation deduction.
(D) Example 4. On September 1, 2017, DD began
constructing a retail motor fuels outlet for its own
use. On November 1, 2018, DD ceases construction
of the retail motor fuels outlet prior to its comple-
tion. Between September 1, 2017, and November 1,
2018, DD incurred $3,000,000 of expenditures for
the construction of the retail motor fuels outlet. On
May 1, 2019, DD resumed construction of the retail
motor fuels outlet and completed its construction on
August 31, 2019. Between May 1, 2019, and August
31, 2019, DD incurred another $1,600,000 of ex-
penditures to complete the construction of the retail
motor fuels outlet and, on September 1, 2019, DD
placed the retail motor fuels outlet in service. None
of DD’s total expenditures of $4,600,000 qualify for
the 100-percent additional first year depreciation de-
duction because, pursuant to paragraph (b)(5)(iv)(A)
of this section, DD began constructing the retail mo-
tor fuels outlet before September 28, 2017.
(E) Example 5. The facts are the same as in Ex-
ample 4 of paragraph (b)(5)(viii)(D) of this section
except that DD began constructing the retail motor
fuels outlet for its own use on October 1, 2017, and
DD incurred the $3,000,000 between October 1,
2017, and November 1, 2018. DD’s total expendi-
tures of $4,600,000 qualify for the 100-percent ad-
ditional first year depreciation deduction because,
pursuant to paragraph (b)(5)(iv)(A) of this section,
DD began constructing the retail motor fuels outlet
after September 27, 2017, and DD placed the retail
motor fuels outlet in service on September 1, 2019.
Accordingly, assuming all other requirements are
met, the additional first year depreciation deduction
for the retail motor fuels outlet will be $4,600,000,
computed as $4,600,000 multiplied by 100 percent.
(F) Example 6. On August 15, 2017, EE, an
accrual basis taxpayer, entered into a written bind-
ing contract with FF to manufacture an aircraft de-
scribed in section 168(k)(2)(C) for use in EE’s trade
or business. FF begins to manufacture the aircraft
on October 1, 2017. The completed aircraft is de-
livered to EE on February 15, 2018, at which time
EE incurred the total cost of the aircraft. EE places
the aircraft in service on March 1, 2018. Pursuant
to paragraphs (b)(5)(ii)(A) and (b)(5)(iv)(A) of this
section, the aircraft is considered to be manufactured
by EE. Because EE began manufacturing the aircraft
after September 27, 2017, the aircraft qualifies for
the 100-percent additional first year depreciation
deduction, assuming all other requirements are met.
(G) Example 7. On June 1, 2017, HH entered
into a written binding contract with GG to acquire
a new component part of property that is being
constructed by HH for its own use in its trade or
business. HH commenced construction of the prop-
erty in November 2017, and placed the property in
service in November 2018. Because HH entered
into a written binding contract to acquire a com-
ponent part prior to September 28, 2017, pursuant
to paragraphs (b)(5)(ii) and (b)(5)(iv)(C)(1) of this
section, the component part does not qualify for the
100-percent additional first year depreciation de-
duction. However, pursuant to paragraphs (b)(5)(iv)
(A) and (b)(5)(iv)(C)(1) of this section, the property
constructed by HH will qualify for the 100-percent
additional first year depreciation deduction, be-
cause construction of the property began after Sep-
tember 27, 2017, assuming all other requirements
are met. Accordingly, the unadjusted depreciable
basis of the property that is eligible for the 100-per-
cent additional first year depreciation deduction
must not include the unadjusted depreciable basis
of the component part.
(H) Example 8. The facts are the same as in Ex-
ample 7 of paragraph (b)(5)(viii)(G) of this section
except that HH entered into the written binding con-
tract with GG to acquire the new component part on
September 30, 2017, and HH commenced construc-
tion of the property on August 1, 2017. Pursuant to
paragraphs (b)(5)(iv)(A) and (C) of this section, nei-
ther the property constructed by HH nor the compo-
nent part will qualify for the 100-percent additional
first year depreciation deduction, because HH began
construction of the property prior to September 28,
2017.
(I) Example 9. On September 1, 2017, II ac-
quired and placed in service equipment. On January
15, 2018, II sells the equipment to JJ and leases the
property back from JJ in a sale-leaseback transac-
tion. Pursuant to paragraph (b)(5)(ii) of this section,
II’s cost of the equipment does not qualify for the
100-percent additional first year depreciation de-
duction because II acquired the equipment prior to
September 28, 2017. However, JJ acquired used
equipment from an unrelated party after September
27, 2017, and, assuming all other requirements are
met, JJ’s cost of the used equipment qualifies for the
100-percent additional first year depreciation deduc-
tion for JJ.
(J) Example 10. On July 1, 2017, KK began con-
structing property for its own use in its trade or busi-
ness. KK placed this property in service on September
15, 2017. On January 15, 2018, KK sells the proper-
ty to LL and leases the property back from LL in a
sale-leaseback transaction. Pursuant to paragraph (b)
(5)(iv) of this section, KK’s cost of the property does
not qualify for the 100-percent additional first year de-
preciation deduction because KK began construction
of the property prior to September 28, 2017. Howev-
er, LL acquired used property from an unrelated par-
ty after September 27, 2017, and, assuming all other
requirements are met, LL’s cost of the used property
qualifies for the 100-percent additional first year de-
preciation deduction for LL.
(K) Example 11. MM, a calendar year taxpayer,
is engaged in a trade or business described in section
163(j)(7)(A)(iv). In December 2018, MM began con-
structing a new electric generation power plant for
its own use. MM placed in service this new power
plant, including all component parts, in 2020. Even
though MM began constructing the power plant af-
ter September 27, 2017, none of MM’s total expen-
ditures of the power plant qualify for the additional
first year depreciation deduction under this section
because, pursuant to paragraph (b)(2)(ii)(F) of this
section, the power plant is property that is primarily
used in a trade or business described in section 163(j)
(7)(A)(iv) and the power plant was placed in service
in MM’s taxable year beginning after 2017.
(c) [Reserved]
(d) Property described in section
168(k)(2)(B) or (C)—(1) In general. Prop-
erty described in section 168(k)(2)(B) or
(C) will meet the acquisition requirements
of section 168(k)(2)(B)(i)(III) or (k)(2)(C)
(i) if the property is acquired by the tax-
payer before January 1, 2027, or acquired
by the taxpayer pursuant to a written bind-
ing contract that is entered into before
January 1, 2027. Property described in
section 168(k)(2)(B) or (C), including its
components, also must meet the acquisi-
tion requirement in section 13201(h)(1)
(A) of the Act (for further guidance, see
paragraph (b)(5) of this section).
(2) Definition of binding contract. For
purposes of this paragraph (d), the rules in
paragraph (b)(5)(iii) of this section for a
binding contract apply.
(3) Self-constructed property—(i) In
general. If a taxpayer manufactures, con-
structs, or produces property for use by
the taxpayer in its trade or business or for
its production of income, the acquisition
rules in paragraph (d)(1) of this section are
treated as met for the property if the tax-
payer begins manufacturing, constructing,
or producing the property before January
1, 2027. Property that is manufactured,
constructed, or produced for the taxpayer
by another person under a written bind-
ing contract, as defined in paragraph (b)
(5)(iii) of this section, that is entered into
prior to the manufacture, construction, or
production of the property for use by the
taxpayer in its trade or business or for its
production of income is considered to be
manufactured, constructed, or produced
by the taxpayer. If a taxpayer enters into
a written binding contract, as defined in
paragraph (b)(5)(iii) of this section, be-
fore January 1, 2027, with another per-
son to manufacture, construct, or produce

Bulletin No. 2019–41 843 October 7, 2019
property described in section 168(k)(2)(B)
or (C) and the manufacture, construction,
or production of this property begins after
December 31, 2026, the acquisition rule in
paragraph (d)(1) of this section is met.
(ii) When does manufacture, construc-
tion, or production begin—(A) In gener-
al. For purposes of this paragraph (d)(3),
manufacture, construction, or production
of property begins when physical work of
a significant nature begins. Physical work
does not include preliminary activities
such as planning or designing, securing
financing, exploring, or researching. The
determination of when physical work of
a significant nature begins depends on
the facts and circumstances. For exam-
ple, if a retail motor fuels outlet is to be
constructed on-site, construction begins
when physical work of a significant nature
commences at the site; that is, when work
begins on the excavation for footings,
pouring the pads for the outlet, or the driv-
ing of foundation pilings into the ground.
Preliminary work, such as clearing a site,
test drilling to determine soil condition,
or excavation to change the contour of
the land (as distinguished from excava-
tion for footings) does not constitute the
beginning of construction. However, if a
retail motor fuels outlet is to be assembled
on-site from modular units manufactured
off-site and delivered to the site where the
outlet will be used, manufacturing begins
when physical work of a significant nature
commences at the off-site location.
(B) Safe harbor. For purposes of para-
graph (d)(3)(ii)(A) of this section, a tax-
payer may choose to determine when
physical work of a significant nature be-
gins in accordance with this paragraph (d)
(3)(ii)(B). Physical work of a significant
nature will be considered to begin at the
time the taxpayer incurs (in the case of
an accrual basis taxpayer) or pays (in the
case of a cash basis taxpayer) more than
10 percent of the total cost of the prop-
erty, excluding the cost of any land and
preliminary activities such as planning or
designing, securing financing, exploring,
or researching. When property is manu-
factured, constructed, or produced for the
taxpayer by another person, this safe har-
bor test must be satisfied by the taxpayer.
For example, if a retail motor fuels outlet
is to be constructed for an accrual basis
taxpayer by another person for the total
cost of $200,000, excluding the cost of
any land and preliminary activities such as
planning or designing, securing financing,
exploring, or researching, construction is
deemed to begin for purposes of this para-
graph (d)(3)(ii)(B) when the taxpayer has
incurred more than 10 percent (more than
$20,000) of the total cost of the proper-
ty. A taxpayer chooses to apply this para-
graph (d)(3)(ii)(B) by filing a Federal in-
come tax return for the placed-in-service
year of the property that determines when
physical work of a significant nature be-
gins consistent with this paragraph (d)(3)
(ii)(B).
(iii) Components of self-constructed
property—(A) Acquired components. If a
binding contract, as defined in paragraph
(b)(5)(iii) of this section, to acquire a
component does not satisfy the require-
ments of paragraph (d)(1) of this section,
the component does not qualify for the
additional first year depreciation deduc-
tion under this section. A binding con-
tract described in the preceding sentence
to acquire one or more components of a
larger self-constructed property will not
preclude the larger self-constructed prop-
erty from satisfying the acquisition rules
in paragraph (d)(3)(i) of this section. Ac-
cordingly, the unadjusted depreciable ba-
sis of the larger self-constructed property
that is eligible for the additional first year
depreciation deduction under this section,
assuming all other requirements are met,
must not include the unadjusted deprecia-
ble basis of any component that does not
satisfy the requirements of paragraph (d)
(1) of this section. If a binding contract
to acquire the component is entered into
before January 1, 2027, but the manufac-
ture, construction, or production of the
larger self-constructed property does not
begin before January 1, 2027, the compo-
nent qualifies for the additional first year
depreciation deduction under this section,
assuming all other requirements are met,
but the larger self-constructed property
does not.
(B) Self-constructed components. If the
manufacture, construction, or production
of a component by the taxpayer does not
satisfy the requirements of paragraph (d)
(3)(i) of this section, the component does
not qualify for the additional first year de-
preciation deduction under this section.
However, if the manufacture, construc-
tion, or production of a component does
not satisfy the requirements of paragraph
(d)(3)(i) of this section, but the manufac-
ture, construction, or production of the
larger self-constructed property satisfies
the requirements of paragraph (d)(3)(i)
of this section, the larger self-constructed
property qualifies for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, even though the component does
not qualify for the additional first year de-
preciation deduction under this section.
Accordingly, the unadjusted depreciable
basis of the larger self-constructed prop-
erty that is eligible for the additional first
year depreciation deduction under this
section, assuming all other requirements
are met, must not include the unadjusted
depreciable basis of any component that
does not qualify for the additional first
year depreciation deduction under this
section. If the manufacture, construction,
or production of a component begins be-
fore January 1, 2027, but the manufacture,
construction, or production of the larger
self-constructed property does not begin
before January 1, 2027, the component
qualifies for the additional first year de-
preciation deduction under this section,
assuming all other requirements are met,
but the larger self-constructed property
does not.
(iv) Examples. The application of this
paragraph (d) is illustrated by the follow-
ing examples:
(A) Example 1. (1) On June 1, 2016, NN decided
to construct property described in section 168(k)(2)
(B) for its own use. However, one of the component
parts of the property had to be manufactured by an-
other person for NN. On August 15, 2016, NN entered
into a written binding contract with OO to acquire
this component part of the property for $100,000.
OO began manufacturing the component part on No-
vember 1, 2016, and delivered the completed com-
ponent part to NN on September 1, 2017, at which
time NN incurred $100,000 for the cost of the com-
ponent. The cost of this component part is 9 percent
of the total cost of the property to be constructed by
NN. NN did not incur any other cost of the property
to be constructed before NN began construction. NN
began constructing the property described in section
168(k)(2)(B) on October 15, 2017, and placed in ser-
vice this property, including all component parts, on
November 1, 2020. NN uses the safe harbor test in
paragraph (d)(3)(ii)(B) of this section to determine
when physical work of a significant nature begins for
the property described in section 168(k)(2)(B).
(2) Because the component part of $100,000 that
was manufactured by OO for NN is not more than 10
percent of the total cost of the property described in

October 7, 2019 844 Bulletin No. 2019–41
section 168(k)(2)(B), physical work of a significant
nature for the property described in section 168(k)(2)
(B) did not begin before September 28, 2017.
(3) Pursuant to paragraphs (b)(5)(iv)(C)(2) and
(d)(1) of this section, the self-constructed component
part of $100,000 manufactured by OO for NN is not
eligible for the 100-percent additional first year de-
preciation deduction because the manufacturing of
such component part began before September 28,
2017. However, pursuant to paragraph (d)(3)(i) of
this section, the cost of the property described in sec-
tion 168(k)(2)(B), excluding the cost of the compo-
nent part of $100,000 manufactured by OO for NN,
is eligible for the 100-percent additional first year
depreciation deduction, assuming all other require-
ments are met, because construction of the property
began after September 27, 2017, and before January
1, 2027, and the property described in section 168(k)
(2)(B) was placed in service by NN during 2020.
(B) Example 2. (1) On June 1, 2026, PP decided
to construct property described in section 168(k)(2)
(B) for its own use. However, one of the component
parts of the property had to be manufactured by an-
other person for PP. On August 15, 2026, PP entered
into a written binding contract with XP to acquire
this component part of the property for $100,000. XP
began manufacturing the component part on Septem-
ber 1, 2026, and delivered the completed component
part to PP on February 1, 2027, at which time PP
incurred $100,000 for the cost of the component.
The cost of this component part is 9 percent of the
total cost of the property to be constructed by PP.
PP did not incur any other cost of the property to be
constructed before PP began construction. PP began
constructing the property described in section 168(k)
(2)(B) on January 15, 2027, and placed this property,
including all component parts, in service on Novem-
ber 1, 2027.
(2) Pursuant to paragraph (d)(3)(iii)(B) of this
section, the self-constructed component part of
$100,000 manufactured by XP for PP is eligible for
the additional first year depreciation deduction under
this section, assuming all other requirements are met,
because the manufacturing of the component part
began before January 1, 2027, and the property de-
scribed in section 168(k)(2)(B), the larger self-con-
structed property, was placed in service by PP before
January 1, 2028. However, pursuant to paragraph
(d)(3)(i) of this section, the cost of the property de-
scribed in section 168(k)(2)(B), excluding the cost
of the self-constructed component part of $100,000
manufactured by XP for PP, is not eligible for the ad-
ditional first year depreciation deduction under this
section because construction of the property began
after December 31, 2026.
(C) Example 3. On December 1, 2026, QQ en-
tered into a written binding contract, as defined in
paragraph (b)(5)(iii) of this section, with RR to man-
ufacture an aircraft described in section 168(k)(2)(C)
for use in QQ’s trade or business. RR begins to man-
ufacture the aircraft on February 1, 2027. QQ places
the aircraft in service on August 1, 2027. Pursuant to
paragraph (d)(3)(i) of this section, the aircraft meets
the requirements of paragraph (d)(1) of this section
because the aircraft was acquired by QQ pursuant
to a written binding contract entered into before
January 1, 2027. Further, the aircraft was placed in
service by QQ before January 1, 2028. Thus, assum-
ing all other requirements are met, QQ’s cost of the
aircraft is eligible for the additional first year depre-
ciation deduction under this section.
(e) Computation of depreciation de-
duction for qualified property—(1) Addi-
tional first year depreciation deduction—
(i) Allowable taxable year. The additional
first year depreciation deduction is allow-
able—
(A) Except as provided in paragraph
(e)(1)(i)(B) or (g) of this section, in the
taxable year in which the qualified prop-
erty is placed in service by the taxpayer
for use in its trade or business or for the
production of income; or
(B) In the taxable year in which the
specified plant is planted, or grafted to
a plant that has already been planted, by
the taxpayer in the ordinary course of the
taxpayer’s farming business, as defined in
section 263A(e)(4), if the taxpayer prop-
erly made the election to apply section
168(k)(5) (for further guidance, see para-
graph (f) of this section).
(ii) Computation. Except as provided
in paragraph (g)(5) of this section, the
allowable additional first year deprecia-
tion deduction for qualified property is
determined by multiplying the unadjusted
depreciable basis, as defined in §1.168(b)-
1(a)(3), of the qualified property by the
applicable percentage. Except as provided
in paragraph (g)(1) of this section, the ad-
ditional first year depreciation deduction
is not affected by a taxable year of less
than 12 months. See paragraph (g)(1) of
this section for qualified property placed
in service or planted or grafted, as appli-
cable, and disposed of during the same
taxable year. See paragraph (g)(5) of this
section for qualified property acquired in
a like-kind exchange or as a result of an
involuntary conversion.
(iii) Property described in section
168(k)(2)(B). For purposes of paragraph
(e)(1)(ii) of this section, the unadjusted
depreciable basis, as defined in §1.168(b)-
1(a)(3), of qualified property described
in section 168(k)(2)(B) is limited to the
property’s unadjusted depreciable basis
attributable to the property’s manufacture,
construction, or production before Janu-
ary 1, 2027.
(iv) Alternative minimum tax—(A) In
general. The additional first year depreci-
ation deduction is allowable for alterna-
tive minimum tax purposes—
(1) Except as provided in paragraph (e)
(1)(iv)(A)(2) of this section, in the taxable
year in which the qualified property is
placed in service by the taxpayer; or
(2) In the taxable year in which a spec-
ified plant is planted by the taxpayer, or
grafted by the taxpayer to a plant that was
previously planted, if the taxpayer prop-
erly made the election to apply section
168(k)(5) (for further guidance, see para-
graph (f) of this section).
(B) Special rules. In general, the ad-
ditional first year depreciation deduction
for alternative minimum tax purposes is
based on the unadjusted depreciable basis
of the property for alternative minimum
tax purposes. However, see paragraph
(g)(5)(iii)(E) of this section for qualified
property acquired in a like-kind exchange
or as a result of an involuntary conversion.
(2) Otherwise allowable depreciation
deduction—(i) In general. Before deter-
mining the amount otherwise allowable as
a depreciation deduction for the qualified
property for the placed-in-service year and
any subsequent taxable year, the taxpayer
must determine the remaining adjusted
depreciable basis of the qualified property.
This remaining adjusted depreciable basis
is equal to the unadjusted depreciable ba-
sis, as defined in §1.168(b)-1(a)(3), of the
qualified property reduced by the amount
of the additional first year depreciation al-
lowed or allowable, whichever is greater.
The remaining adjusted depreciable basis
of the qualified property is then depreciat-
ed using the applicable depreciation pro-
visions under the Internal Revenue Code
for the qualified property. The remaining
adjusted depreciable basis of the qualified
property that is MACRS property is also
the basis to which the annual depreciation
rates in the optional depreciation tables
apply (for further guidance, see section
8 of Rev. Proc. 87-57 (1987-2 C.B. 687)
and §601.601(d)(2)(ii)(b) of this chapter).
The depreciation deduction allowable for
the remaining adjusted depreciable basis
of the qualified property is affected by a
taxable year of less than 12 months.
(ii) Alternative minimum tax. For al-
ternative minimum tax purposes, the de-
preciation deduction allowable for the
remaining adjusted depreciable basis of
the qualified property is based on the re-
maining adjusted depreciable basis for
alternative minimum tax purposes. The

Bulletin No. 2019–41 845 October 7, 2019
remaining adjusted depreciable basis of
the qualified property for alternative min-
imum tax purposes is depreciated using
the same depreciation method, recovery
period (or useful life in the case of com-
puter software), and convention that apply
to the qualified property for regular tax
purposes.
(3) Examples. This paragraph (e) is il-
lustrated by the following examples:
(i) Example 1. On March 1, 2023, SS, a calen-
dar-year taxpayer, purchased and placed in service
qualified property that costs $1 million and is 5-year
property under section 168(e). SS depreciates its
5-year property placed in service in 2023 using the
optional depreciation table that corresponds with the
general depreciation system, the 200-percent declin-
ing balance method, a 5-year recovery period, and
the half-year convention. For 2023, SS is allowed an
80-percent additional first year depreciation deduc-
tion of $800,000 (the unadjusted depreciable basis
of $1 million multiplied by 0.80). Next, SS must re-
duce the unadjusted depreciable basis of $1 million
by the additional first year depreciation deduction of
$800,000 to determine the remaining adjusted de-
preciable basis of $200,000. Then, SS’ depreciation
deduction allowable in 2023 for the remaining ad-
justed depreciable basis of $200,000 is $40,000 (the
remaining adjusted depreciable basis of $200,000
multiplied by the annual depreciation rate of 0.20 for
recovery year 1).
(ii) Example 2. On June 1, 2023, TT, a calen-
dar-year taxpayer, purchased and placed in ser-
vice qualified property that costs $1,500,000. The
property qualifies for the expensing election under
section 179 and is 5-year property under section
168(e). TT did not purchase any other section 179
property in 2023. TT makes the election under sec-
tion 179 for the property and depreciates its 5-year
property placed in service in 2023 using the option-
al depreciation table that corresponds with the gen-
eral depreciation system, the 200-percent declining
balance method, a 5-year recovery period, and the
half-year convention. Assume the maximum sec-
tion 179 deduction for 2023 is $1,000,000. For
2023, TT is first allowed a $1,000,000 deduction
under section 179. Next, TT must reduce the cost
of $1,500,000 by the section 179 deduction of
$1,000,000 to determine the unadjusted depreciable
basis of $500,000. Then, for 2023, TT is allowed
an 80-percent additional first year depreciation de-
duction of $400,000 (the unadjusted depreciable
basis of $500,000 multiplied by 0.80). Next, TT
must reduce the unadjusted depreciable basis of
$500,000 by the additional first year depreciation
deduction of $400,000 to determine the remaining
adjusted depreciable basis of $100,000. Then, TT’s
depreciation deduction allowable in 2023 for the re-
maining adjusted depreciable basis of $100,000 is
$20,000 (the remaining adjusted depreciable basis
of $100,000 multiplied by the annual depreciation
rate of 0.20 for recovery year 1).
(f) Elections under section 168(k)—(1)
Election not to deduct additional first year
depreciation—(i) In general. A taxpayer
may make an election not to deduct the
additional first year depreciation for any
class of property that is qualified prop-
erty placed in service during the taxable
year. If this election is made, the election
applies to all qualified property that is in
the same class of property and placed in
service in the same taxable year, and no
additional first year depreciation deduc-
tion is allowable for the property placed in
service during the taxable year in the class
of property, except as provided in §1.743-
1(j)(4)(i)(B)(1).
(ii) Definition of class of property. For
purposes of this paragraph (f)(1), the term
class of property means:
(A) Except for the property described
in paragraphs (f)(1)(ii)(B) and (D), and (f)
(2) of this section, each class of property
described in section 168(e) (for example,
5-year property);
(B) Water utility property as defined in
section 168(e)(5) and depreciated under
section 168;
(C) Computer software as defined in,
and depreciated under, section 167(f)(1)
and §1.167(a)-14(b);
(D) Qualified improvement property as
defined in §1.168(b)-1(a)(5)(i)(C) and (a)
(5)(ii), and depreciated under section 168;
(E) Each separate production, as de-
fined in §1.181-3(b), of a qualified film or
television production;
(F) Each separate production, as de-
fined in section 181(e)(2), of a qualified
live theatrical production; or
(G) A partner’s basis adjustment in
partnership assets under section 743(b) for
each class of property described in para-
graphs (f)(1)(ii)(A) through (F), and (f)(2)
of this section (for further guidance, see
§1.743-1(j)(4)(i)(B)(1)).
(iii) Time and manner for making
election—(A) Time for making election.
Except as provided in paragraph (f)(6)
of this section, any election specified in
paragraph (f)(1)(i) of this section must be
made by the due date, including exten-
sions, of the Federal tax return for the tax-
able year in which the qualified property is
placed in service by the taxpayer.
(B) Manner of making election. Except
as provided in paragraph (f)(6) of this sec-
tion, any election specified in paragraph
(f)(1)(i) of this section must be made in
the manner prescribed on Form 4562,
“Depreciation and Amortization,” and its
instructions. The election is made sepa-
rately by each person owning qualified
property (for example, for each member
of a consolidated group by the common
parent of the group, by the partnership
(including a lower-tier partnership; also
including basis adjustments in the partner-
ship assets under section 743(b)), or by the
S corporation). If Form 4562 is revised or
renumbered, any reference in this section
to that form shall be treated as a reference
to the revised or renumbered form.
(iv) Failure to make election. If a tax-
payer does not make the election specified
in paragraph (f)(1)(i) of this section with-
in the time and in the manner prescribed
in paragraph (f)(1)(iii) of this section,
the amount of depreciation allowable for
that property under section 167 or 168,
as applicable, must be determined for the
placed-in-service year and for all subse-
quent taxable years by taking into account
the additional first year depreciation de-
duction. Thus, any election specified in
paragraph (f)(1)(i) of this section shall
not be made by the taxpayer in any other
manner (for example, the election cannot
be made through a request under section
446(e) to change the taxpayer’s method of
accounting).
(2) Election to apply section 168(k)
(5) for specified plants—(i) In general. A
taxpayer may make an election to apply
section 168(k)(5) to one or more specified
plants that are planted, or grafted to a plant
that has already been planted, by the tax-
payer in the ordinary course of the taxpay-
er’s farming business, as defined in sec-
tion 263A(e)(4). If this election is made
for a specified plant, such plant is not
treated as qualified property under section
168(k) and this section in its placed-in-
service year.
(ii) Time and manner for making elec-
tion—(A) Time for making election. Ex-
cept as provided in paragraph (f)(6) of
this section, any election specified in
paragraph (f)(2)(i) of this section must
be made by the due date, including ex-
tensions, of the Federal tax return for the
taxable year in which the taxpayer planted
or grafted the specified plant to which the
election applies.
(B) Manner of making election. Except
as provided in paragraph (f)(6) of this sec-
tion, any election specified in paragraph
(f)(2)(i) of this section must be made in
the manner prescribed on Form 4562,

October 7, 2019 846 Bulletin No. 2019–41
“Depreciation and Amortization,” and its
instructions. The election is made sepa-
rately by each person owning specified
plants (for example, for each member of a
consolidated group by the common parent
of the group, by the partnership (includ-
ing a lower-tier partnership), or by the S
corporation). If Form 4562 is revised or
renumbered, any reference in this section
to that form shall be treated as a reference
to the revised or renumbered form.
(iii) Failure to make election. If a tax-
payer does not make the election specified
in paragraph (f)(2)(i) of this section for a
specified plant within the time and in the
manner prescribed in paragraph (f)(2)(ii)
of this section, the specified plant is treated
as qualified property under section 168(k),
assuming all requirements are met, in the
taxable year in which such plant is placed
in service by the taxpayer. Thus, any elec-
tion specified in paragraph (f)(2)(i) of this
section shall not be made by the taxpay-
er in any other manner (for example, the
election cannot be made through a request
under section 446(e) to change the taxpay-
er’s method of accounting).
(3) Election for qualified property
placed in service during the 2017 tax-
able year—(i) In general. A taxpayer may
make an election to deduct 50 percent, in-
stead of 100 percent, additional first year
depreciation for all qualified property ac-
quired after September 27, 2017, by the
taxpayer and placed in service by the tax-
payer during its taxable year that includes
September 28, 2017. If a taxpayer makes
an election to apply section 168(k)(5) for
its taxable year that includes September
28, 2017, the taxpayer also may make an
election to deduct 50 percent, instead of
100 percent, additional first year depreci-
ation for all specified plants that are plant-
ed, or grafted to a plant that has already
been planted, after September 27, 2017,
by the taxpayer in the ordinary course of
the taxpayer’s farming business during
such taxable year.
(ii) Time and manner for making elec-
tion—(A) Time for making election. Ex-
cept as provided in paragraph (f)(6) of
this section, any election specified in
paragraph (f)(3)(i) of this section must
be made by the due date, including ex-
tensions, of the Federal tax return for the
taxpayer’s taxable year that includes Sep-
tember 28, 2017.
(B) Manner of making election. Except
as provided in paragraph (f)(6) of this sec-
tion, any election specified in paragraph
(f)(3)(i) of this section must be made in
the manner prescribed on the 2017 Form
4562, “Depreciation and Amortization,”
and its instructions. The election is made
separately by each person owning qual-
ified property (for example, for each
member of a consolidated group by the
common parent of the group, by the part-
nership (including a lower-tier partner-
ship), or by the S corporation).
(iii) Failure to make election. If a tax-
payer does not make the election specified
in paragraph (f)(3)(i) of this section with-
in the time and in the manner prescribed
in paragraph (f)(3)(ii) of this section, the
amount of depreciation allowable for
qualified property under section 167 or
168, as applicable, acquired and placed in
service, or planted or grafted, as applica-
ble, by the taxpayer after September 27,
2017, must be determined for the taxable
year that includes September 28, 2017,
and for all subsequent taxable years by
taking into account the 100-percent ad-
ditional first year depreciation deduction,
unless the taxpayer makes the election
specified in paragraph (f)(1)(i) of this
section within the time and in the manner
prescribed in paragraph (f)(1)(iii) of this
section for the class of property in which
the qualified property is included. Thus,
any election specified in paragraph (f)(3)
(i) of this section shall not be made by the
taxpayer in any other manner (for exam-
ple, the election cannot be made through a
request under section 446(e) to change the
taxpayer’s method of accounting).
(4) Alternative minimum tax. If a tax-
payer makes an election specified in para-
graph (f)(1) of this section for a class of
property or in paragraph (f)(2) of this sec-
tion for a specified plant, the depreciation
adjustments under section 56 and the regu-
lations in this part under section 56 do not
apply to the property or specified plant, as
applicable, to which that election applies
for purposes of computing the taxpayer’s
alternative minimum taxable income. If
a taxpayer makes an election specified
in paragraph (f)(3) of this section for all
qualified property, see paragraphs (e)(1)
(iv) and (e)(2)(ii) of this section.
(5) Revocation of election–(i) In gen-
eral. Except as provided in paragraphs (f)
(5)(ii) and (f)(6) of this section, an elec-
tion specified in this paragraph (f), once
made, may be revoked only by filing
a request for a private letter ruling and
obtaining the Commissioner of Internal
Revenue’s written consent to revoke the
election. The Commissioner may grant a
request to revoke the election if the tax-
payer acted reasonably and in good faith,
and the revocation will not prejudice the
interests of the Government. See generally
§301.9100-3 of this chapter. An election
specified in this paragraph (f) may not be
revoked through a request under section
446(e) to change the taxpayer’s method of
accounting.
(ii) Automatic 6-month extension. If a
taxpayer made an election specified in this
paragraph (f), an automatic extension of 6
months from the due date of the taxpay-
er’s Federal tax return, excluding exten-
sions, for the placed-in-service year or the
taxable year in which the specified plant is
planted or grafted, as applicable, is grant-
ed to revoke that election, provided the
taxpayer timely filed the taxpayer’s Feder-
al tax return for the placed-in-service year
or the taxable year in which the specified
plant is planted or grafted, as applicable,
and, within this 6-month extension period,
the taxpayer, and all taxpayers whose tax
liability would be affected by the election,
file an amended Federal tax return for the
placed-in-service year or the taxable year
in which the specified plant is planted or
grafted, as applicable, in a manner that is
consistent with the revocation of the elec-
tion.
(6) Special rules for 2016 and 2017
returns. For an election specified in this
paragraph (f) for qualified property placed
in service, or for a specified plant that is
planted, or grafted to a plant that has al-
ready been planted, by the taxpayer during
its taxable year that included September
28, 2017, the taxpayer should refer to Rev.
Proc. 2019-33 (2019-34 I.R.B. 662) (see
§601.601(d)(2)(ii)(b) of this chapter) for
the time and manner of making the elec-
tion on the 2016 or 2017 Federal tax re-
turn.
(g) Special rules—(1) Property placed
in service and disposed of in the same tax-
able year—(i) In general. Except as pro-
vided in paragraphs (g)(1)(ii) and (iii) of
this section, the additional first year depre-
ciation deduction is not allowed for qual-

Bulletin No. 2019–41 847 October 7, 2019
ified property placed in service or planted
or grafted, as applicable, and disposed of
during the same taxable year. If a partner-
ship interest is acquired and disposed of
during the same taxable year, the addition-
al first year depreciation deduction is not
allowed for any section 743(b) adjustment
arising from the initial acquisition. Also,
if qualified property is placed in service
and disposed of during the same taxable
year and then reacquired and again placed
in service in a subsequent taxable year,
the additional first year depreciation de-
duction is not allowable for the property
in the subsequent taxable year.
(ii) Technical termination of a partner-
ship. In the case of a technical termination
of a partnership under section 708(b)(1)
(B) in a taxable year beginning before
January 1, 2018, the additional first year
depreciation deduction is allowable for
any qualified property placed in service
or planted or grafted, as applicable, by
the terminated partnership during the tax-
able year of termination and contributed
by the terminated partnership to the new
partnership. The allowable additional first
year depreciation deduction for the quali-
fied property shall not be claimed by the
terminated partnership but instead shall
be claimed by the new partnership for the
new partnership’s taxable year in which
the qualified property was contributed
by the terminated partnership to the new
partnership. However, if qualified prop-
erty is both placed in service or planted
or grafted, as applicable, and contribut-
ed to a new partnership in a transaction
described in section 708(b)(1)(B) by the
terminated partnership during the taxable
year of termination, and if such property is
disposed of by the new partnership in the
same taxable year the new partnership re-
ceived such property from the terminated
partnership, then no additional first year
depreciation deduction is allowable to ei-
ther partnership.
(iii) Section 168(i)(7) transactions. If
any qualified property is transferred in a
transaction described in section 168(i)(7)
in the same taxable year that the qualified
property is placed in service or planted
or grafted, as applicable, by the transfer-
or, the additional first year depreciation
deduction is allowable for the qualified
property. If a partnership interest is pur-
chased and transferred in a transaction
described in section 168(i)(7) in the same
taxable year, the additional first year de-
preciation deduction is allowable for any
section 743(b) adjustment that arises from
the initial acquisition with respect to qual-
ified property held by the partnership,
provided the requirements of paragraph
(b)(3)(iv)(D) of this section and all other
requirements of section 168(k) and this
section are satisfied. The allowable ad-
ditional first year depreciation deduction
for the qualified property for the transfer-
or’s taxable year in which the property is
placed in service or planted or grafted, as
applicable, is allocated between the trans-
feror and the transferee on a monthly ba-
sis. The allowable additional first year de-
preciation deduction for a section 743(b)
adjustment with respect to qualified prop-
erty held by the partnership is allocated
between the transferor and the transferee
on a monthly basis notwithstanding that
under §1.743-1(f) a transferee’s section
743(b) adjustment is determined without
regard to a transferors section 743(b) ad-
justment. These allocations shall be made
in accordance with the rules in §1.168(d)-
1(b)(7)(ii) for allocating the depreciation
deduction between the transferor and the
transferee. However, solely for purposes
of this section, if the qualified property
is transferred in a section 721(a) transac-
tion to a partnership that has as a partner
a person, other than the transferor, who
previously had a depreciable interest in
the qualified property, in the same taxable
year that the qualified property is acquired
or planted or grafted, as applicable, by
the transferor, the qualified property is
deemed to be placed in service or planted
or grafted, as applicable, by the transferor
during that taxable year, and the allowable
additional first year depreciation deduc-
tion is allocated entirely to the transferor
and not to the partnership. Additionally, if
qualified property is both placed in service
or planted or grafted, as applicable, and
transferred in a transaction described in
section 168(i)(7) by the transferor during
the same taxable year, and if such proper-
ty is disposed of by the transferee, other
than by a transaction described in section
168(i)(7), during the same taxable year the
transferee received such property from the
transferor, then no additional first year de-
preciation deduction is allowable to either
party.
(iv) Examples. The application of this
paragraph (g)(1) is illustrated by the fol-
lowing examples:
(A) Example 1. UU and VV are equal partners
in Partnership JL, a general partnership. Partnership
JL is a calendar-year taxpayer. On October 1, 2017,
Partnership JL purchased and placed in service qual-
ified property at a cost of $30,000. On November 1,
2017, UU sells its entire 50 percent interest to WW in
a transfer that terminates the partnership under sec-
tion 708(b)(1)(B). As a result, terminated Partner-
ship JL is deemed to have contributed the qualified
property to new Partnership JL. Pursuant to para-
graph (g)(1)(ii) of this section, new Partnership JL,
not terminated Partnership JL, is eligible to claim
the 100-percent additional first year depreciation de-
duction allowable for the qualified property for the
taxable year 2017, assuming all other requirements
are met.
(B) Example 2. On January 5, 2018, XX pur-
chased and placed in service qualified property for
a total amount of $9,000. On August 20, 2018, XX
transferred this qualified property to Partnership BC
in a transaction described in section 721(a). No other
partner of Partnership BC has ever had a depreciable
interest in the qualified property. XX and Partnership
BC are calendar-year taxpayers. Because the trans-
action between XX and Partnership BC is a trans-
action described in section 168(i)(7), pursuant to
paragraph (g)(1)(iii) of this section, the 100-percent
additional first year depreciation deduction allow-
able for the qualified property is allocated between
XX and Partnership BC in accordance with the rules
in §1.168(d)-1(b)(7)(ii) for allocating the deprecia-
tion deduction between the transferor and the trans-
feree. Accordingly, the 100-percent additional first
year depreciation deduction allowable of $9,000 for
the qualified property for 2018 is allocated between
XX and Partnership BC based on the number of
months that XX and Partnership BC held the qual-
ified property in service during 2018. Thus, because
the qualified property was held in service by XX for
7 of 12 months, which includes the month in which
XX placed the qualified property in service but does
not include the month in which the qualified prop-
erty was transferred, XX is allocated $5,250 (
7
⁄
12
×
$9,000 additional first year depreciation deduction).
Partnership BC is allocated $3,750, the remaining
5
⁄
12
of the $9,000 additional first year depreciation
deduction allowable for the qualified property.
(2) Redetermination of basis. If the
unadjusted depreciable basis, as defined
in §1.168(b)-1(a)(3), of qualified proper-
ty is redetermined (for example, due to
contingent purchase price or discharge of
indebtedness) before January 1, 2027, or
in the case of property described in sec-
tion 168(k)(2)(B) or (C), is redetermined
before January 1, 2028, the additional first
year depreciation deduction allowable for
the qualified property is redetermined as
follows:
(i) Increase in basis. For the taxable
year in which an increase in basis of qual-
ified property occurs, the taxpayer shall

October 7, 2019 848 Bulletin No. 2019–41
claim an additional first year deprecia-
tion deduction for qualified property by
multiplying the amount of the increase in
basis for this property by the applicable
percentage for the taxable year in which
the underlying property was placed in
service by the taxpayer. For purposes of
this paragraph (g)(2)(i), the additional first
year depreciation deduction applies to the
increase in basis only if the underlying
property is qualified property. To deter-
mine the amount otherwise allowable as a
depreciation deduction for the increase in
basis of qualified property, the amount of
the increase in basis of the qualified prop-
erty must be reduced by the additional first
year depreciation deduction allowed or al-
lowable, whichever is greater, for the in-
crease in basis and the remaining increase
in basis of—
(A) Qualified property, except for com-
puter software described in paragraph (b)
(2)(i)(B) of this section, a qualified film
or television production described in
paragraph (b)(2)(i)(E) of this section, or
a qualified live theatrical production de-
scribed in paragraph (b)(2)(i)(F) of this
section, is depreciated over the recovery
period of the qualified property remaining
as of the beginning of the taxable year in
which the increase in basis occurs, and
using the same depreciation method and
convention applicable to the qualified
property that applies for the taxable year
in which the increase in basis occurs; and
(B) Computer software, as defined in
paragraph (b)(2)(i)(B) of this section, that
is qualified property is depreciated ratably
over the remainder of the 36-month pe-
riod, the useful life under section 167(f)
(1), as of the beginning of the first day of
the month in which the increase in basis
occurs.
(ii) Decrease in basis. For the taxable
year in which a decrease in basis of qual-
ified property occurs, the taxpayer shall
reduce the total amount otherwise allow-
able as a depreciation deduction for all
of the taxpayer’s depreciable property by
the excess additional first year depreci-
ation deduction previously claimed for
the qualified property. If, for such tax-
able year, the excess additional first year
depreciation deduction exceeds the total
amount otherwise allowable as a depre-
ciation deduction for all of the taxpayer’s
depreciable property, the taxpayer shall
take into account a negative depreciation
deduction in computing taxable income.
The excess additional first year depreci-
ation deduction for qualified property is
determined by multiplying the amount of
the decrease in basis for this property by
the applicable percentage for the taxable
year in which the underlying property
was placed in service by the taxpayer.
For purposes of this paragraph (g)(2)
(ii), the additional first year deprecia-
tion deduction applies to the decrease in
basis only if the underlying property is
qualified property. Also, if the taxpayer
establishes by adequate records or oth-
er sufficient evidence that the taxpayer
claimed less than the additional first year
depreciation deduction allowable for the
qualified property before the decrease in
basis, or if the taxpayer claimed more
than the additional first year deprecia-
tion deduction allowable for the qualified
property before the decrease in basis, the
excess additional first year depreciation
deduction is determined by multiplying
the amount of the decrease in basis by the
additional first year depreciation deduc-
tion percentage actually claimed by the
taxpayer for the qualified property before
the decrease in basis. To determine the
amount to reduce the total amount other-
wise allowable as a depreciation deduc-
tion for all of the taxpayer’s depreciable
property for the excess depreciation pre-
viously claimed, other than the additional
first year depreciation deduction, result-
ing from the decrease in basis of the qual-
ified property, the amount of the decrease
in basis of the qualified property must
be adjusted by the excess additional first
year depreciation deduction that reduced
the total amount otherwise allowable as
a depreciation deduction, as determined
under this paragraph (g)(2)(ii), and the
remaining decrease in basis of—
(A) Qualified property, except for com-
puter software described in paragraph (b)
(2)(i)(B) of this section, a qualified film
or television production described in
paragraph (b)(2)(i)(E) of this section, or
a qualified live theatrical production de-
scribed in paragraph (b)(2)(i)(F) of this
section, reduces the amount otherwise al-
lowable as a depreciation deduction over
the recovery period of the qualified prop-
erty remaining as of the beginning of the
taxable year in which the decrease in basis
occurs, and using the same depreciation
method and convention of the qualified
property that applies in the taxable year
in which the decrease in basis occurs. If,
for any taxable year, the reduction to the
amount otherwise allowable as a depreci-
ation deduction, as determined under this
paragraph (g)(2)(ii)(A), exceeds the total
amount otherwise allowable as a deprecia-
tion deduction for all of the taxpayer’s de-
preciable property, the taxpayer shall take
into account a negative depreciation de-
duction in computing taxable income; and
(B) Computer software, as defined
in paragraph (b)(2)(i)(B) of this section,
that is qualified property reduces the
amount otherwise allowable as a depre-
ciation deduction over the remainder of
the 36-month period, the useful life under
section 167(f)(1), as of the beginning of
the first day of the month in which the de-
crease in basis occurs. If, for any taxable
year, the reduction to the amount other-
wise allowable as a depreciation deduc-
tion, as determined under this paragraph
(g)(2)(ii)(B), exceeds the total amount
otherwise allowable as a depreciation de-
duction for all of the taxpayer’s deprecia-
ble property, the taxpayer shall take into
account a negative depreciation deduction
in computing taxable income.
(iii) Definitions. Except as otherwise
expressly provided by the Internal Reve-
nue Code (for example, section 1017(a)),
the regulations under the Internal Revenue
Code, or other guidance published in the
Internal Revenue Bulletin for purposes of
this paragraph (g)(2)—
(A) An increase in basis occurs in the
taxable year an amount is taken into ac-
count under section 461; and
(B) A decrease in basis occurs in the
taxable year an amount would be taken
into account under section 451.
(iv) Examples. The application of this
paragraph (g)(2) is illustrated by the fol-
lowing examples:
(A) Example 1. (1) On May 15, 2023, YY, a
cash-basis taxpayer, purchased and placed in service
qualified property that is 5-year property at a cost of
$200,000. In addition to the $200,000, YY agrees to
pay the seller 25 percent of the gross profits from
the operation of the property in 2023. On May 15,
2024, YY paid to the seller an additional $10,000. YY
depreciates the 5-year property placed in service in
2023 using the optional depreciation table that cor-
responds with the general depreciation system, the
200-percent declining balance method, a 5-year re-
covery period, and the half-year convention.

Bulletin No. 2019–41 849 October 7, 2019
(2) For 2023, YY is allowed an 80-percent addi-
tional first year depreciation deduction of $160,000
(the unadjusted depreciable basis of $200,000 mul-
tiplied by 0.80). In addition, YY’s depreciation de-
duction for 2023 for the remaining adjusted depre-
ciable basis of $40,000 (the unadjusted depreciable
basis of $200,000 reduced by the additional first year
depreciation deduction of $160,000) is $8,000 (the
remaining adjusted depreciable basis of $40,000
multiplied by the annual depreciation rate of 0.20 for
recovery year 1).
(3) For 2024, YY’s depreciation deduction for the
remaining adjusted depreciable basis of $40,000 is
$12,800 (the remaining adjusted depreciable basis of
$40,000 multiplied by the annual depreciation rate
of 0.32 for recovery year 2). In addition, pursuant to
paragraph (g)(2)(i) of this section, YY is allowed an
additional first year depreciation deduction for 2024
for the $10,000 increase in basis of the qualified
property. Consequently, YY is allowed an addition-
al first year depreciation deduction of $8,000 (the
increase in basis of $10,000 multiplied by 0.80, the
applicable percentage for 2023). Also, YY is allowed
a depreciation deduction for 2024 attributable to the
remaining increase in basis of $2,000 (the increase
in basis of $10,000 reduced by the additional first
year depreciation deduction of $8,000). The depre-
ciation deduction allowable for 2024 attributable to
the remaining increase in basis of $2,000 is $889 (the
remaining increase in basis of $2,000 multiplied by
0.4444, which is equal to 1/remaining recovery pe-
riod of 4.5 years at January 1, 2024, multiplied by
2). Accordingly, for 2024, YY’s total depreciation
deduction allowable for the qualified property is
$21,689 ($12,800 plus $8,000 plus $889).
(B) Example 2. (1) On May 15, 2023, ZZ, a cal-
endar-year taxpayer, purchased and placed in service
qualified property that is 5-year property at a cost of
$400,000. To purchase the property, ZZ borrowed
$250,000 from Bank1. On May 15, 2024, Bank1
forgives $50,000 of the indebtedness. ZZ makes the
election provided in section 108(b)(5) to apply any
portion of the reduction under section 1017 to the
basis of the depreciable property of the taxpayer. ZZ
depreciates the 5-year property placed in service in
2023 using the optional depreciation table that cor-
responds with the general depreciation system, the
200-percent declining balance method, a 5-year re-
covery period, and the half-year convention.
(2) For 2023, ZZ is allowed an 80-percent addi-
tional first year depreciation deduction of $320,000
(the unadjusted depreciable basis of $400,000 multi-
plied by 0.80). In addition, ZZ’s depreciation deduc-
tion allowable for 2023 for the remaining adjusted
depreciable basis of $80,000 (the unadjusted depre-
ciable basis of $400,000 reduced by the additional
first year depreciation deduction of $320,000) is
$16,000 (the remaining adjusted depreciable basis of
$80,000 multiplied by the annual depreciation rate of
0.20 for recovery year 1).
(3) For 2024, ZZ’s deduction for the remaining
adjusted depreciable basis of $80,000 is $25,600
(the remaining adjusted depreciable basis of $80,000
multiplied by the annual depreciation rate 0.32 for re-
covery year 2). Although Bank1 forgave the indebt-
edness in 2024, the basis of the property is reduced
on January 1, 2025, pursuant to sections 108(b)(5)
and 1017(a) under which basis is reduced at the
beginning of the taxable year following the taxable
year in which the discharge of indebtedness occurs.
(4) For 2025, ZZ’s deduction for the remaining
adjusted depreciable basis of $80,000 is $15,360
(the remaining adjusted depreciable basis of $80,000
multiplied by the annual depreciation rate 0.192 for
recovery year 3). However, pursuant to paragraph
(g)(2)(ii) of this section, ZZ must reduce the amount
otherwise allowable as a depreciation deduction for
2025 by the excess depreciation previously claimed
for the $50,000 decrease in basis of the qualified
property. Consequently, ZZ must reduce the amount
of depreciation otherwise allowable for 2025 by the
excess additional first year depreciation of $40,000
(the decrease in basis of $50,000 multiplied by 0.80,
the applicable percentage for 2023). Also, ZZ must
reduce the amount of depreciation otherwise allow-
able for 2025 by the excess depreciation attributable
to the remaining decrease in basis of $10,000 (the
decrease in basis of $50,000 reduced by the excess
additional first year depreciation of $40,000). The
reduction in the amount of depreciation otherwise al-
lowable for 2025 for the remaining decrease in basis
of $10,000 is $5,714 (the remaining decrease in basis
of $10,000 multiplied by 0.5714, which is equal to
(1/remaining recovery period of 3.5 years at January
1, 2025, multiplied by 2). Accordingly, assuming the
qualified property is the only depreciable property
owned by ZZ, for 2025, ZZ has a negative deprecia-
tion deduction for the qualified property of $30,354
($15,360 minus $40,000 minus $5,714).
(3) Sections 1245 and 1250 depreci-
ation recapture. For purposes of section
1245 and §§1.1245-1 through -6, the ad-
ditional first year depreciation deduction
is an amount allowed or allowable for
depreciation. Further, for purposes of sec-
tion 1250(b) and §1.1250-2, the additional
first year depreciation deduction is not a
straight line method.
(4) Coordination with section 169. The
additional first year depreciation deduc-
tion is allowable in the placed-in-service
year of a certified pollution control facili-
ty, as defined in §1.169-2(a), that is qual-
ified property even if the taxpayer makes
the election to amortize the certified pol-
lution control facility under section 169
and §§1.169-1 through -4 in the certified
pollution control facility’s placed-in-ser-
vice year.
(5) Like-kind exchanges and involun-
tary conversions—(i) Scope. The rules of
this paragraph (g)(5) apply to replacement
MACRS property or replacement comput-
er software that is qualified property at the
time of replacement provided the time of
replacement is after September 27, 2017,
and before January 1, 2027; or, in the case
of replacement MACRS property or re-
placement computer software that is qual-
ified property described in section 168(k)
(2)(B) or (C), the time of replacement is
after September 27, 2017, and before Jan-
uary 1, 2028.
(ii) Definitions. For purposes of this
paragraph (g)(5), the following definitions
apply:
(A) Replacement MACRS property has
the same meaning as that term is defined
in §1.168(i)-6(b)(1).
(B) Relinquished MACRS property has
the same meaning as that term is defined
in §1.168(i)-6(b)(2).
(C) Replacement computer software
is computer software, as defined in para-
graph (b)(2)(i)(B) of this section, in the
hands of the acquiring taxpayer that is
acquired for other computer software in
a like-kind exchange or in an involuntary
conversion.
(D) Relinquished computer software is
computer software that is transferred by
the taxpayer in a like-kind exchange or in
an involuntary conversion.
(E) Time of disposition has the
same meaning as that term is defined
in §1.168(i)-6(b)(3) for relinquished
MACRS property. For relinquished com-
puter software, time of disposition is
when the disposition of the relinquished
computer software takes place under the
convention determined under §1.167(a)-
14(b).
(F) Except as provided in paragraph (g)
(5)(iv) of this section, the time of replace-
ment has the same meaning as that term
is defined in §1.168(i)-6(b)(4) for replace-
ment MACRS property. For replacement
computer software, the time of replace-
ment is, except as provided in paragraph
(g)(5)(iv) of this section, the later of—
(1) When the replacement computer
software is placed in service under the
convention determined under §1.167(a)-
14(b); or
(2) The time of disposition of the relin-
quished property.
(G) Exchanged basis has the same
meaning as that term is defined in
§1.168(i)-6(b)(7) for MACRS property,
as defined in §1.168(b)-1(a)(2). For com-
puter software, the exchanged basis is de-
termined after the amortization deductions
for the year of disposition are determined
under §1.167(a)-14(b) and is the lesser
of—
(1) The basis in the replacement com-
puter software, as determined under sec-

October 7, 2019 850 Bulletin No. 2019–41
tion 1031(d) and §1.1031(d)-1, 1.1031(d)-
2, 1.1031(j)-1, or 1.1031(k)-1; or section
1033(b) and §1.1033(b)-1; or
(2) The adjusted depreciable basis of
the relinquished computer software.
(H) Excess basis has the same meaning
as that term is defined in §1.168(i)-6(b)
(8) for replacement MACRS property.
For replacement computer software, the
excess basis is any excess of the basis
in the replacement computer software,
as determined under section 1031(d) and
§1.1031(d)-1, 1.1031(d)-2, 1.1031(j)-1,
or 1.1031(k)-1; or section 1033(b) and
§1.1033(b)-1, over the exchanged basis as
determined under paragraph (g)(5)(ii)(G)
of this section.
(I) Remaining exchanged basis is the
exchanged basis as determined under
paragraph (g)(5)(ii)(G) of this section re-
duced by—
(1) The percentage of such basis attrib-
utable to the taxpayer’s use of property for
the taxable year other than in the taxpay-
er’s trade or business or for the production
of income; and
(2) Any adjustments to basis provided
by other provisions of the Code and the
regulations under the Code (including sec-
tion 1016(a)(2) and (3)) for periods prior
to the disposition of the relinquished prop-
erty.
(J) Remaining excess basis is the ex-
cess basis as determined under paragraph
(g)(5)(ii)(H) of this section reduced by—
(1) The percentage of such basis attrib-
utable to the taxpayer’s use of property for
the taxable year other than in the taxpay-
er’s trade or business or for the production
of income;
(2) Any portion of the basis the taxpay-
er properly elects to treat as an expense
under section 179 or 179C; and
(3) Any adjustments to basis provided
by other provisions of the Code and the
regulations under the Code.
(K) Year of disposition has the same
meaning as that term is defined in
§1.168(i)-6(b)(5).
(L) Year of replacement has the
same meaning as that term is defined in
§1.168(i)-6(b)(6).
(M) Like-kind exchange has the
same meaning as that term is defined in
§1.168(i)-6(b)(11).
(N) Involuntary conversion has the
same meaning as that term is defined in
§1.168(i)-6(b)(12).
(iii) Computation—(A) In general. If
the replacement MACRS property or the
replacement computer software, as appli-
cable, meets the original use requirement
in paragraph (b)(3)(ii) of this section and
all other requirements of section 168(k)
and this section, the remaining exchanged
basis for the year of replacement and the
remaining excess basis, if any, for the
year of replacement for the replacement
MACRS property or the replacement
computer software, as applicable, are el-
igible for the additional first year depre-
ciation deduction under this section. If
the replacement MACRS property or the
replacement computer software, as appli-
cable, meets the used property acquisition
requirements in paragraph (b)(3)(iii) of
this section and all other requirements of
section 168(k) and this section, only the
remaining excess basis for the year of re-
placement for the replacement MACRS
property or the replacement computer
software, as applicable, is eligible for the
additional first year depreciation deduc-
tion under this section. See paragraph (b)
(3)(iii)(A)(3) of this section. The addition-
al first year depreciation deduction applies
to the remaining exchanged basis and any
remaining excess basis, as applicable, of
the replacement MACRS property or the
replacement computer software, as appli-
cable, if the time of replacement is after
September 27, 2017, and before January
1, 2027; or, in the case of replacement
MACRS property or replacement com-
puter software, as applicable, described
in section 168(k)(2)(B) or (C), the time of
replacement is after September 27, 2017,
and before January 1, 2028. The addi-
tional first year depreciation deduction is
computed separately for the remaining ex-
changed basis and any remaining excess
basis, as applicable.
(B) Year of disposition and year of re-
placement. The additional first year de-
preciation deduction is allowable for the
replacement MACRS property or replace-
ment computer software in the year of re-
placement. However, the additional first
year depreciation deduction is not allow-
able for the relinquished MACRS proper-
ty or the relinquished computer software,
as applicable, if the relinquished MACRS
property or the relinquished computer
software, as applicable, is placed in ser-
vice and disposed of in a like-kind ex-
change or in an involuntary conversion in
the same taxable year.
(C) Property described in section
168(k)(2)(B). For purposes of paragraph
(g)(5)(iii)(A) of this section, the total of
the remaining exchanged basis and the
remaining excess basis, if any, of the re-
placement MACRS property that is qual-
ified property described in section 168(k)
(2)(B) and meets the original use require-
ment in paragraph (b)(3)(ii) of this section
is limited to the total of the property’s
remaining exchanged basis and remain-
ing excess basis, if any, attributable to
the property’s manufacture, construction,
or production after September 27, 2017,
and before January 1, 2027. For purpos-
es of paragraph (g)(5)(iii)(A) of this sec-
tion, the remaining excess basis, if any,
of the replacement MACRS property that
is qualified property described in section
168(k)(2)(B) and meets the used proper-
ty acquisition requirements in paragraph
(b)(3)(iii) of this section is limited to the
property’s remaining excess basis, if any,
attributable to the property’s manufacture,
construction, or production after Septem-
ber 27, 2017, and before January 1, 2027.
(D) Effect of §1.168(i)-6(i)(1) election.
If a taxpayer properly makes the elec-
tion under §1.168(i)-6(i)(1) not to apply
§1.168(i)-6 for any MACRS property, as
defined in §1.168(b)-1(a)(2), involved in
a like-kind exchange or involuntary con-
version, then:
(1) If the replacement MACRS prop-
erty meets the original use requirement in
paragraph (b)(3)(ii) of this section and all
other requirements of section 168(k) and
this section, the total of the exchanged ba-
sis, as defined in §1.168(i)-6(b)(7), and the
excess basis, as defined in §1.168(i)-6(b)
(8), if any, in the replacement MACRS
property is eligible for the additional first
year depreciation deduction under this
section; or
(2) If the replacement MACRS proper-
ty meets the used property acquisition re-
quirements in paragraph (b)(3)(iii) of this
section and all other requirements of sec-
tion 168(k) and this section, only the ex-
cess basis, as defined in §1.168(i)-6(b)(8),
if any, in the replacement MACRS prop-

Bulletin No. 2019–41 851 October 7, 2019
erty is eligible for the additional first year
depreciation deduction under this section.
(E) Alternative minimum tax. The ad-
ditional first year depreciation deduction
is allowed for alternative minimum tax
purposes for the year of replacement of
replacement MACRS property or replace-
ment computer software, as applicable,
that is qualified property. If the replace-
ment MACRS property or the replace-
ment computer software, as applicable,
meets the original use requirement in
paragraph (b)(3)(ii) of this section and all
other requirements of section 168(k) and
this section, the additional first year depre-
ciation deduction for alternative minimum
tax purposes is based on the remaining
exchanged basis and the remaining excess
basis, if any, of the replacement MACRS
property or the replacement computer
software, as applicable, for alternative
minimum tax purposes. If the replacement
MACRS property or the replacement
computer software, as applicable, meets
the used property acquisition require-
ments in paragraph (b)(3)(iii) of this sec-
tion and all other requirements of section
168(k) and this section, the additional first
year depreciation deduction for alterna-
tive minimum tax purposes is based on
the remaining excess basis, if any, of the
replacement MACRS property or the re-
placement computer software, as applica-
ble, for alternative minimum tax purposes.
(iv) Replacement MACRS property
or replacement computer software that
is acquired and placed in service be-
fore disposition of relinquished MACRS
property or relinquished computer soft-
ware. If, in an involuntary conversion, a
taxpayer acquires and places in service
the replacement MACRS property or the
replacement computer software, as ap-
plicable, before the time of disposition
of the involuntarily converted MACRS
property or the involuntarily converted
computer software, as applicable; and the
time of disposition of the involuntarily
converted MACRS property or the invol-
untarily converted computer software, as
applicable, is after December 31, 2026,
or, in the case of property described in
service 168(k)(2)(B) or (C), after Decem-
ber 31, 2027, then—
(A) The time of replacement for pur-
poses of this paragraph (g)(5) is when the
replacement MACRS property or replace-
ment computer software, as applicable, is
placed in service by the taxpayer, provid-
ed the threat or imminence of requisition
or condemnation of the involuntarily con-
verted MACRS property or involuntarily
converted computer software, as applica-
ble, existed before January 1, 2027, or, in
the case of property described in section
168(k)(2)(B) or (C), existed before Janu-
ary 1, 2028; and
(B) The taxpayer depreciates the re-
placement MACRS property or replace-
ment computer software, as applicable,
in accordance with paragraph (e) of this
section. However, at the time of dispo-
sition of the involuntarily converted
MACRS property, the taxpayer deter-
mines the exchanged basis, as defined in
§1.168(i)-6(b)(7), and the excess basis,
as defined in §1.168(i)-6(b)(8), of the re-
placement MACRS property and begins
to depreciate the depreciable exchanged
basis, as defined in §1.168(i)-6(b)(9),
of the replacement MACRS property
in accordance with §1.168(i)-6(c). The
depreciable excess basis, as defined in
§1.168(i)-6(b)(10), of the replacement
MACRS property continues to be depre-
ciated by the taxpayer in accordance with
the first sentence of this paragraph (g)(5)
(iv)(B). Further, in the year of disposition
of the involuntarily converted MACRS
property, the taxpayer must include in
taxable income the excess of the depreci-
ation deductions allowable, including the
additional first year depreciation deduc-
tion allowable, on the unadjusted depre-
ciable basis of the replacement MACRS
property over the additional first year
depreciation deduction that would have
been allowable to the taxpayer on the
remaining exchanged basis of the re-
placement MACRS property at the time
of replacement, as defined in paragraph
(g)(5)(iv)(A) of this section, plus the de-
preciation deductions that would have
been allowable, including the additional
first year depreciation deduction allow-
able, to the taxpayer on the depreciable
excess basis of the replacement MACRS
property from the date the replacement
MACRS property was placed in service
by the taxpayer, taking into account the
applicable convention, to the time of dis-
position of the involuntarily converted
MACRS property. Similar rules apply to
replacement computer software.
(v) Examples. The application of this
paragraph (g)(5) is illustrated by the fol-
lowing examples:
(A) Example 1. (1) In April 2016, CSK, a cal-
endar-year corporation, acquired for $200,000 and
placed in service Canopy V1, a gas station cano-
py. Canopy V1 is qualified property under section
168(k)(2), as in effect on the day before amendment
by the Act, and is 5-year property under section
168(e). CSK depreciated Canopy V1 under the gen-
eral depreciation system of section 168(a) by using
the 200-percent declining balance method of depre-
ciation, a 5-year recovery period, and the half-year
convention. CSK elected to use the optional depre-
ciation tables to compute the depreciation allowance
for Canopy V1. In November 2017, Canopy V1 was
destroyed in a fire and was no longer usable in CSK’s
business. In December 2017, in an involuntary con-
version, CSK acquired and placed in service Canopy
W1 with all of the $160,000 of insurance proceeds
CSK received due to the loss of Canopy V1. Cano-
py W1 is qualified property under section 168(k)(2)
and this section, and is 5-year property under section
168(e). Canopy W1 also meets the original use re-
quirement in paragraph (b)(3)(ii) of this section. CSK
did not make the election under §1.168(i)-6(i)(1).
(2) For 2016, CSK is allowed a 50-percent addi-
tional first year depreciation deduction of $100,000
for Canopy V1 (the unadjusted depreciable ba-
sis of $200,000 multiplied by 0.50), and a regular
MACRS depreciation deduction of $20,000 for Can-
opy V1 (the remaining adjusted depreciable basis of
$100,000 multiplied by the annual depreciation rate
of 0.20 for recovery year 1).
(3) For 2017, CSK is allowed a regular MACRS
depreciation deduction of $16,000 for Canopy
V1 (the remaining adjusted depreciable basis of
$100,000 multiplied by the annual depreciation rate
of 0.32 for recovery year 2 ×
1
⁄
2
year).
(4) Pursuant to paragraph (g)(5)(iii)(A) of this
section, the additional first year depreciation de-
duction allowable for Canopy W1 for 2017 equals
$64,000 (100 percent of Canopy W1’s remaining ex-
changed basis at the time of replacement of $64,000
(Canopy V1’s remaining adjusted depreciable basis
of $100,000 minus 2016 regular MACRS depre-
ciation deduction of $20,000 minus 2017 regular
MACRS depreciation deduction of $16,000)).
(B) Example 2. (1) The facts are the same as in
Example 1 of paragraph (g)(5)(v)(A)(1) of this sec-
tion, except CSK elected not to deduct the additional
first year depreciation for 5-year property placed in
service in 2016. CSK deducted the additional first
year depreciation for 5-year property placed in ser-
vice in 2017.
(2) For 2016, CSK is allowed a regular MACRS
depreciation deduction of $40,000 for Canopy V1
(the unadjusted depreciable basis of $200,000 mul-
tiplied by the annual depreciation rate of 0.20 for
recovery year 1).
(3) For 2017, CSK is allowed a regular MACRS
depreciation deduction of $32,000 for Canopy V1
(the unadjusted depreciable basis of $200,000 mul-
tiplied by the annual depreciation rate of 0.32 for
recovery year 2 ×
1
⁄
2
year).
(4) Pursuant to paragraph (g)(5)(iii)(A) of this
section, the additional first year depreciation de-
duction allowable for Canopy W1 for 2017 equals

October 7, 2019 852 Bulletin No. 2019–41
$128,000 (100 percent of Canopy W1’s remain-
ing exchanged basis at the time of replacement of
$128,000 (Canopy V1’s unadjusted depreciable
basis of $200,000 minus 2016 regular MACRS de-
preciation deduction of $40,000 minus 2017 regular
MACRS depreciation deduction of $32,000)).
(C) Example 3. The facts are the same as in Ex-
ample 1 of paragraph (g)(5)(v)(A)(1) of this section,
except Canopy W1 meets the used property acquisi-
tion requirements in paragraph (b)(3)(iii) of this sec-
tion. Because the remaining excess basis of Canopy
W1 is zero, CSK is not allowed any additional first
year depreciation for Canopy W1 pursuant to para-
graph (g)(5)(iii)(A) of this section.
(D) Example 4. (1) In December 2016, AB, a
calendar-year corporation, acquired for $10,000
and placed in service Computer X2. Computer X2
is qualified property under section 168(k)(2), as in
effect on the day before amendment by the Act, and
is 5-year property under section 168(e). AB depre-
ciated Computer X2 under the general depreciation
system of section 168(a) by using the 200-percent
declining balance method of depreciation, a 5-year
recovery period, and the half-year convention. AB
elected to use the optional depreciation tables to
compute the depreciation allowance for Computer
X2. In November 2017, AB acquired Computer Y2
by exchanging Computer X2 and $1,000 cash in a
like-kind exchange. Computer Y2 is qualified prop-
erty under section 168(k)(2) and this section, and is
5-year property under section 168(e). Computer Y2
also meets the original use requirement in paragraph
(b)(3)(ii) of this section. AB did not make the elec-
tion under §1.168(i)-6(i)(1).
(2) For 2016, AB is allowed a 50-percent addi-
tional first year depreciation deduction of $5,000 for
Computer X2 (unadjusted basis of $10,000 multi-
plied by 0.50), and a regular MACRS depreciation
deduction of $1,000 for Computer X2 (the remain-
ing adjusted depreciable basis of $5,000 multiplied
by the annual depreciation rate of 0.20 for recovery
year 1).
(3) For 2017, AB is allowed a regular MACRS
depreciation deduction of $800 for Computer X2
(the remaining adjusted depreciable basis of $5,000
multiplied by the annual depreciation rate of 0.32 for
recovery year 2 ×
1
⁄
2
year).
(4) Pursuant to paragraph (g)(5)(iii)(A) of this
section, the 100-percent additional first year depreci-
ation deduction for Computer Y2 for 2017 is allow-
able for the remaining exchanged basis at the time of
replacement of $3,200 (Computer X2’s unadjusted
depreciable basis of $10,000 minus additional first
year depreciation deduction allowable of $5,000 mi-
nus the 2016 regular MACRS depreciation deduction
of $1,000 minus the 2017 regular MACRS deprecia-
tion deduction of $800) and for the remaining excess
basis at the time of replacement of $1,000 (cash paid
for Computer Y2). Thus, the 100-percent additional
first year depreciation deduction allowable for Com-
puter Y2 totals $4,200 for 2017.
(E) Example 5. (1) In July 2017, BC, a calen-
dar-year corporation, acquired for $20,000 and
placed in service Equipment X3. Equipment X3 is
qualified property under section 168(k)(2), as in ef-
fect on the day before amendment by the Act, and
is 5-year property under section 168(e). BC depre-
ciated Equipment X3 under the general depreciation
system of section 168(a) by using the 200-percent
declining balance method of depreciation, a 5-year
recovery period, and the half-year convention. BC
elected to use the optional depreciation tables to
compute the depreciation allowance for Equipment
X3. In December 2017, BC acquired Equipment Y3
by exchanging Equipment X3 and $5,000 cash in a
like-kind exchange. Equipment Y3 is qualified prop-
erty under section 168(k)(2) and this section, and
is 5-year property under section 168(e). Equipment
Y3 also meets the used property acquisition require-
ments in paragraph (b)(3)(iii) of this section. BC did
not make the election under §1.168(i)-6(i)(1).
(2) Pursuant to §1.168(k)-1(f)(5)(iii)(B), no addi-
tional first year depreciation deduction is allowable
for Equipment X3 and, pursuant to §1.168(d)-1(b)(3)
(ii), no regular depreciation deduction is allowable
for Equipment X3, for 2017.
(3) Pursuant to paragraph (g)(5)(iii)(A) of this
section, no additional first year depreciation deduc-
tion is allowable for Equipment Y3’s remaining ex-
changed basis at the time of replacement of $20,000
(Equipment X3’s unadjusted depreciable basis of
$20,000). However, pursuant to paragraph (g)(5)
(iii)(A) of this section, the 100-percent additional
first year depreciation deduction is allowable for
Equipment Y3’s remaining excess basis at the time
of replacement of $5,000 (cash paid for Equipment
Y3). Thus, the 100-percent additional first year de-
preciation deduction allowable for Equipment Y3 is
$5,000 for 2017.
(F) Example 6. (1) The facts are the same as in
Example 5 of paragraph (g)(5)(v)(E)(1) of this sec-
tion, except BC properly makes the election under
§1.168(i)-6(i)(1) not to apply §1.168(i)-6 to Equip-
ment X3 and Equipment Y3.
(2) Pursuant to §1.168(k)-1(f)(5)(iii)(B), no addi-
tional first year depreciation deduction is allowable
for Equipment X3 and, pursuant to §1.168(d)-1(b)(3)
(ii), no regular depreciation deduction is allowable
for Equipment X3, for 2017.
(3) Pursuant to §1.168(i)-6(i)(1), BC is treated as
placing Equipment Y3 in service in December 2017
with a basis of $25,000 (the total of the exchanged
basis of $20,000 and the excess basis of $5,000).
However, pursuant to paragraph (g)(5)(iii)(D)(2)
of this section, the 100-percent additional first year
depreciation deduction is allowable only for Equip-
ment Y3’s excess basis at the time of replacement
of $5,000 (cash paid for Equipment Y3). Thus, the
100-percent additional first year depreciation deduc-
tion allowable for Equipment Y3 is $5,000 for 2017.
(6) Change in use—(i) Change in use
of MACRS property. The determination of
whether the use of MACRS property, as
defined in §1.168(b)-1(a)(2), changes is
made in accordance with section 168(i)(5)
and §1.168(i)-4.
(ii) Conversion to personal use. If
qualified property is converted from busi-
ness or income-producing use to personal
use in the same taxable year in which the
property is placed in service by a taxpayer,
the additional first year depreciation de-
duction is not allowable for the property.
(iii) Conversion to business or in-
come-producing use—(A) During the
same taxable year. If, during the same
taxable year, property is acquired by a
taxpayer for personal use and is convert-
ed by the taxpayer from personal use to
business or income-producing use, the ad-
ditional first year depreciation deduction
is allowable for the property in the taxable
year the property is converted to business
or income-producing use, assuming all
of the requirements in paragraph (b) of
this section are met. See paragraph (b)(3)
(ii) of this section relating to the original
use rules for a conversion of property to
business or income-producing use. See
§1.168(i)-4(b)(1) for determining the de-
preciable basis of the property at the time
of conversion to business or income-pro-
ducing use.
(B) Subsequent to the acquisition year.
If property is acquired by a taxpayer for
personal use and, during a subsequent
taxable year, is converted by the taxpay-
er from personal use to business or in-
come-producing use, the additional first
year depreciation deduction is allowable
for the property in the taxable year the
property is converted to business or in-
come-producing use, assuming all of the
requirements in paragraph (b) of this sec-
tion are met. For purposes of paragraphs
(b)(4) and (5) of this section, the property
must be acquired by the taxpayer for per-
sonal use after September 27, 2017, and
converted by the taxpayer from personal
use to business or income-producing use
by January 1, 2027. See paragraph (b)(3)
(ii) of this section relating to the original
use rules for a conversion of property to
business or income-producing use. See
§1.168(i)-4(b)(1) for determining the de-
preciable basis of the property at the time
of conversion to business or income-pro-
ducing use.
(iv) Depreciable property changes
use subsequent to the placed-in-service
year. (A) If the use of qualified property
changes in the hands of the same taxpayer
subsequent to the taxable year the quali-
fied property is placed in service and, as
a result of the change in use, the property
is no longer qualified property, the addi-
tional first year depreciation deduction
allowable for the qualified property is not
redetermined.

Bulletin No. 2019–41 853 October 7, 2019
(B) If depreciable property is not qual-
ified property in the taxable year the prop-
erty is placed in service by the taxpayer,
the additional first year depreciation de-
duction is not allowable for the property
even if a change in the use of the property
subsequent to the taxable year the proper-
ty is placed in service results in the prop-
erty being qualified property in the taxable
year of the change in use.
(v) Examples. The application of this
paragraph (g)(6) is illustrated by the fol-
lowing examples:
(A) Example 1. (1) On January 1, 2019, FFF,
a calendar year corporation, purchased and placed
in service several new computers at a total cost of
$100,000. FFF used these computers within the
United States for 3 months in 2019 and then moved
and used the computers outside the United States for
the remainder of 2019. On January 1, 2020, FFF per-
manently returns the computers to the United States
for use in its business.
(2) For 2019, the computers are considered as
used predominantly outside the United States in
2019 pursuant to §1.48-1(g)(1)(i). As a result, the
computers are required to be depreciated under the
alternative depreciation system of section 168(g).
Pursuant to paragraph (b)(2)(ii)(B) of this section,
the computers are not qualified property in 2019, the
placed-in-service year. Thus, pursuant to paragraph
(g)(6)(iv)(B) of this section, no additional first year
depreciation deduction is allowed for these comput-
ers, regardless of the fact that the computers are per-
manently returned to the United States in 2020.
(B) Example 2. (1) On February 8, 2023, GGG,
a calendar year corporation, purchased and placed in
service new equipment at a cost of $1,000,000 for
use in its California plant. The equipment is 5-year
property under section 168(e) and is qualified proper-
ty under section 168(k). GGG depreciates its 5-year
property placed in service in 2023 using the optional
depreciation table that corresponds with the general
depreciation system, the 200-percent declining bal-
ance method, a 5-year recovery period, and the half-
year convention. On June 4, 2024, due to changes in
GGG’s business circumstances, GGG permanently
moves the equipment to its plant in Mexico.
(2) For 2023, GGG is allowed an 80-percent ad-
ditional first year depreciation deduction of $800,000
(the adjusted depreciable basis of $1,000,000 multi-
plied by 0.80). In addition, GGG’s depreciation de-
duction allowable in 2023 for the remaining adjusted
depreciable basis of $200,000 (the unadjusted depre-
ciable basis of $1,000,000 reduced by the addition-
al first year depreciation deduction of $800,000) is
$40,000 (the remaining adjusted depreciable basis of
$200,000 multiplied by the annual depreciation rate
of 0.20 for recovery year 1).
(3) For 2024, the equipment is considered as
used predominantly outside the United States pursu-
ant to §1.48-1(g)(1)(i). As a result of this change in
use, the adjusted depreciable basis of $160,000 for
the equipment is required to be depreciated under
the alternative depreciation system of section 168(g)
beginning in 2024. However, the additional first year
depreciation deduction of $800,000 allowed for the
equipment in 2023 is not redetermined.
(7) Earnings and profits. The addition-
al first year depreciation deduction is not
allowable for purposes of computing earn-
ings and profits.
(8) Limitation of amount of deprecia-
tion for certain passenger automobiles.
For a passenger automobile as defined in
section 280F(d)(5), the limitation under
section 280F(a)(1)(A)(i) is increased by
$8,000 for qualified property acquired and
placed in service by a taxpayer after Sep-
tember 27, 2017.
(9) Coordination with section 47—(i)
In general. If qualified rehabilitation ex-
penditures, as defined in section 47(c)(2)
and §1.48-12(c), incurred by a taxpayer
with respect to a qualified rehabilitated
building, as defined in section 47(c)(1)
and §1.48-12(b), are qualified property,
the taxpayer may claim the rehabilitation
credit provided by section 47(a), provided
the requirements of section 47 are met—
(A) With respect to the portion of the
basis of the qualified rehabilitated build-
ing that is attributable to the qualified re-
habilitation expenditures if the taxpayer
makes the applicable election under para-
graph (f)(1)(i) of this section not to de-
duct any additional first year depreciation
for the class of property that includes the
qualified rehabilitation expenditures; or
(B) With respect to the portion of
the remaining rehabilitated basis of the
qualified rehabilitated building that is at-
tributable to the qualified rehabilitation
expenditures if the taxpayer claims the
additional first year depreciation deduc-
tion on the unadjusted depreciable basis,
as defined in §1.168(b)-1(a)(3) but before
the reduction in basis for the amount of
the rehabilitation credit, of the qualified
rehabilitation expenditures; and the tax-
payer depreciates the remaining adjusted
depreciable basis, as defined in paragraph
(e)(2)(i) of this section, of such expendi-
tures using straight line cost recovery in
accordance with section 47(c)(2)(B)(i)
and §1.48-12(c)(7)(i). For purposes of this
paragraph (g)(9)(i)(B), the remaining re-
habilitated basis is equal to the unadjusted
depreciable basis, as defined in §1.168(b)-
1(a)(3) but before the reduction in basis
for the amount of the rehabilitation credit,
of the qualified rehabilitation expenditures
that are qualified property reduced by the
additional first year depreciation allowed
or allowable, whichever is greater.
(ii) Example. The application of this
paragraph (g)(9) is illustrated by the fol-
lowing example:
(A) Between February 8, 2023, and June 4, 2023,
JM, a calendar-year taxpayer, incurred qualified re-
habilitation expenditures of $200,000 with respect to
a qualified rehabilitated building that is nonresiden-
tial real property under section 168(e). These quali-
fied rehabilitation expenditures are qualified proper-
ty and qualify for the 20-percent rehabilitation credit
under section 47(a)(1). JM’s basis in the qualified
rehabilitated building is zero before incurring the
qualified rehabilitation expenditures and JM placed
the qualified rehabilitated building in service in July
2023. JM depreciates its nonresidential real property
placed in service in 2023 under the general depreci-
ation system of section 168(a) by using the straight
line method of depreciation, a 39-year recovery pe-
riod, and the mid-month convention. JM elected to
use the optional depreciation tables to compute the
depreciation allowance for its depreciable property
placed in service in 2023. Further, for 2023, JM did
not make any election under paragraph (f) of this
section.
(B) Because JM did not make any election un-
der paragraph (f) of this section, JM is allowed an
80-percent additional first year depreciation de-
duction of $160,000 for the qualified rehabilitation
expenditures for 2023 (the unadjusted depreciable
basis of $200,000 (before reduction in basis for the
rehabilitation credit) multiplied by 0.80). JM also
is allowed to claim a rehabilitation credit of $8,000
for the remaining rehabilitated basis of $40,000 (the
unadjusted depreciable basis (before reduction in
basis for the rehabilitation credit) of $200,000 less
the additional first year depreciation deduction of
$160,000, multiplied by 0.20 to calculate the rehabil-
itation credit). For 2023, the ratable share of the re-
habilitation credit of $8,000 is $1,600. Further, JM’s
depreciation deduction for 2023 for the remaining
adjusted depreciable basis of $32,000 (the unadjust-
ed depreciable basis (before reduction in basis for the
rehabilitation credit) of $200,000 less the additional
first year depreciation deduction of $160,000 less the
rehabilitation credit of $8,000) is $376.64 (the re-
maining adjusted depreciable basis of $32,000 multi-
plied by the depreciation rate of 0.01177 for recovery
year 1, placed in service in month 7).
(10) Coordination with section 514(a)
(3). The additional first year depreciation
deduction is not allowable for purposes of
section 514(a)(3).
(11) [Reserved]
(h) Applicability dates—(1) In gener-
al. Except as provided in paragraphs (h)
(2) and (3) of this section, the rules of this
section apply to—
(i) Qualified property under section
168(k)(2) that is placed in service by the
taxpayer during or after the taxpayer’s
taxable year that includes September 24,
2019; and

October 7, 2019 854 Bulletin No. 2019–41
(ii) A specified plant for which the
taxpayer properly made an election to ap-
ply section 168(k)(5) and that is planted,
or grafted to a plant that was previously
planted, by the taxpayer during or after the
taxpayer’s taxable year that includes Sep-
tember 24, 2019.
(2) Early application of this section. A
taxpayer may choose to apply this section,
in its entirety, to—
(i) Qualified property under section
168(k)(2) acquired and placed in service
after September 27, 2017, by the taxpayer
during the taxpayer’s taxable year ending
on or after September 28, 2017; and
(ii) A specified plant for which the
taxpayer properly made an election to ap-
ply section 168(k)(5) and that is planted,
or grafted to a plant that was previously
planted, after September 27, 2017, by the
taxpayer during the taxpayer’s taxable
year ending on or after September 28,
2017.
(3) Early application of regulation
project REG-104397-18. A taxpayer may
rely on the provisions of this section in
regulation project REG-104397-18 (2018-
41 I.R.B. 558) (see §601.601(d)(2)(ii)(b)
of this chapter) for—
(i) Qualified property under section
168(k)(2) acquired and placed in service
after September 27, 2017, by the taxpayer
during the taxpayer’s taxable year ending
on or after September 28, 2017, and end-
ing before the taxpayer’s taxable year that
includes September 24, 2019; and
(ii) A specified plant for which the
taxpayer properly made an election to ap-
ply section 168(k)(5) and that is planted,
or grafted to a plant that was previously
planted, after September 27, 2017, by the
taxpayer during the taxpayer’s taxable
year ending on or after September 28,
2017, and ending before the taxpayer’s
taxable year that includes September 24,
2019.
Par. 10. Section 1.169-3 is amended by
adding a sentence at the end of paragraph
(a) and adding three sentences at the end
of paragraph (g) to read as follows:
§1.169-3 Amortizable basis.
(a) * * * Further, before computing the
amortization deduction allowable under
section 169, the adjusted basis for pur-
poses of determining gain for a facility
that is acquired and placed in service after
September 27, 2017, and that is qualified
property under section 168(k), as amend-
ed by the Tax Cuts and Jobs Act, Public
Law 115-97 (131 Stat. 2054 (December
22, 2017)) (the “Act”), or §1.168(k)-2,
must be reduced by the amount of the ad-
ditional first year depreciation deduction
allowed or allowable, whichever is great-
er, under section 168(k), as amended by
the Act.
* * * * *
(g) * * * The last sentence of paragraph
(a) of this section applies to a certified pol-
lution control facility that is qualified prop-
erty under section 168(k)(2) and placed
in service by a taxpayer during or after
the taxpayer’s taxable year that includes
September 24, 2019. However, a taxpayer
may choose to apply the last sentence of
paragraph (a) of this section to a certified
pollution control facility that is qualified
property under section 168(k)(2) and ac-
quired and placed in service after Septem-
ber 27, 2017, by the taxpayer during tax-
able years ending on or after September
28, 2017. A taxpayer may rely on the last
sentence in paragraph (a) of this section in
regulation project REG-104397-18 (2018-
41 IRB 558) (see §601.601(d)(2)(ii)(b) of
this chapter) for a certified pollution con-
trol facility that is qualified property under
section 168(k)(2) and acquired and placed
in service after September 27, 2017, by
the taxpayer during taxable years ending
on or after September 28, 2017, and end-
ing before the taxpayer’s taxable year that
includes September 24, 2019.
Par. 11. Section 1.179-4 is amended by
revising paragraph (c)(2) to read as fol-
lows:
§1.179-4 Definitions.
* * * * *
(c) * * *
(2) Property deemed to have been ac-
quired by a new target corporation as a
result of a section 338 election (relating to
certain stock purchases treated as asset ac-
quisitions) or a section 336(e) election (re-
lating to certain stock dispositions treated
as asset transfers) made for a disposition
described in §1.336-2(b)(1) will be con-
sidered acquired by purchase.
* * * * *
Par. 12. Section 1.179-6 is amended by
revising the first sentence in paragraph (a)
and adding paragraph (e) to read as fol-
lows:
§1.179-6 Effective/applicability dates.
(a) * * * Except as provided in para-
graphs (b), (c), (d), and (e) of this sec-
tion, the provisions of §§1.179-1 through
1.179-5 apply for property placed in ser-
vice by the taxpayer in taxable years end-
ing after January 25, 1993. * * *
* * * * *
(e) Application of §1.179-4(c)(2)–(1)
In general. Except as provided in para-
graphs (e)(2) and (3) of this section, the
provisions of §1.179-4(c)(2) relating to
section 336(e) are applicable on or after
September 24, 2019.
(2) Early application of §1.179-4(c)
(2). A taxpayer may choose to apply the
provisions of §1.179-4(c)(2) relating to
section 336(e) for the taxpayer’s taxable
years ending on or after September 28,
2017.
(3) Early application of regulation
project REG-104397-18. A taxpayer may
rely on the provisions of §1.179-4(c)(2)
relating to section 336(e) in regulation
project REG-104397-18 (2018-41 I.R.B.
558) (see §601.601(d)(2)(ii)(b) of this
chapter) for the taxpayer’s taxable years
ending on or after September 28, 2017,
and ending before September 24, 2019.
Par. 13. Section 1.312-15 is amended
by adding a sentence at the end of para-
graph (a)(1) and adding paragraph (e) to
read as follows:
§1.312-15 Effect of depreciation on
earnings and profits.
(a) * * *
(1) * * * Further, see §1.168(k)-2(g)
(7) with respect to the treatment of the ad-
ditional first year depreciation deduction
allowable under section 168(k), as amend-
ed by the Tax Cuts and Jobs Act, Public
Law 115-97 (131 Stat. 2054 (December
22, 2017)), for purposes of computing the
earnings and profits of a corporation.
* * * * *
(e) Applicability date of qualified
property. The last sentence of paragraph
(a)(1) of this section applies to the tax-
payer’s taxable years ending on or after
September 24, 2019. However, a taxpay-
er may choose to apply the last sentence
in paragraph (a)(1) of this section for the
taxpayer’s taxable years ending on or af-
ter September 28, 2017. A taxpayer may
rely on the last sentence in paragraph (a)
(1) of this section in regulation project
REG-104397-18 (2018-41 I.R.B. 558)
(see §601.601(d)(2)(ii)(b) of this chapter)

Bulletin No. 2019–41 855 October 7, 2019
for the taxpayer’s taxable years ending on
or after September 28, 2017, and ending
before the taxpayer’s taxable year that in-
cludes September 24, 2019.
Par. 14. Section 1.704-1 is amended by
adding three sentences at the end of para-
graph (b)(1)(ii)(a) and adding a sentence
at the end of paragraph (b)(2)(iv)(g)(3) to
read as follows:
§ 1.704-1 Partner’s distributive share.
* * * * *
(b) * * *
(1) * * *
(ii) * * *
(a) * * * The last sentence of paragraph
(b)(2)(iv)(g)(3) of this section is applica-
ble for partnership taxable years ending
on or after September 24, 2019. Howev-
er, a partnership may choose to apply the
last sentence in paragraph (b)(2)(iv)(g)(3)
of this section for the partnership’s tax-
able years ending on or after September
28, 2017. A partnership may rely on the
last sentence in paragraph (b)(2)(iv)(g)(3)
of this section in regulation project REG-
104397-18 (2018-41 I.R.B. 558) (see
§601.601(d)(2)(ii)(b) of this chapter) for
the partnership’s taxable years ending on
or after September 28, 2017, and ending
before the partnership’s taxable year that
includes September 24, 2019.
* * * * *
(2) * * *
(iv) * * *
(g) * * *
(3) * * * For purposes of the preceding
sentence, additional first year depreciation
deduction under section 168(k) is not a
reasonable method.
* * * * *
Par. 15. Section 1.704-3 is amended by
adding a sentence at the end of paragraph
(d)(2), revising the first sentence in para-
graph (f), and adding three sentences at
the end of paragraph (f) to read as follows:
§ 1.704-3 Contributed property.
* * * * *
(d) * * *
(2) * * * However, the additional first
year depreciation deduction under section
168(k) is not a permissible method for
purposes of the preceding sentence and,
if a partnership has acquired property in a
taxable year for which the additional first
year depreciation deduction under section
168(k) has been used of the same type as
the contributed property, the portion of
the contributed property’s book basis that
exceeds its adjusted tax basis must be re-
covered under a reasonable method. See
§1.168(k)-2(b)(3)(iv)(B).
* * * * *
(f) * * * With the exception of para-
graphs (a)(1), (a)(8)(ii) and (iii), and (a)
(10) and (11) of this section, and of the
last sentence in paragraph (d)(2) of this
section, this section applies to property
contributed to a partnership and to restate-
ments pursuant to §1.704-1(b)(2)(iv)(f)
on or after December 21, 1993. * * * The
last sentence of paragraph (d)(2) of this
section applies to property contributed to
a partnership on or after September 24,
2019. However, a taxpayer may choose
to apply the last sentence in paragraph (d)
(2) of this section for property contributed
to a partnership on or after September 28,
2017. A taxpayer may rely on the last sen-
tence in paragraph (d)(2) of this section in
regulation project REG-104397-18 (2018-
41 I.R.B. 558) (see §601.601(d)(2)(ii)(b)
of this chapter) for property contributed
to a partnership on or after September 28,
2017, and ending before September 24,
2019.
* * * * *
Par. 16. Section 1.743-1 is amended by
adding three sentences to the end of para-
graph (j)(4)(i)(B)(1), adding one new sen-
tence at the end of paragraph (j)(4)(i)(B)
(2), and adding three sentences at the end
of paragraph (l) to read as follows:
§1.743-1 Optional adjustment to basis
of partnership property.
* * * * *
(j) * * *
(4) * * *
(i) * * *
(B) * * *
(1) * * * The partnership is allowed to
deduct the additional first year deprecia-
tion under section 168(k) and §1.168(k)-
2 for an increase in the basis of qualified
property, as defined in section 168(k) and
§1.168(k)-2, under section 743(b) in a
class of property, as defined in §1.168(k)-
2(f)(1)(ii)(A) through (F), even if the part-
nership made the election under section
168(k)(7) and §1.168(k)-2(f)(1) not to
deduct the additional first year deprecia-
tion for all other qualified property of the
partnership in the same class of proper-
ty, as defined in §1.168(k)-2(f)(1)(ii)(A)
through (F), and placed in service in the
same taxable year, provided the section
743(b) basis adjustment meets all require-
ments of section 168(k) and §1.168(k)-
2. Further, the partnership may make
an election under section 168(k)(7) and
§1.168(k)-2(f)(1) not to deduct the ad-
ditional first year depreciation for an in-
crease in the basis of qualified property, as
defined in section 168(k) and §1.168(k)-2,
under section 743(b) in a class of proper-
ty, as defined in §1.168(k)-2(f)(1)(ii)(A)
through (F), and placed in service in the
same taxable year, even if the partnership
does not make that election for all other
qualified property of the partnership in
the same class of property, as defined in
§1.168(k)-2(f)(1)(ii)(A) through (F), and
placed in service in the same taxable year.
In this case, the section 743(b) basis ad-
justment must be recovered under a rea-
sonable method.
(2) * * * The first sentence of this para-
graph (j)(4)(i)(B)(2) does not apply to a
partnership that is not a publicly traded
partnership within the meaning of section
7704(b) with respect to any basis increase
under section 743(b) that is recovered us-
ing the additional first year depreciation
deduction under section 168(k).
* * * * *
(l) * * * The last three sentences of
paragraph (j)(4)(i)(B)(1) of this section,
and the last sentence of paragraph (j)(4)(i)
(B)(2) of this section, apply to transfers of
partnership interests that occur on or after
September 24, 2019. However, a partner-
ship may choose to apply the last three
sentences in paragraph (j)(4)(i)(B)(1) of
this section, and the last sentence of para-
graph (j)(4)(i)(B)(2) of this section, for
transfers of partnership interests that occur
on or after September 28, 2017. A partner-
ship may rely on the last three sentences in
paragraph (j)(4)(i)(B)(1) of this section in
regulation project REG-104397-18 (2018-
41 I.R.B. 558) (see §601.601(d)(2)(ii)(b)
of this chapter) for transfers of partnership
interests that occur on or after September
28, 2017, and ending before September
24, 2019.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: September 11, 2019.

October 7, 2019 856 Bulletin No. 2019–41
David J. Kautter
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on Sep-
tember 17, 2019, 4:15 p.m., and published in the is-
sue of the Federal Register for September 24, 2019,
84 F.R. 50108)

26 CFR 1.401(k)-1: Certain cash or deferred ar-
rangements
TD 9875
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Hardship Distributions of
Elective Contributions,
Qualified Matching
Contributions, Qualified
Nonelective Contributions,
and Earnings
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that amend the rules re-
lating to hardship distributions from sec-
tion 401(k) plans. The final regulations
reflect statutory changes affecting sec-
tion 401(k) plans, including changes made
by the Bipartisan Budget Act of 2018.
The regulations affect participants in, ben-
eficiaries of, employers maintaining, and
administrators of plans that include cash
or deferred arrangements or provide for
employee or matching contributions.
DATES: Effective Date: These regulations
are effective September 23, 2019.
Applicability Date: For dates of applica-
bility, see §1.401(k)-1(d)(3)(v).
FOR FURTHER INFORMATION CON-
TACT: Roger Kuehnle at (202) 317-4148
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-1669. The collection of in-
formation in these final regulations is in
§1.401(k)-1(d)(3)(iii)(B). The collection
of information relates to the certification
by participants in section 401(k) plans
that they have insufficient cash or other
liquid assets reasonably available to cover
expenses resulting from a hardship and,
thus, will need a distribution from the plan
to meet the expenses. The collection of
information is required to obtain a benefit.
The likely recordkeepers are individu-
als.
Estimated total annual reporting burden:
101,250 hours.
Estimated average annual burden per re-
spondent: 45 minutes.
Estimated number of respondents:
135,000.
Estimated frequency of responses: On oc-
casion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Background
Section 401(k)
Section 401(k)(1) of the Internal Rev-
enue Code (Code) provides that a prof-
it-sharing, stock bonus, pre-ERISA money
purchase, or rural cooperative plan will not
fail to qualify under section 401(a) mere-
ly because it includes a cash or deferred
arrangement (CODA) that is a qualified
CODA. Under section 401(k)(2), a CODA
(generally, an arrangement providing for
an election by an employee between con-
tributions to a plan or payments directly
in cash) is a qualified CODA only if it sat-
isfies certain requirements. Section 401(k)
(2)(B) provides that contributions made
pursuant to a qualified CODA (referred to
as “elective contributions”) may be dis-
tributed only on or after the occurrence of
certain events, including death, disability,
severance from employment, termina-
tion of the plan, attainment of age 59-1/2,
hardship, or, in the case of a qualified re-
servist distribution, the date a reservist is
called to active duty. Section 401(k)(2)
(C) requires that elective contributions be
nonforfeitable at all times.
Section 401(k)(3)(A)(ii) requires that
elective contributions satisfy the actual
deferral percentage (ADP) test set forth
in section 401(k)(3). Sections 401(k)
(11), 401(k)(12), and 401(k)(13) each
provide an alternative method of meet-
ing the ADP test. Under section 401(k)(3)
(D), qualified nonelective contributions
(QNECs) and qualified matching contri-
butions (QMACs), as described in sec-
tions 401(m)(4)(C) and 401(k)(3)(D)(ii)
(I), respectively, are permitted to be taken
into account under the ADP test. Among
other requirements, QNECs and QMACs
must satisfy the distribution limitations
of section 401(k)(2)(B) and the nonfor-
feitability requirements of section 401(k)
(2)(C). Similarly, employer contributions
that are made pursuant to the safe harbor
plan designs of section 401(k)(12) or (13)
must meet the distribution limitations of
section 401(k)(2)(B).
Section 401(m)(2)(A) requires that
matching contributions and employee con-
tributions satisfy the actual contribution
percentage (ACP) test set forth in section
401(m)(2). Sections 401(m)(10), 401(m)
(11), and 401(m)(12) each provide an al-
ternative method of meeting the ACP test
with respect to matching contributions. As
with contributions made to section 401(k)
plans pursuant to safe harbor plan designs,
employer contributions made pursuant to
the safe harbor plan designs of section
401(m)(11) or (12) must meet the distri-
bution limitations of section 401(k)(2)(B).
Existing Regulations Under Section
401(k)
The Department of the Treasury (Trea-
sury Department) and the IRS issued
comprehensive regulations under sec-
tions 401(k) and 401(m) on December 29,
2004 (TD 9169, 69 FR 78143). Since that
time, the regulations have been updated
to reflect certain subsequent changes to
the applicable statute (see TD 9237, 71

Bulletin No. 2019–41 857 October 7, 2019
FR 6, and TD 9324, 72 FR 21103, pro-
viding guidance on designated Roth con-
tributions under section 402A; and TD
9447, 74 FR 8200, providing guidance
on section 401(k)(13)). Although the reg-
ulations have not been updated to reflect
other statutory changes, they have been
amended to address certain discrete issues
unrelated to statutory changes (see TD
9319, 72 FR 16878, relating to the defi-
nition of compensation; TD 9641, 78 FR
68735, relating to mid-year amendments
to safe harbor plan designs; and TD 9835,
83 FR 34469, relating to whether QNECs
and QMACs must be nonforfeitable when
contributed to the plan).
Section 1.401(k)-1(d)(3) provides rules
for determining whether a distribution is
made on account of an employee’s hard-
ship. Under those rules, a distribution is
made on account of hardship only if the
distribution is made on account of an
immediate and heavy financial need and
the amount of the distribution is not in
excess of the amount necessary to satisfy
that need (plus any amounts necessary to
pay any taxes or penalties reasonably an-
ticipated to result from the distribution).
These determinations must be made on
the basis of all the relevant facts and cir-
cumstances and in accordance with non-
discriminatory and objective standards set
forth in the plan.
Section 1.401(k)-1(d)(3)(iv)(B) pro-
vides that a distribution is not treated as
necessary to satisfy an immediate and
heavy financial need of an employee to
the extent the need may be relieved from
other resources that are reasonably avail-
able to the employee (including assets of
the employee’s spouse and minor chil-
dren that are reasonably available to the
employee). Under §1.401(k)-1(d)(3)(iv)
(C), in determining whether the need can
be relieved from other resources that are
reasonably available to an employee, the
employer may rely on the employee’s
representation (unless the employer has
actual knowledge to the contrary) that the
need cannot reasonably be relieved from
resources specified in §1.401(k)-1(d)(3)
(iv)(C).
To simplify administration, the reg-
ulations provide certain safe harbors
that may be used to determine wheth-
er a distribution is made on account of
an employee’s hardship. Specifically,
§1.401(k)-1(d)(3)(iii)(B) provides a safe
harbor under which distributions for six
types of expenses are deemed to be made
on account of an immediate and heavy
financial need. One of the six types is
“expenses for the repair of damage to
the employee’s principal residence that
would qualify for the casualty deduction
under section 165 (determined without
regard to whether the loss exceeds 10%
of adjusted gross income).”
In addition, §1.401(k)-1(d)(3)(iv)(E)
provides a safe harbor under which a dis-
tribution is deemed necessary to satisfy an
immediate and heavy financial need. Un-
der that safe harbor, an employee must first
obtain all currently available distributions
(including distributions of employee stock
ownership plan (ESOP) dividends under
section 404(k), but not hardship distri-
butions), and nontaxable plan loans from
the plan and any other plan maintained by
the employer. Under the safe harbor, an
employee’s ability to make elective con-
tributions and employee contributions to
the plan (and any other plan maintained
by the employer) must be suspended for at
least 6 months after receipt of the hardship
distribution. Pursuant to §1.401(k)-3(c)(6)
(v)(B), in the case of a safe harbor plan
described in section 401(k)(12) or (13),
the suspension period may not exceed 6
months.
Under §1.401(k)-1(d)(3)(ii), the max-
imum amount that may be distributed
on account of hardship is the total of the
employee’s elective contributions that
have not previously been distributed (plus
earnings, QNECs, and QMACs credit-
ed before a specified grandfather date
that generally is before 1989). Thus, the
maximum amount that may be distributed
on account of hardship does not include
earnings, QNECs, or QMACs that are not
grandfathered.
Section 403(b)
Section 403(b)(7)(A)(ii) provides dis-
tribution limitations on amounts contrib-
uted to a custodial account that is treated
as a section 403(b) annuity contract. Sec-
tion 403(b)(11) provides that contribu-
tions made pursuant to a salary reduction
agreement (within the meaning of sec-
tion 402(g)(3)(C)) (generally referred to
in the regulations under section 403(b) as
“section 403(b) elective deferrals”) may
be distributed only on or after the occur-
rence of certain events, one of which is the
employee’s hardship. Section 403(b)(11)
also provides that no income attributable
to these contributions may be distributed
on account of hardship.
Section 1.403(b)-6 provides rules for
applying these distribution limitations.
Section 1.403(b)-6(b) applies to distribu-
tions of amounts that are neither attrib-
utable to section 403(b) elective defer-
rals nor made from custodial accounts,
§1.403(b)-6(c) applies to distributions
from custodial accounts that are not attrib-
utable to section 403(b) elective deferrals,
and §1.403(b)-6(d) applies to distributions
of amounts attributable to section 403(b)
elective deferrals. Section 1.403(b)-6(d)
(2) provides that a hardship distribution
of section 403(b) elective deferrals is sub-
ject to the rules and restrictions set forth
in §1.401(k)-1(d)(3) and is limited to the
aggregate dollar amount of a participant’s
section 403(b) elective deferrals, without
earnings thereon.
Statutory Changes Relating to
Section 401(k)
Section 41113 of the Bipartisan Bud-
get Act of 2018, Pub. L. 115-123 (BBA
2018), directs the Secretary of the Trea-
sury to modify §1.401(k)-1(d)(3)(iv)(E) to
(1) delete the 6-month prohibition on con-
tributions following a hardship distribu-
tion and (2) make any other modifications
necessary to carry out the purposes of sec-
tion 401(k)(2)(B)(i)(IV). Section 41114 of
BBA 2018 modified the hardship distribu-
tion rules under section 401(k)(2)(B) by
adding section 401(k)(14)(A) to the Code,
which states that the maximum amount
available for distribution upon hardship
includes (1) contributions to a profit-shar-
ing or stock bonus plan to which sec-
tion 402(e)(3) applies, (2) QNECs, (3)
QMACs, and (4) earnings on these con-
tributions. Section 41114 of BBA 2018
also added section 401(k)(14)(B) to the
Code, which provides that a distribution is
not treated as failing to be made upon the
hardship of an employee solely because
the employee does not take any available
loan under the plan.
Section 11044 of the Tax Cuts and Jobs
Act, Pub. L. 115-97 (TCJA), added sec-

October 7, 2019 858 Bulletin No. 2019–41
tion 165(h)(5) to the Code. Section 165(h)
(5) provides that, for taxable years 2018
through 2025, the deduction for a personal
casualty loss generally is available only
to the extent the loss is attributable to a
federally declared disaster (as defined in
section 165(i)(5)).
Section 826 of the Pension Protection
Act of 2006, Pub. L. 109-280 (PPA ’06),
directs the Secretary of the Treasury to
modify the rules relating to hardship distri-
butions to permit a section 401(k) plan to
treat a participant’s beneficiary under the
plan the same as the participant’s spouse
or dependent in determining whether the
participant has incurred a hardship. Notice
2007-7, 2007-5 I.R.B. 395, provides guid-
ance for applying this provision.
Section 827(a) of PPA ’06 added to the
Code section 72(t)(2)(G), which exempts
certain distributions from the application
of the section 72(t) additional income tax
on early distributions. These distributions,
made during the period that a reservist has
been called to active duty, are referred to
as “qualified reservist distributions,” and
could include distributions attributable to
elective contributions. Section 827(b)(1)
of PPA ’06 added section 401(k)(2)(B)(i)
(V) to the Code, which permits qualified
reservist distributions to be made from a
section 401(k) plan.
1

Section 105(b)(1)(A) of the Heroes
Earnings Assistance and Relief Tax Act
of 2008, Pub. L. 110-245 (HEART Act),
added section 414(u)(12) to the Code.
Section 414(u)(12)(B)(ii) provides for
a 6-month suspension of elective con-
tributions and employee contributions
after certain distributions to individuals
performing service in the uniformed ser-
vices.
On November 14, 2018, the Trea-
sury Department and the IRS published
proposed regulations (REG-107813-18)
under section 401(k) and (m) in the Fed-
eral Register (83 FR 56763). No public
hearing was requested or held. Seven
comments on the proposed regulations
were received during the comment period.
After consideration of the comments, the
proposed regulations are adopted as re-
vised by this Treasury decision.
Summary of Comments and
Explanation of Provisions
Overview
The final regulations update the sec-
tion 401(k) and (m) regulations to reflect:
(1) the enactment of (a) sections 41113
and 41114 of BBA 2018, (b) sections
826 and 827 of PPA ’06, and (c) sec-
tion 105(b)(1)(A) of the HEART Act; and
(2) the application of the hardship distri-
bution rules in light of the modification
to the casualty loss deduction rules made
by section 11044 of the TCJA. The final
regulations are substantially similar to the
proposed regulations, and plans that com-
plied with the proposed regulations will
satisfy the final regulations.
Deemed Immediate and Heavy Financial
Need
The final regulations, like the proposed
regulations, modify the safe harbor list of
expenses in existing §1.401(k)-1(d)(3)(iii)
(B) for which distributions are deemed to
be made on account of an immediate and
heavy financial need by: (1) adding “pri-
mary beneficiary under the plan” as an
individual for whom qualifying medical,
educational, and funeral expenses may
be incurred; (2) modifying the expense
listed in existing §1.401(k)-1(d)(3)(iii)
(B)(6) (relating to damage to a principal
residence that would qualify for a casualty
deduction under section 165) to provide
that for this purpose the limitations in sec-
tion 165(h)(5) (added by section 11044 of
the TCJA) do not apply; and (3) adding
a new type of expense to the list, relating
to expenses incurred as a result of certain
disasters.
Several commenters observed that this
new safe harbor expense, which is de-
scribed in the preamble to the proposed
regulations as similar to relief provided
by the IRS after certain major federally
declared disasters, is narrower in certain
respects than this past IRS relief and asked
for confirmation that the narrowing is in-
tentional. Some commenters also raised
the concern that the new safe harbor ex-
pense would lead the IRS to discontinue
its practice of issuing announcements pro-
viding such relief. The effect of the new
safe harbor expense differs from the di-
saster-relief announcements in three main
respects.
First, only disaster-related expenses
and losses of an employee who lived or
worked in the disaster area will qualify for
the new safe harbor expense, and not, as
under the disaster-relief announcements,
expenses and losses of the employee’s
relatives and dependents. The Treasury
Department and IRS have concluded that
limiting distributions only to those em-
ployees directly affected by a disaster is
consistent with the purposes underlying
the Code’s hardship distribution provi-
sions and better aligns with the relief giv-
en to affected individuals under section
7508A for similar disasters.
Second, unlike under the disaster-relief
announcements, there is no specific dead-
line by which a request for a disaster-re-
lated hardship distribution must be made
and no specific authority to relax certain
procedural requirements established by
the plan administrator or plan terms (al-
though it is expected that plan adminis-
trators will be flexible in interpreting plan
terms requiring documentation relating to
the hardship when processing hardship
distribution requests during the difficult
circumstances following a disaster).
Third, unlike under the disaster-re-
lief announcements, there is no extended
deadline for plan sponsors to add disas-
ter-related distribution or loan provisions
to the plan. In the absence of such an ex-
tended deadline, a plan sponsor that does
not choose to add disaster-related hard-
ship distribution provisions as part of an
amendment reflecting the final regulations
but instead chooses to wait until a disaster
occurs to add those provisions (or to add a
loan provision) would need to adopt a plan
amendment by the end of the plan year the
amendment is first effective.
Making expenses related to certain di-
sasters a safe harbor expense is intended
to eliminate any delay or uncertainty con-
cerning access to plan funds that might
otherwise occur following a major disas-
1
While section 827(b)(2) and (3) of PPA ’06 amended section 403(b)(7)(A)(ii) and (b)(11) to permit qualified reservist distributions to be made from a section 403(b) plan, the regulations
under section 403(b) have not yet been updated to reflect these statutory amendments.

Bulletin No. 2019–41 859 October 7, 2019
ter. Accordingly, the Treasury Department
and IRS expect that no more disaster-relief
announcements will be needed. However,
the Treasury Department and IRS are con-
sidering separate guidance to address de-
layed amendment deadlines when the new
safe harbor expense or loan provisions are
added to a plan at a later date in response
to a particular disaster.
Distribution Necessary to Satisfy
Financial Need
Pursuant to sections 41113 and 41114
of BBA 2018, the final regulations, like the
proposed regulations, modify the rules for
determining whether a distribution is nec-
essary to satisfy an immediate and heavy
financial need by eliminating (1) any re-
quirement that an employee be prohibited
from making elective contributions and
employee contributions after receipt of a
hardship distribution and (2) any require-
ment to take plan loans prior to obtaining
a hardship distribution. In particular, the
final regulations, like the proposed regula-
tions, eliminate the safe harbor in existing
§1.401(k)-1(d)(3)(iv)(E), under which a
distribution is deemed necessary to satisfy
the financial need only if elective contri-
butions and employee contributions are
suspended for at least 6 months after a
hardship distribution is made and, if avail-
able, nontaxable plan loans are taken be-
fore the hardship distribution is made.
The proposed regulations eliminate the
rules in existing §1.401(k)-1(d)(3)(iv)(B)
(under which the determination of wheth-
er a distribution is necessary to satisfy a
financial need is based on all the relevant
facts and circumstances) and provide one
general standard for determining whether
a distribution is necessary. Under this gen-
eral standard, a hardship distribution may
not exceed the amount of an employee’s
need (including any amounts necessary
to pay any federal, state, or local income
taxes or penalties reasonably anticipated
to result from the distribution), the em-
ployee must have obtained other avail-
able, non-hardship distributions under the
employer’s plans, and the employee must
provide a representation that he or she
has insufficient cash or other liquid assets
available to satisfy the financial need. A
hardship distribution may not be made if
the plan administrator has actual knowl-
edge that is contrary to the representation.
These modifications are adopted in the fi-
nal regulations with the changes described
later in this preamble relating to employee
representations and the type of plans sub-
ject to the prohibition on suspensions.
Two commenters asked that ESOP div-
idends under section 404(k) be excepted
from the requirement that an employee
must first obtain other currently available
distributions under the employer’s plans.
Alternatively, they asked that plans be
permitted to disregard that distribution
requirement with respect to those div-
idends if the dividends are less than a
specified dollar amount. The comments
appear to reflect a misinterpretation of the
breadth of the distribution requirement.
Under both the existing regulations and
the proposed regulations, the distribution
requirement applies only to distributions
that are “currently available,” which sig-
nificantly limits the ESOP dividends
subject to the rule. Specifically, the only
ESOP dividends that must be distributed
under this rule are those that, at the time
of the employee’s hardship withdrawal re-
quest, both (1) have been paid to the plan
and (2) are available for the employee to
elect to receive in cash. Thus, for example,
if an ESOP requires a participant to make
an irrevocable election whether to receive
a dividend by a deadline that is in advance
of the dividend payment date, then a par-
ticipant who does not elect to receive the
dividend by that deadline and who later
requests a hardship distribution has no
dividends currently available. Although
in some instances these ESOP dividend
amounts may be small and, if distributed,
would have a minimal impact on alleviat-
ing a hardship, the Treasury Department
and IRS have concluded that ESOP div-
idends should not be treated differently
than any other nonhardship distributions
that are currently available under the plan.
Accordingly, no changes were made in re-
sponse to these comments.
One commenter was concerned that the
requirement for an employee to make a
representation regarding the unavailability
of cash or other liquid assets to satisfy the
financial need would be a problem if the
employee has those assets but has another
immediate need for them. In response to
the comment, the final regulations provide
that the employee representation only re-
lates to whether the employee has cash or
other liquid assets that are “reasonably
available” to satisfy the need. Thus, an
employee could make a representation that
he or she has insufficient cash or other liq-
uid assets reasonably available to satisfy
a financial need even if the employee did
have cash or other liquid assets on hand,
provided those assets were earmarked for
payment of an obligation in the near future
(for example, rent).
The proposed regulations provide that
the employee representation may be made
“in writing, by an electronic medium, or
in such other form as may be prescribed
by the Commissioner.” One commenter
asked for clarification that a verbal repre-
sentation via telephone could be used if it
is recorded. The final regulations clarify
that this method is acceptable, by refer-
encing the definition of “electronic medi-
um” at §1.401(a)-21(e)(3).
Two commenters asked for clarifica-
tion of the requirement that a plan admin-
istrator not have “actual knowledge” that
is contrary to an employee’s representa-
tion or, alternatively, they asked that the
requirement be eliminated. The require-
ment does not impose upon plan admin-
istrators an obligation to inquire into the
financial condition of employees who
seek hardship distributions. Rather, the
rule is limited to situations in which the
plan administrator already possesses suffi-
ciently accurate information to determine
the veracity of an employee representa-
tion. The Treasury Department and IRS
believe the requirement helps ensure the
integrity of the procedures used to deter-
mine whether a distribution is necessary
to satisfy an employee’s financial need.
Accordingly, the final regulations retain
the actual-knowledge requirement.
The final regulations, like the pro-
posed regulations, provide that a plan
generally may provide for additional
conditions, such as those described in
26 CFR 1.401(k)-1(d)(3)(iv)(B) and (C)
(revised as of April 1, 2019), to demon-
strate that a distribution is necessary to
satisfy an immediate and heavy financial
need of an employee. However, like the
proposed regulations, the final regula-
tions do not permit a plan to provide for
a suspension of elective contributions or
employee contributions as a condition of
obtaining a hardship distribution. This is

October 7, 2019 860 Bulletin No. 2019–41
responsive to Congress’ concern in en-
acting section 41113 of BBA 2018 that a
suspension impedes an employee’s ability
to replace distributed funds. See the Ways
and Means Committee description of sec-
tion 1503 of H.R. 1,
2
which became sec-
tion 41113 of BBA 2018.
One commenter asked what condi-
tions, besides those listed in existing
§1.401(k)-1(d)(3)(iv)(B) and (C) (other
than a suspension of contributions), could
be imposed on a hardship distribution,
suggesting that completing a plan’s ap-
plication process and providing required
documentation should be permissible
conditions. The Treasury Department and
IRS agree that these two conditions are
permissible. The Treasury Department
and IRS also note that plan sponsors have
available a broad range of conditions that
may be imposed on a hardship distribu-
tion; for example, a plan could provide
for a nondiscriminatory, minimum dollar
amount for a hardship distribution.
Another commenter recommended that
the prohibition on suspensions of elective
contributions and employee contributions
in the proposed regulations be eliminated
and plan sponsors be given the flexibili-
ty to impose a suspension. However, in
light of Congress’ expressed concern that
a suspension impedes an employee’s abil-
ity to replace distributed funds, the final
regulations retain the prohibition on sus-
pensions.
Another commenter requested guid-
ance on which other plans of the employ-
er, besides the plan making the hardship
distribution, are subject to the prohibition
on suspensions. Although the existing
safe harbor in §1.401(k)-1(d)(3)(iv)(E)
(2) imposes a mandatory suspension with
respect to all qualified and nonqualified
plans maintained by the employer, the pro-
posed regulations do not specify the plans
to which the prohibition on suspensions
applies. The Treasury Department and
IRS have concluded that Congress’ con-
cerns underlying section 41113 of BBA
2018 have little relevance to unfunded
nonqualified plans. Accordingly, the final
regulations provide that the prohibition
on suspensions applies only to a qualified
plan, a section 403(b) plan, and an eligible
deferred compensation plan described in
section 457(b) maintained by an eligible
employer described in section 457(e)(1)
(A). Thus, a plan subject to section 409A
may retain its suspension provisions (or,
to the extent consistent with section 409A
and the regulations thereunder, the plan
may be amended to remove them).
Another commenter requested guid-
ance on the continuing applicability of
revenue rulings that require a “substantial
limitation” on the right of a participant
to withdraw matched employee contri-
butions, such as a suspension of con-
tributions. See, for example, Rev. Rul.
74-56, 1974-1 C.B. 90. Under the final
regulations, if, on or after January 1, 2020,
matched employee contributions are dis-
tributed in conjunction with a hardship
distribution of elective contributions, a
suspension of employee contributions is
not permitted.
3

Expanded Sources for Hardship
Distributions
Pursuant to section 41114 of BBA
2018, the final regulations, like the pro-
posed regulations, modify existing
§1.401(k)-1(d)(3) to permit hardship dis-
tributions from section 401(k) plans of
elective contributions, QNECs, QMACs,
and earnings on these amounts, regardless
of when contributed or earned.
Several commenters asked how the
new distribution rules apply to safe har-
bor contributions made to a plan de-
scribed in section 401(k)(12). Because
safe harbor contributions made to a plan
described in section 401(k)(12) are either
QNECs or QMACs, amounts attributable
to these contributions may be distributed
on account of hardship. As noted in the
preamble to the proposed regulations,
safe harbor contributions made to a plan
described in section 401(k)(13) may also
be distributed on account of an employ-
ee’s hardship (because these contributions
are subject to the same distribution limita-
tions applicable to QNECs and QMACs).
See §1.401(k)-3(k)(3)(i). However, a plan
may limit the type of contributions avail-
able for hardship distributions and may
exclude earnings on those contributions
from hardship distribution eligibility.
Section 403(b) Plans
Section 1.403(b)-6(d)(2) provides that
a hardship distribution of section 403(b)
elective deferrals is subject to the rules and
restrictions set forth in §1.401(k)-1(d)(3);
accordingly, the preamble to the proposed
regulations states that the new rules relat-
ing to a hardship distribution of elective
contributions from a section 401(k) plan
generally apply to section 403(b) plans.
Two commenters asked whether, in light
of historical concerns about employee
self-certification in section 403(b) plans,
the employee-representation requirement
applies to section 403(b) plans. Because
this requirement is retained in the final
regulations, at §1.401(k)-1(d)(3)(iii)(B), it
applies to section 403(b) plans.
The preamble to the proposed reg-
ulations addresses other issues related
to hardship distributions under section
403(b) plans, and states that because Code
section 403(b)(11) was not amended by
section 41114 of BBA 2018, income at-
tributable to section 403(b) elective defer-
rals continues to be ineligible for distribu-
tion on account of hardship. As also stated
in that preamble, amounts attributable to
QNECs and QMACs may be distributed
from a section 403(b) plan on account
of hardship only to the extent that, un-
der §1.403(b)-6(b) and (c), hardship is a
permitted distributable event for amounts
that are not attributable to section 403(b)
elective deferrals. Thus, QNECs and
QMACs in a section 403(b) plan that are
not in a custodial account may be distrib-
uted on account of hardship, but QNECs
and QMACs in a section 403(b) plan that
are in a custodial account continue to be
ineligible for distribution on account of
hardship.
Applicability Dates
The changes to the hardship distribu-
tion rules made by BBA 2018 are effective
for plan years beginning after December
2
H.R. Rep. No. 115-409, at 196 (2017).
3
Issues relating to the applicability of prior revenue rulings to distributions of matched employee contributions not made in conjunction with a hardship distribution of elective contributions
are beyond the scope of these regulations.

Bulletin No. 2019–41 861 October 7, 2019
31, 2018. The final regulations provide
plan sponsors with a number of applica-
bility-date options. Although presented
differently in the proposed regulations, the
options available to plan sponsors under
the final regulations are the same as those
available under the proposed regulations.
In response to a comment on the
proposed regulations requesting clari-
ty regarding which rules apply during
2019, the final regulations provide that
§1.401(k)-1(d)(3) applies to distributions
made on or after January 1, 2020 (rather
than, as in the proposed regulations, to
distributions made in plan years begin-
ning after December 31, 2018). However,
§1.401(k)-1(d)(3) may be applied to dis-
tributions made in plan years beginning
after December 31, 2018, and the prohibi-
tion on suspending an employee’s elective
contributions and employee contributions
as a condition of obtaining a hardship
distribution may be applied as of the first
day of the first plan year beginning after
December 31, 2018, even if the distribu-
tion was made in the prior plan year. Thus,
for example, a calendar-year plan that
provides for hardship distributions under
the pre-2019 safe harbor standards may
be amended to provide that an employee
who receives a hardship distribution in
the second half of the 2018 plan year will
be prohibited from making contributions
only until January 1, 2019 (or may con-
tinue to provide that contributions will be
suspended for the originally scheduled 6
months).
If the choice is made to apply
§1.401(k)-1(d)(3) to distributions made
before January 1, 2020, the new rules re-
quiring an employee representation and
prohibiting a suspension of contributions
may be disregarded with respect to those
distributions. To the extent early appli-
cation of §1.401(k)-1(d)(3) is not cho-
sen, the rules in §1.401(k)-1(d)(3), prior
to amendment by this Treasury decision,
apply to distributions made before Janu-
ary 1, 2020, taking into account statutory
changes effective before 2020 that are not
reflected in that regulation.
In addition, the revised list of safe har-
bor expenses may be applied to distribu-
tions made on or after a date that is as ear-
ly as January 1, 2018. Thus, for example,
a plan that made hardship distributions re-
lating to casualty losses deductible under
section 165 without regard to the changes
made to section 165 by the TCJA (which,
effective in 2018, require that, to be de-
ductible, losses must result from a feder-
ally declared disaster) may be amended
to apply the revised safe harbor expense
relating to casualty losses to distributions
made in 2018, so that plan provisions will
conform to the plan’s operation. Similar-
ly, a plan may be amended to apply the
revised safe harbor expense relating to
losses (including loss of income) incurred
by an employee on account of a disaster
that occurred in 2018, provided that the
employee’s principal residence or princi-
pal place of employment at the time of the
disaster was located in an area designated
by the Federal Emergency Management
Agency for individual assistance with re-
spect to the disaster.
Plan Amendments
The Treasury Department and IRS ex-
pect that plan sponsors will need to amend
their plans’ hardship distribution provi-
sions to reflect the final regulations, and
any such amendment must be effective for
distributions beginning no later than Janu-
ary 1, 2020. The deadline for amending a
disqualifying provision is set forth in Rev.
Proc. 2016-37, 2016-29 I.R.B. 136. For
example, with respect to an individually
designed plan that is not a governmental
plan, the deadline for amending the plan
to reflect a change in qualification require-
ments is the end of the second calendar
year that begins after the issuance of the
Required Amendments List (RAL) de-
scribed in section 9 of Rev. Proc. 2016-37
that includes the change; if the final regu-
lations are included in the 2019 RAL, the
deadline will be December 31, 2021.
A plan provision that does not result in
the failure of the plan to satisfy the qualifi-
cation requirements, but is integrally relat-
ed to a qualification requirement that has
been changed in a manner that requires the
plan to be amended, may be amended by
the same deadline that applies to the re-
quired amendment. The Treasury Depart-
ment and IRS have determined that a plan
amendment modifying a plan’s hardship
distribution provisions that is effective
no later than the required amendment, in-
cluding a plan amendment reflecting one
or more of the following, will be treated
as amending a provision that is integrally
related to a qualification requirement that
has been changed: (1) the change to section
165 (relating to casualty losses); (2) the
addition of the new safe harbor expense
(relating to expenses incurred as a result
of certain federally declared disasters);
and (3) the extension of the relief under
Announcement 2017-15, 2017-47 I.R.B.
534, to victims of Hurricanes Florence
and Michael that was provided in the pre-
amble to the proposed regulations. Thus,
in the case of an individually designed
plan, the deadline for such an integrally
related amendment will be the same as the
deadline for the required amendment (de-
scribed in the preceding paragraph), even
if some of the amendment provisions have
an earlier effective date.
Several commenters requested guid-
ance on amendment deadlines for pre-ap-
proved plans. The deadline for adopting
a required amendment (as well as any in-
tegrally related amendment) to a pre-ap-
proved plan is set forth in section 15 of
Rev. Proc. 2016-37, and varies depending
on several factors, including the type of
entity sponsoring the plan and the period
used for the plan year. For example, un-
der Rev. Proc. 2016-37, in the case of an
employer with a calendar-year tax year
that maintains a pre-approved plan with
a calendar-year plan year and that chose
to apply the new safe harbor expense for
certain disasters in 2018, the deadline
to adopt such an interim amendment for
the new expense would be the tax-filing
deadline (plus extensions) for 2018. The
Treasury Department and IRS recognize
that, for an employer using a pre-approved
plan, the interim amendment deadline un-
der Rev. Proc. 2016-37 that applies for
an amendment to a plan provision that is
integral to the qualification requirement
that has been changed may be earlier than
the interim amendment deadline for the
required amendment. Accordingly, the
Treasury Department and IRS are extend-
ing the deadline for an interim amend-
ment related to the hardship distribution
provisions. Under this extension, for an
employer using a pre-approved plan, the
interim amendment deadline for the re-
quired amendment to the hardship distri-
bution provisions of the plan will also be
the deadline for all amendments integrally
related to the hardship distribution provi-

October 7, 2019 862 Bulletin No. 2019–41
sions (rather than the earlier deadline that
might otherwise apply under Rev. Proc.
2016-37 to those integrally related amend-
ments). Thus, if the employer in the exam-
ple in this paragraph were to implement
the prohibition on suspensions effective
for distributions made on or after January
1, 2020, the interim amendment dead-
line to add the new safe harbor expense
would be the same as the deadline for the
required amendment (that is, the tax-filing
deadline (plus extensions) for 2020), even
if the new safe harbor expense is effective
in an earlier year.
Several commenters also requested
guidance on the amendment deadlines for
pre-approved and individually designed
section 403(b) plans. Under Rev. Proc.
2017-18, 2017-5 I.R.B. 743, the remedial
amendment deadline for a section 403(b)
plan is March 31, 2020. The Treasury De-
partment and IRS are considering provid-
ing for a later amendment deadline for the
amendments relating to the final regula-
tions in separate guidance.
Other Issues
Several commenters requested that the
Internal Revenue Manual (IRM) be updat-
ed to reflect the new hardship distribution
rules. The IRS intends to update the IRM
to reflect the new rules in the final regu-
lations after publication of the final reg-
ulations.
Two commenters asked whether a
plan must include every one of the sev-
en expenses in the §1.401(k)-1(d)(3)(ii)
(B) list of deemed immediate and heavy
financial needs and cover every individ-
ual described in the list (for example, a
primary beneficiary under the plan, in the
case of certain expenses) in order to be
considered as using the safe harbor stan-
dards for hardship distributions. Under
the IRS’s pre-approved plan program for
qualified plans, certain section 401(k)
plans that provide for hardship distribu-
tions will not be approved unless the dis-
tributions are made under circumstances
described in the safe harbor standards
in the regulations under section 401(k).
For this purpose, a plan making hardship
distributions for some but not all the safe
harbor expenses, or for expenses of some
but not all the categories of individuals
described in §1.401(k)-1(d)(3)(ii)(B), is
considered to be using the safe harbor
standards for hardship distributions.
One commenter asked whether the
proposed regulations’ prohibition on sus-
pensions of elective contributions and
employee contributions applies to pre-ap-
proved section 403(b) plans in light of the
fact that the IRS’s rules for pre-approved
section 403(b) plans require that a par-
ticipant’s elective deferrals be suspended
for 6 months following a hardship distri-
bution. The prohibition on suspensions
is retained in the final regulations, and
the rule applies to section 403(b) plans,
including pre-approved section 403(b)
plans.
Also, one commenter asked for relief
relating to the notice requirements for safe
harbor plans described in sections 401(k)
(12) and 401(k)(13). Because a descrip-
tion of withdrawal provisions is required
to be included in the notice provided to eli-
gible employees (see §1.401(k)-3(d)(2)(ii)
(G)), if a description of the new hardship
withdrawal provisions was not already
included in a notice, employees must be
provided an updated notice reflecting the
new hardship withdrawal provisions and
must be given a reasonable opportunity to
change their cash or deferred election. See
section III.C of Notice 2016-16, 2016-
7 I.R.B. 318, for the notice-timing and
election-opportunity requirements with
respect to mid-year amendments to safe
harbor plans.
Special Analyses
These regulations are not subject to re-
view under section 6(b) of Executive Or-
der 12866 pursuant to the Memorandum
of Agreement (April 11, 2018) between
the Treasury Department and the Office
of Management and Budget regarding re-
view of tax regulations.
Pursuant to the Regulatory Flexibili-
ty Act (5 U.S.C. chapter 6), it is hereby
certified that the collection of informa-
tion in these regulations will not have a
significant economic impact on a sub-
stantial number of small entities. This
certification is based on the fact that
employers with section 401(k) plans
that permit hardship withdrawals must
already maintain records relating to an
employee’s application for a hardship
withdrawal, and the incremental cost
due to the new certification requirement
in final regulations §1.401(k)-1(d)(3)
(iii)(B)(2) will be minimal. In addition,
some employers, including some small
entities, use a hardship withdrawal pro-
cedure available under the existing reg-
ulations that requires an employee cer-
tification almost identical to that in the
final regulations. Therefore, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required. Pursuant
to section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small businesses, and no com-
ment was received.
Drafting Information
The principal author of these regula-
tions is Roger Kuehnle of the Office of
Associate Chief Counsel (Employee Ben-
efits, Exempt Organizations, and Employ-
ment Taxes). However, other personnel
from the IRS and Treasury Department
participated in their development.
Statement of Availability of IRS
Documents
The IRS notices, revenue procedures
and other guidance cited in this pream-
ble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Publishing Of-
fice, Washington, DC 20402, or by visit-
ing the IRS website at http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 401(m)(9) and 26
U.S.C. 7805.
* * * * *

Bulletin No. 2019–41 863 October 7, 2019
Par. 2. Section 1.401(k)-0 is amended
under the heading §1.401(k)-1 by revis-
ing the entries for (d)(3)(ii) and (d)(3)
(ii)(A) and (B), adding an entry for (d)
(3)(ii)(C), revising the entries for (d)(3)
(iii) and (d)(3)(iii)(A) and (B), adding an
entry for (d)(3)(iii)(C), revising the entry
for (d)(3)(iv), removing the entries for
(d)(3)(iv)(A) through (F), revising the
entry for (d)(3)(v), and adding the entries
for (d)(3)(v)(A) through (C) to read as
follows:
§1.401(k)-0 Table of contents.
* * * * *
§1.401(k)-1 Certain cash or deferred
arrangements.
* * * * *
(d) * * *
(3) * * *
(ii) Immediate and heavy financial
need.
(A) In general.
(B) Deemed immediate and heavy fi-
nancial need.
(C) Primary beneficiary under the plan.
(iii) Distribution necessary to satisfy
financial need.
(A) Distribution may not exceed
amount of need.
(B) No alternative means reasonably
available.
(C) Additional conditions.
(iv) Commissioner may expand stan-
dards.
(v) Applicability date.
(A) General rule.
(B) Options for earlier application.
(C) Certain rules optional in 2019.
* * * * *
Par. 3. Section 1.401(k)-1 is amended
by:
1. Revising paragraphs (d)(1)(ii) and
(iii) and adding new paragraph (d)(1)
(iv).
2. Removing paragraph (d)(3)(ii) and
redesignating paragraphs (d)(3)(iii),
(iv), and (v) as paragraphs (d)(3)(ii),
(iii), and (iv).
3. Revising newly redesignated para-
graph (d)(3)(ii)(B) and adding new
paragraph (d)(3)(ii)(C).
4. Revising newly redesignated para-
graphs (d)(3)(iii) and (iv) and adding
new paragraph (d)(3)(v).
5. In paragraph (d)(6), removing Exam-
ples 3, 4, and 5, redesignating Exam-
ple 6 as Example 3, and designating
Examples 1 through 3 as paragraphs
(d)(6)(i) through (iii).
6. In newly designated paragraph (d)(6)
(ii), redesignating paragraphs (d)(6)
(ii)(i) and (ii) as paragraphs (d)(6)(ii)
(A) and (B).
The additions and revisions read as fol-
lows:
§1.401(k)-1 Certain cash or deferred
arrangements.
* * * * *
(d) * * *
(1) * * *
(ii) In the case of a profit-sharing, stock
bonus or rural cooperative plan– (A) The
employee’s attainment of age 59 ½; or
(B) In accordance with section 401(k)
(14), the employee’s hardship;
(iii) In accordance with section 401(k)
(10), the termination of the plan; or
(iv) In the case of a qualified reservist
distribution defined in section 72(t)(2)(G)
(iii), the date the reservist was ordered or
called to active duty.
* * * * *
(3) * * *
(ii) * * *
(B) Deemed immediate and heavy fi-
nancial need. A distribution is deemed to
be made on account of an immediate and
heavy financial need of the employee if
the distribution is for—
(1) Expenses for (or necessary to ob-
tain) medical care that would be deduct-
ible under section 213(d), determined
without regard to the limitations in sec-
tion 213(a) (relating to the applicable
percentage of adjusted gross income and
the recipients of the medical care) pro-
vided that, if the recipient of the medical
care is not listed in section 213(a), the
recipient is a primary beneficiary under
the plan;
(2) Costs directly related to the pur-
chase of a principal residence for the em-
ployee (excluding mortgage payments);
(3) Payment of tuition, related ed-
ucational fees, and room and board ex-
penses, for up to the next 12 months of
post-secondary education for the em-
ployee, for the employee’s spouse, child
or dependent (as defined in section 152
without regard to section 152(b)(1), (b)
(2) and (d)(1)(B)), or for a primary bene-
ficiary under the plan;
(4) Payments necessary to prevent the
eviction of the employee from the em-
ployee’s principal residence or foreclosure
on the mortgage on that residence;
(5) Payments for burial or funeral
expenses for the employee’s deceased
parent, spouse, child or dependent (as
defined in section 152 without regard to
section 152(d)(1)(B)), or for a deceased
primary beneficiary under the plan;
(6) Expenses for the repair of damage
to the employee’s principal residence that
would qualify for the casualty deduction
under section 165 (determined without
regard to section 165(h)(5) and whether
the loss exceeds 10% of adjusted gross
income); or
(7) Expenses and losses (including
loss of income) incurred by the employee
on account of a disaster declared by the
Federal Emergency Management Agen-
cy (FEMA) under the Robert T. Stafford
Disaster Relief and Emergency Assistance
Act, Pub. L. 100-707, provided that the
employee’s principal residence or princi-
pal place of employment at the time of the
disaster was located in an area designated
by FEMA for individual assistance with
respect to the disaster.
(C) Primary beneficiary under the
plan. For purposes of paragraph (d)(3)(ii)
(B) of this section, a “primary beneficia-
ry under the plan” is an individual who
is named as a beneficiary under the plan
and has an unconditional right, upon the
death of the employee, to all or a portion
of the employee’s account balance under
the plan.
(iii) Distribution necessary to satisfy
financial need—(A) Distribution may not
exceed amount of need. A distribution is
treated as necessary to satisfy an imme-
diate and heavy financial need of an em-
ployee only to the extent the amount of the
distribution is not in excess of the amount
required to satisfy the financial need (in-
cluding any amounts necessary to pay any
federal, state, or local income taxes or
penalties reasonably anticipated to result
from the distribution).
(B) No alternative means reasonably
available. A distribution is not treated
as necessary to satisfy an immediate and
heavy financial need of an employee un-
less each of the following requirements is
satisfied—
(1) The employee has obtained all oth-
er currently available distributions (in-
cluding distributions of ESOP dividends

October 7, 2019 864 Bulletin No. 2019–41
under section 404(k), but not hardship
distributions) under the plan and all other
plans of deferred compensation, whether
qualified or nonqualified, maintained by
the employer;
(2) The employee has provided to the
plan administrator a representation in
writing (including by using an electronic
medium as defined in §1.401(a)-21(e)(3)),
or in such other form as may be prescribed
by the Commissioner, that he or she has
insufficient cash or other liquid assets rea-
sonably available to satisfy the need; and
(3) The plan administrator does not
have actual knowledge that is contrary to
the representation.
(C) Additional conditions. A plan gen-
erally may provide for additional condi-
tions, such as those described in 26 CFR
1.401(k)-1(d)(3)(iv)(B) and (C) (revised
as of April 1, 2019), to demonstrate that
a distribution is necessary to satisfy an
immediate and heavy financial need of an
employee. For example, a plan may pro-
vide that, before a hardship distribution
may be made, an employee must obtain all
nontaxable loans (determined at the time
a loan is made) available under the plan
and all other plans maintained by the em-
ployer. However, a plan may not provide
for a suspension of an employee’s elective
contributions or employee contributions
under any plan described in section 401(a)
or 403(a), any section 403(b) plan, or any
eligible governmental plan described in
§1.457-2(f) as a condition of obtaining a
hardship distribution.
(iv) Commissioner may expand stan-
dards. The Commissioner may prescribe
additional guidance of general applica-
bility, published in the Internal Reve-
nue Bulletin (see §601.601(d)(2) of this
chapter), expanding the list of distri-
butions deemed to be made on account
of immediate and heavy financial needs
and setting forth additional methods to
demonstrate that a distribution is neces-
sary to satisfy an immediate and heavy
financial need.
(v) Applicability date—(A) Gener-
al rule. Except as otherwise provided
in this paragraph (d)(3)(v), the rules in
this paragraph (d)(3) apply to distribu-
tions made on or after January 1, 2020.
For distributions made before January 1,
2020, the rules in 26 CFR 1.401(k)-1(d)
(3) (revised as of April 1, 2019) apply.
(B) Options for earlier application.
The rules in this paragraph (d)(3) may
be applied to distributions made in plan
years beginning after December 31,
2018, and the last sentence of paragraph
(d)(3)(iii)(C) of this section (prohibiting
the suspension of contributions as a con-
dition of obtaining a hardship distribu-
tion) may be applied as of the first day
of the first plan year beginning after De-
cember 31, 2018, even if the distribution
was made in the prior plan year. Thus,
for example, a calendar-year plan that
provides for hardship distributions under
the rules in 26 CFR 1.401(k)-1(d)(3)(iv)
(E) (revised as of April 1, 2019) may be
amended to provide that an employee
who receives a hardship distribution in
the second half of the 2018 plan year will
be prohibited from making contributions
only until January 1, 2019 (or may con-
tinue to provide that contributions will be
suspended for the originally scheduled 6
months). In addition, paragraph (d)(3)
(ii)(B) of this section (listing distribu-
tions deemed to be made on account of
an immediate and heavy financial need)
may be applied to distributions made on
or after a date that is as early as January
1, 2018.
(C) Certain rules optional in 2019. If,
in accordance with paragraph (d)(3)(v)(B)
of this section, the rules in this paragraph
(d)(3) are applied to distributions made
before January 1, 2020, then the rules in
paragraphs (d)(3)(iii)(B)(2) and (3) of this
section (relating to an employee represen-
tation) and the last sentence of paragraph
(d)(3)(iii)(C) of this section (prohibiting
the suspension of contributions as a con-
dition of obtaining a hardship distribution)
may be disregarded with respect to such
distributions.
* * * * *
Par. 4. Section 1.401(k)-3 is amended
by:
1. Revising paragraph (c)(6)(v).
2. Removing the language “, and, in the
case of a hardship distribution, sus-
pends an employee’s ability to make
elective contributions for 6 months
in accordance with §1.401(k)-1(d)(3)
(iv)(E)” in the fifth sentence in para-
graph (c)(7), Example 1(i).
3. Removing the second sentence in
paragraph (j)(2)(iv).
The revision reads as follows:
§1.401(k)-3 Safe harbor require-
ments.
* * * * *
(c) * * *
(6) * * *
(v) Restrictions due to limitations un-
der the Internal Revenue Code. A plan
may limit the amount of elective contribu-
tions made by an eligible employee under
a plan—
(A) Because of the limitations of sec-
tion 402(g) or 415;
(B) Due to a suspension under sec-
tion 414(u)(12)(B)(ii); or
(C) Because, on account of a hardship
distribution made before January 1, 2020,
an employee’s ability to make elective
contributions has been suspended for 6
months.
* * * * *
§1.401(k)-6 [Amended]
Par. 5. Section 1.401(k)-6 is amended
by:
1. Removing the fourth sentence in
paragraph (2) of the definition of Eli-
gible employee.
2. Removing the language “, except as
provided otherwise in §1.401(k)-1(c)
and (d),” in the definitions of Quali-
fied matching contributions (QMACs)
and Qualified nonelective contribu-
tions (QNECs).
Par. 6. Section 1.401(m)-3 is amended
by revising paragraph (d)(6)(v) to read as
follows:
§1.401(m)-3 Safe harbor require-
ments.
* * * * *
(d) * * *
(6) * * *
(v) Restrictions due to limitations un-
der the Internal Revenue Code. A plan
may limit the amount of contributions
made by an eligible employee under a
plan-

Bulletin No. 2019–41 865 October 7, 2019
(A) Because of the limitations of sec-
tion 402(g) or section 415;
(B) Due to a suspension under sec-
tion 414(u)(12)(B)(ii); or
(C) Because, on account of a hardship
distribution made before January 1, 2020,
an employee’s ability to make contribu-
tions has been suspended for 6 months.
* * * * *
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
Approved: September 5, 2019.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on Sep-
tember 19, 2019, 4:15 p.m., and published in the is-
sue of the Federal Register for September 23, 2019,
84 F.R. 49651)

October 7, 2019 866 Bulletin No. 2019–41
Part III.
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2019-51
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month aver-
age segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate under
§ 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the inter-
est rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present val-
ue is generally determined using three
24-month average interest rates (“segment
rates”), each of which applies to cash
flows during specified periods. To the ex-
tent provided under § 430(h)(2)(C)(iv),
these segment rates are adjusted by the ap-
plicable percentage of the 25-year average
segment rates for the period ending Sep-
tember 30 of the year preceding the cal-
endar year in which the plan year begins.
1

However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from August
2019 data is in Table 2019-8 at the end
of this notice. The spot first, second, and
third segment rates for the month of Au-
gust 2019 are, respectively, 2.09, 3.00,
and 3.61.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to
§ 430(h)(2)(C)(iv) to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates. For plan years beginning
before 2021, the applicable minimum per-
centage is 90% and the applicable maxi-
mum percentage is 110%. The 25-year
average segment rates for plan years be-
ginning in 2018 and 2019 were published
in Notice 2017-50, 2017-41 I.R.B. 280,
and Notice 2018-73, 2018-40 I.R.B. 526,
respectively. For plan years beginning in
2020, based on the segment rates applica-
ble for October 1994 to September 2019,
the 25-year averages for the period ending
September 30, 2019, of the first, second,
and third segment rates are 4.04, 5.79, and
6.60 percent, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for Sep-
tember 2019 without adjustment for the
25-year average segment rate limits are as
follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
September 2019 2.79 3.92 4.38
Based on § 430(h)(2)(C)(iv), the
24-month averages applicable for Sep-
tember 2019, adjusted to be within the ap-
plicable minimum and maximum percent-
ages of the corresponding 25-year average
segment rates, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment
2018September 20193.925.526.29
2019September 20193.745.356.11
2020September 20193.645.215.94
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to § 412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in § 431(c)(6)(A), based on the
plan’s current liability. Section 431(c)(6)
(E)(ii)(I) provides that the interest rate
used to calculate current liability for this
purpose must be no more than 5 percent
above and no more than 10 percent below
the weighted average of the rates of inter-
1
Pursuant to § 433(h)(3)(A), the 3
rd
segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).

Bulletin No. 2019–41 867 October 7, 2019
est on 30-year Treasury securities during
the four-year period ending on the last
day before the beginning of the plan year.
Notice 88-73, 1988-2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The rate of interest
on 30-year Treasury securities for Au-
gust 2019 is 2.12 percent. The Service
determined this rate as the average of
the daily determinations of yield on the
30-year Treasury bond maturing in May
2049 determined each day through Au-
gust 7, 2019 and the yield on the 30-year
Treasury bond maturing in August 2049
determined each day for the balance of
the month. For plan years beginning in
September 2019, the weighted average
of the rates of interest on 30-year Trea-
sury securities and the permissible range
of rates used to calculate current liability
are as follows:
Treasury Weighted Average Rates
For Plan Years
Beginning In
30-Year Treasury
Weighted Average
Permissible Range
90% to 105%
September 20192.902.61 to 3.04
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-
ment rates determined for August 2019
are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
August 2019 2.09 3.00 3.61
DRAFTING INFORMATION
The principal author of this notice is
Tom Morgan of the Office of the Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Paul Stern at 202-317-
8702 (not toll-free numbers).

October 7, 2019 868 Bulletin No. 2019–41
Table 2019-8
Monthly Yield Curve for August 2019
Derived from August 2019 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.52.0920.53.4340.53.6360.53.7180.53.74
1.02.0921.03.4441.03.6461.03.7181.03.74
1.52.0921.53.4541.53.6461.53.7181.53.74
2.02.0822.03.4642.03.6462.03.7182.03.74
2.52.0722.53.4742.53.6462.53.7182.53.74
3.02.0723.03.4743.03.6563.03.7183.03.75
3.52.0723.53.4843.53.6563.53.7183.53.75
4.02.0924.03.4944.03.6564.03.7184.03.75
4.52.1224.53.5044.53.6564.53.7184.53.75
5.02.1625.03.5045.03.6665.03.7285.03.75
5.52.2125.53.5145.53.6665.53.7285.53.75
6.02.2726.03.5146.03.6666.03.7286.03.75
6.52.3426.53.5246.53.6666.53.7286.53.75
7.02.4227.03.5347.03.6667.03.7287.03.75
7.52.4927.53.5347.53.6767.53.7287.53.75
8.02.5728.03.5448.03.6768.03.7288.03.75
8.52.6428.53.5448.53.6768.53.7288.53.75
9.02.7129.03.5549.03.6769.03.7289.03.75
9.52.7829.53.5549.53.6769.53.7289.53.75
10.02.8530.03.5650.03.6870.03.7390.03.75
10.52.9130.53.5650.53.6870.53.7390.53.75
11.02.9631.03.5751.03.6871.03.7391.03.75
11.53.0231.53.5751.53.6871.53.7391.53.75
12.03.0632.03.5852.03.6872.03.7392.03.76
12.53.1132.53.5852.53.6872.53.7392.53.76
13.03.1533.03.5953.03.6973.03.7393.03.76
13.53.1833.53.5953.53.6973.53.7393.53.76
14.03.2134.03.5954.03.6974.03.7394.03.76
14.53.2434.53.6054.53.6974.53.7394.53.76
15.03.2735.03.6055.03.6975.03.7395.03.76
15.53.2935.53.6055.53.6975.53.7395.53.76
16.03.3136.03.6156.03.6976.03.7496.03.76
16.53.3336.53.6156.53.7076.53.7496.53.76
17.03.3537.03.6157.03.7077.03.7497.03.76
17.53.3637.53.6257.53.7077.53.7497.53.76
18.03.3838.03.6258.03.7078.03.7498.03.76
18.53.3938.53.6258.53.7078.53.7498.53.76
19.03.4039.03.6359.03.7079.03.7499.03.76
19.53.4139.53.6359.53.7079.53.7499.53.76
20.03.4240.03.6360.03.7080.03.74100.03.76

Bulletin No. 2019–41 869 October 7, 2019
Low-Income Housing Credit
Disaster Relief for the State
of California
Notice 2019-52
I. PURPOSE
In response to the devastation caused
by the California Wildfires to Butte, Los
Angeles, and Ventura Counties in the State
of California (hereinafter, California), this
notice expands the emergency housing
and compliance monitoring relief that is
provided in Rev. Proc. 2014-49, 2014-37
I.R.B. 535, and Rev. Proc. 2014-50, 2014-
37 I.R.B. 540. The expanded relief in this
notice is limited to the CA Wildfires Major
Disaster, as defined below. Except as ex-
pressly provided in this notice, all provi-
sions of Rev. Procs. 2014-49 and 2014-50
apply to the CA Wildfires Major Disaster
without modification. For example, this
notice does not modify the carryover al-
location relief provisions of Rev. Proc.
2014-49, because the only low-income
housing project damaged or destroyed by
the wildfire had been placed in service be-
fore the disaster.
This notice also solicits public com-
ments regarding any desirable modifica-
tions to Rev. Procs. 2014-49 and 2014-50.
II. BACKGROUND
Rev. Procs. 2014-49 and 2014-50
provide temporary relief from certain
requirements of §§ 42 and 142(d) of the
Internal Revenue Code in the context of
a major disaster. Rev. Proc. 2014-49 pro-
vides guidance and relief to the owners
of qualified low-income housing projects
(each such project, a § 42 Project) and to
Agencies (as defined in section 5.01 of
Rev. Proc. 2014-49) that are responsible
for those § 42 Projects. Rev. Proc. 2014-
50 provides guidance to issuers of exempt
facility bonds financing qualified residen-
tial rental projects under § 142(d) (each
such issuer, an Issuer; each such project, a
§ 142(d) Project) and to operators of those
§ 142(d) Projects. Various aspects of these
revenue procedures apply with respect to
§ 42 Projects and § 142(d) Projects both
inside and outside of the area in which the
major disaster occurs.
Sections 12 through 14 of Rev. Proc.
2014-49 and sections 5 through 7 of
Rev. Proc. 2014-50 facilitate emergency
housing relief for Displaced Individuals
(as defined in section 5.02 of Rev. Proc.
2014-49 and in section 4.04 of Rev. Proc.
2014-50). To achieve this end, these sec-
tions give owners of § 42 Projects and
operators of § 142(d) Projects the option
to apply certain modifications to the rules
of §§ 42 and 142(d), provided that the
relevant Agency or Issuer authorizes the
owner or operator to do so. Among these
modifications is the ability to disregard
the actual income of a Displaced Individ-
ual housed in a § 42 Project or a § 142(d)
Project, even if the Displaced Individual’s
income exceeds the limitations on income
provided in §§ 42 or 142(d). The option
to apply these modified rules is limited to
a period defined in the revenue procedures
as the Temporary Housing Period. See
section 5.08 of Rev. Proc. 2014-49 and
section 4.13 of Rev. Proc. 2014-50. The
Temporary Housing Period begins on the
first day of the incident period, as deter-
mined by the Federal Emergency Man-
agement Agency (FEMA), and ends on a
date determined by the Agency or Issuer.
Both revenue procedures provide a date
beyond which the Temporary Housing Pe-
riod may not extend. See section 12.02(1)
of Rev. Proc. 2014-49 and section 5.02(1)
of Rev. Proc. 2014-50.
On November 12, 2018, under the au-
thority of the Robert T. Stafford Disaster
Relief and Emergency Assistance Act, 42
U.S.C. §§ 5121-5206 (the Stafford Act),
the President of the United States issued a
major disaster declaration with respect to
the damage in California caused by wild-
fires beginning on November 8, 2018, and
FEMA designated three counties (Butte,
Los Angeles, and Ventura Counties) with-
in California to be eligible for Individual
Assistance and Public Assistance under
the Stafford Act (CA Wildfires Major Di-
saster). See 83 Fed. Reg. 64352 (2018).
The incident period for the CA Wildfires
Major Disaster began on November 8,
2018, and closed on November 25, 2018.
See 83 Fed. Reg. 63553 (2018).
Agencies must periodically review §
42 Projects for compliance with the af-
fordability and habitability requirements
of § 42. See § 42(m)(1)(B)(iii); see also
§ 1.42-5 of the Income Tax Regulations.
Under section 9 of Rev. Proc. 2014-49,
an Agency may extend the due date for
its scheduled compliance reviews for up
to one calendar year from the date of a
low-income building’s restoration and
placement again into service. That rev-
enue procedure does not delay the com-
pliance review due dates of buildings that
do not require restoration and replacement
into service.
III. EMERGENCY HOUSING
RELIEF
Solely in connection with the CA Wild-
fires Major Disaster, the second sentence
of section 12.02(1) in Rev. Proc. 2014-49
and the second sentence of section 5.02(1)
in Rev. Proc. 2014-50 are revised to read:
“The Temporary Housing Period cannot
extend beyond the end of July 2020.”
IV. COMPLIANCE MONITORING
RELIEF
Under this notice, the California Tax
Credit Allocation Committee (CTCAC)
may extend the date for its compliance
review of low-income housing projects
notwithstanding section 9 of Rev. Proc.
2014-49. For any such building, this ex-
tension may not last beyond one calendar
year from the later of—
• November 25, 2018; or
• In the case of a building that has suf-
fered a casualty loss due to the CA
Wildfires Major Disaster or has been
completely taken out of service due to
the CA Wildfires Major Disaster, the
date of the building’s restoration and
placement again in service.
This extension of dates for compliance
review by the CTCAC does not, however,
extend the compliance monitoring dead-
lines for owners or operators. If the CT-
CAC learns that an owner or operator has
failed to comply with the rules of § 42, as
applicable, the noncompliance must be re-
ported timely to the Internal Revenue Ser-
vice (Service), along with a description of
whether and how the wildfires contributed
to the noncompliance.

October 7, 2019 870 Bulletin No. 2019–41
V. REQUEST FOR COMMENTS
REGARDING POSSIBLE
MODIFICATIONS TO REVENUE
PROCEDURES 2014-49 AND 2014-50
The Department of the Treasury and
the Service are considering whether to
make any changes to Rev. Procs. 2014-49
and 2014-50, and, in that regard, request
comments from the public regarding pos-
sible changes to the two revenue proce-
dures. Comments should be submitted
by October 31, 2019. Comments may be
mailed to:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2019-
52)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
or hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2019-
52)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Alternatively, persons may submit com-
ments electronically via e-mail to the fol-
lowing address:
Notice.Comments@irscounsel.treas.
gov.
Persons should include “Notice 2019-52”
in the subject line. All comments submit-
ted will be available for public inspection
and copying in their entirety.
VI. DRAFTING INFORMATION
The principal author of this notice is
Michael J. Torruella Costa of the Office of
Associate Chief Counsel (Passthroughs &
Special Industries). For further informa-
tion regarding this notice contact Michael
J. Torruella Costa on (202) 317-4137 (not
a toll-free number).

Bulletin No. 2019–41 871 October 7, 2019
NOTE. This revenue procedure will be reproduced as the next revision of IRS Publication 1167, General Rules and Specifications for Substitute Forms and Schedules.
Rev. Proc. 2019-35
TABLE OF CONTENTS
Part 1 – INTRODUCTION TO SUBSTITUTE FORMS
Section 1.1 – Overview of Revenue Procedure 2019-35 ..........................................................872
Section 1.2 – IRS Contacts .................................................................................873
Section 1.3 – What’s New ..................................................................................874
Section 1.4 – Definitions ...................................................................................875
Section 1.5 – Agreement ...................................................................................877
Part 2 – GENERAL GUIDELINES FOR SUBMISSIONS AND APPROVALS
Section 2.1 – General Specifications for Approval ...............................................................878
Section 2.2 – Highlights of Permitted Changes and Requirements ..................................................880
Section 2.3 – Vouchers ....................................................................................880
Section 2.4 – Restrictions on Changes ........................................................................883
Section 2.5 – Guidelines for Obtaining IRS Approval ............................................................883
Section 2.6 – Office of Management and Budget (OMB) Requirements for All Substitute Forms ..........................887
Part 3 – PHYSICAL ASPECTS AND REQUIREMENTS
Section 3.1 – General Guidelines for Substitute Forms ...........................................................888
Section 3.2 – Paper .......................................................................................890
Section 3.3 – Printing .....................................................................................891
Section 3.4 – Margins .....................................................................................892
Section 3.5 – Miscellaneous Information for Substitute Forms .....................................................893
Part 4 – ADDITIONAL RESOURCES
Section 4.1 – Guidance From Other Revenue Procedures .........................................................894
Section 4.2 – Electronic Tax Products ........................................................................894
Part 5 – REQUIREMENTS FOR SPECIFIC TAX RETURNS
Section 5.1 – Tax Returns (Forms 1040, 1040-SR, 1120, etc.) ......................................................895
Section 5.2 – Changes Permitted to Graphics (Form 1040 or 1040-SR) ..............................................896
Part 6 – FORMAT AND CONTENT OF SUBSTITUTE RETURNS
Section 6.1 – Acceptable Formats for Substitute Forms and Schedules ...............................................898
Section 6.2 – Additional Instructions for All Forms ..............................................................899
Part 7 – MISCELLANEOUS FORMS AND PROGRAMS
Section 7.1 – Specifications for Substitute Schedules K-1 .........................................................901
Section 7.2 – Guidelines for Substitute Forms 8655 .............................................................907
Part 8 – ADDITIONAL INFORMATION
Section 8.1 – Forms for Electronically Filed Returns .............................................................908
Section 8.2 – Effect on Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .909
Section 8.3 – Exhibits .....................................................................................909

Part 1
Introduction to Substitute Forms
Section 1.1 – Overview of Revenue Procedure 2019-35
1.1.1
Purpose
The purpose of this revenue procedure is to provide guidelines and general requirements for the
development, printing, and approval of the 2019 substitute tax forms. Approval will be based on
these guidelines. After review and approval, submitted forms will be accepted as substitutes for
official IRS forms.
1.1.2
Unique Forms
Certain unique specialized forms require the use of other additional publications to supplement
this publication. See Part 4.
1.1.3
Scope
The IRS accepts quality substitute tax forms that are consistent with the official forms and have no
adverse impact on processing. The IRS Substitute Forms Program (the Program) administers the
formal acceptance and processing of these forms nationwide. While this Program deals with paper
documents, it also reviews for approval other processing and filing forms used in electronic filing.
Only those substitute forms that comply fully with these requirements are acceptable. This revenue
procedure is updated as required to reflect pertinent tax year form changes and to meet processing
and/or legislative requirements.
1.1.4
Forms Cover
ed
by This Revenue
Procedure
The following types of forms are covered by this revenue procedure.
• IRS tax forms and their related schedules.
• Worksheets as they appear in instruction packages.
• Applications for permission to file returns electronically and forms used as required documen-
tation for electronically filed returns.
• Powers of Attorney.
• Over-the-counter estimated tax payment vouchers.
• Forms and schedules relating to partnerships, exempt organizations, and employee plans.
1.1.5
Forms Not Cover
ed
by This Revenue
Procedure
The following types of forms are not covered by this revenue procedure.
• W-2 and W-3 (see Pub. 1141 for information on these forms).
October 7, 2019 872 Bulletin No. 2019–41

Bulletin No. 2019–41 873 October 7, 2019
• W-2c and W-3c (see Pub. 1223 for information on these forms).
• 941, Schedule B (Form 941), Schedule D (Form 941), Schedule R (Form 941), and 8974 (see
Pub. 4436 for information on these forms).
• 1096, 1097-BTC, 1098 series, 1099 series, 3921, 3922, 5498 series, W-2G, 1042-S (see Pub.
1179 for information on these forms).
• 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C (see Pub. 5223 for information on these forms).
• 8027 (see Pub. 1239 for information on this form).
• Forms 1040-ES (OCR) and 1041-ES (OCR), which may not be reproduced.
• Forms 5500 (for more information on these forms, see the Department of Labor website at
www.efast.dol.gov).
• Forms 5300, 5307, 8717, and 8905, bar-coded forms requiring separate approval.
• Forms used internally by the IRS.
• State tax forms.
• Forms developed outside the IRS.
1.1.6
Other
Information
Not Covered by This
Revenue Procedure
The following information is not covered by this revenue procedure.
• Requests for information or documentation initiated by the IRS.
• General Instructions and Specific Instructions (these are not reviewed by the Program).
Section 1.2 – IRS Contacts
1.2.1
Wher
e To Send
Substitute Forms
Send your substitute forms for approval to the following offices (do not send forms with taxpayer
data).
FormOffice and Address
5500Check EFAST2 information at the Department
of Labor website at www.efast.dol.gov
5300, 5307, 8717, and 8905
Sandra.K.Barnes@irs.gov
Software developer vouchers (see Sections
2.3.7–2.3.9)
Internal Revenue Service
Attn: Doris Bethea
5000 Ellin Road, C5-226
Lanham, MD 20706
Doris.E.Bethea@irs.gov

October 7, 2019 874 Bulletin No. 2019–41
FormOffice and Address
ACA Forms 1094-B, 1095-B, 1094-C, and
1095-C (for more information, see Pub. 5223),
and Schedule K-1 forms must be emailed for
scanability testing
scrips@irs.gov
Schedule K-1 2-D bar-coded formsFor mailing addresses for sending Schedule
K-1 2-D bar-coded forms for testing, see
Section 7.1.6
All others covered by this publication (see
Section 1.1.4)
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:P:TP
1111 Constitution Ave. NW, Room 6554
Washington, DC 20224
substituteforms@irs.gov
For questions about:
• Forms W-2 and W-3, refer to Pub. 1141, General Rules and Specifications for Substitute Forms
W-2 and W-3;
• Forms W-2c and W-3c, refer to Pub. 1223, General Rules and Specifications for Substitute
Forms W-2c and W-3c;
• Form 941 and Schedules B, D, and R, as well as Form 8974, refer to Pub. 4436, General Rules
and Specifications for Substitute Form 941, Schedule B (Form 941), Schedule D (Form 941),
Schedule R (Form 941), and Form 8974;
• Forms 1096, 1097-BTC, 1098, 1099, 3921, 3922, 5498, W-2G, and 1042-S, refer to Pub. 1179,
General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain
Other Information Returns;
• Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C, refer to Pub. 5223, General Rules and
Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and
1095-C; and
• Form 8027, refer to Pub. 1239, Specifications for Electronic Filing of Form 8027, Employer’s
Annual Information Return of Tip Income and Allocated Tips.
Section 1.3 – What’s New
1.3.1
What’
s New
The following changes have been made to this year’s revenue procedure.
• .01 Editorial changes. We made editorial changes throughout and redundancies were eliminat-
ed as much as possible.
• .02 Form 1040-SR. Form 1040-SR, U.S. Tax Return for Seniors, is new for tax year 2019. This
form is essentially the same as Form 1040 and anyone who files Form 1040-SR is considered
to have filed a Form 1040. We added references to Form 1040-SR throughout this revenue
procedure.

Bulletin No. 2019–41 875 October 7, 2019
• .03 Cents entry fields. In most cases, the vertical rule that previously separated dollars from
cents has been removed from income tax returns and schedules. Entries can still be made in
dollars and cents by entering a decimal point after the dollar amount.
• .04 Combining Form 1040 pages 1 and 2. You can no longer combine pages 1 and 2 of Form
1040 onto a single page because the number of lines on the 2019 Form 1040 increased from
the prior year. This exception to the general rules was previously discussed in section 5.1.1 and
Exhibit A of Revenue Procedure 2018-51.
Section 1.4 – Definitions
1.4.1
Substitute Form
A tax form (or related schedule) that differs in any way from the official version and is intended to
replace the form that is printed and distributed by the IRS. This term also covers those approved
substitute forms exhibited in this revenue procedure.
1.4.2
Printed/ Pr
eprinted
Form
A form produced using conventional printing processes or a printed form which has been repro-
duced by photocopying or a similar process.
1.4.3
Preprinted Pin-
Fed Form
A printed form that has marginal perforations for use with automated and high-speed printing
equipment.
1.4.4
Computer- Prepared
Substitute Form
A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer,
computer printer, or other computer-type equipment.
1.4.5
Computer-
Generated
Substitute Tax
Return or Form
A tax return or form that is entirely designed and printed using a computer printer on plain white
paper. This return or form must conform to the physical layout of the corresponding IRS form,
although the typeface may differ. The text should match the text on the officially printed form as
closely as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
Exception. All jurats (perjury statements) must be reproduced verbatim.
1.4.6
Manually Prepared
Form
A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an indi-
vidual using a pen, pencil, typewriter, or other nonautomated equipment.

October 7, 2019 876 Bulletin No. 2019–41
1.4.7
Graphics
Parts of a printed tax form that are not tax amount entries or required text. Examples of graphics
are line numbers, captions, shadings, special indicators, borders, rules, and strokes created by
typesetting, photographics, photocomposition, etc.
1.4.8
Acceptable
Reproduced Form
A legible photocopy or an exact replica of an original form.
1.4.9
Supporting
Statement
(Supplemental
Schedule)
A document providing detailed information to support a line entry on an official or approved sub-
stitute form and filed with (attached to) a tax return.
Note. A supporting statement is not a tax form and does not take the place of an official form.
1.4.10
Specific Form Terms
The following specific terms are used throughout this revenue procedure in reference to all substi-
tute forms: format, sequence, line reference, item caption, and data entry field.
1.4.11
Format
The overall physical arrangement and general layout of a substitute form.
1.4.12
Sequence
Sequence is an integral part of the total format requirement. The substitute form should show the
same numeric and logical placement order of data as shown on the official form.
1.4.13
Line Reference
The line numbers, letters, or alphanumerics used to identify each captioned line on an official form.
These line references are printed to the immediate left of each caption and/or data entry field.
1.4.14
Item Caption
The text on each line of a form, which identifies the data required.
1.4.15
Data Entry Field
Designated areas for the entry of data such as dollar amounts, quantities, responses, and check-
boxes.

Bulletin No. 2019–41 877 October 7, 2019
1.4.16
Advance Draft
A draft version of a new or revised form may be posted to the IRS website (IRS.gov/DraftForms)
for information purposes. Substitute forms may be submitted based on these advance drafts, but
any submitter that receives forms approval based on these early drafts is responsible for monitor-
ing and revising forms to mirror any revisions in the final forms provided by the IRS.
1.4.17
Approval
Generally, approval could be in writing or assumed after 20 business days from our receipt for
forms that have not been substantially changed by the IRS. This does not apply to newly created or
substantially revised IRS forms. However, the Program reserves the right to notify vendors of any
inaccuracies even after 20 business days have lapsed.
1.4.18
National Association
of Computerized
Tax Processors
(NACTP)
The National Association of Computerized Tax Processors (NACTP) is a nonprofit association
that represents tax processing software and hardware developers, electronic filing processors, tax
form publishers, tax processing service bureaus, and payroll processors. The association promotes
standards in tax processing to advance efficient and effective tax filing. For more information, see
NACTP.org.
Section 1.5 – Agreement
1.5.1
Important
Stipulation of This
Revenue Procedure
Any person or company who uses substitute forms and makes all or part of the changes specified
in this revenue procedure agrees to the following stipulations.
• The IRS presumes that any required changes are made in accordance with these procedures and
will not be disruptive to the processing of the tax return.
• Should any of the changes be disruptive to the IRS’s processing of the tax return, the person or
company agrees to accept the determination of the IRS as to whether the form may continue to
be filed.
• The person or company agrees to work with the IRS in correcting noted deficiencies. Notifica-
tion of deficiencies may be made by any combination of letter, email, or phone contact and may
include the request for the resubmission of unacceptable forms.
1.5.2
Response Policy and
Stipulations
The Program will email confirmation of receipt of your forms submission, if possible. Even if you
do not receive emailed confirmation of receipt, you will receive an emailed “submission receipt,”
which will provide feedback on your submission. If the Program anticipates problems in complet-
ing the review of your submission within the 20-business-day period, the Program will send an
interim email notifying you of the extended period for review.
Once the substitute forms have been approved by the Program, you can release them after the final
versions of the forms have been issued by the IRS. Before releasing the forms, you are responsible
for updating forms approved as draft and for making form changes we requested.

October 7, 2019 878 Bulletin No. 2019–41
The policy has the following stipulations.
• This 20-business-day policy applies to electronic submissions only. It does not apply to substi-
tute submissions mailed to the Program.
• The policy applies to submissions of 15 (optimal) or fewer items and submissions containing 75
pages or less. Submissions of more than 15 items may require additional review time.
• If you send a large number of submissions within a short period of time, processing may be
delayed.
• Delays in processing could occur if the Program finds significant errors in your submission or
has experienced an increase in submissions. The Program will send you an interim email in this
case.
• Any anticipated problems in processing your submission within the 20-business-day period
will generate an interim email on or about the 15th business day.
• If any significant inaccuracies are discovered after the 20-business-day period, the Program re-
serves the right to inform you and will require that changes be made to correct the inaccuracies.
• The policy does not apply to substantially revised forms or to new forms created by the IRS for
which you have already made an initial submission.
Part 2
General Guidelines for Submissions and Approvals
Section 2.1 – General Specifications for Approval
2.1.1
Overview
If you produce any substitute tax forms that fully comply or follow the changes specifically out-
lined by the Program, then you can generate your own substitute forms without further approval.
Also, if your substitutes have received approval in the past, and there are no substantial formatting
or text changes for the tax year, then changes can be made without additional approval. If your
changes are more extensive, you must get IRS approval before using substitute forms. More ex-
tensive changes include different font style, decreasing or increasing the font size of caption titles,
adjusting or omitting format/layout elements, changing page orientation, repositioning line items,
tables, and legends.
2.1.2
Email Submissions
The Program accepts submissions of substitute forms for review and approval via email. The email
address is substituteforms@irs.gov. Please include the term “PDF Submissions” on the subject
line.
Follow these guidelines.
• Email submission should include all the forms you wish to submit in one Portable Document
Format (PDF) file. Do not email or attach each form individually.

Bulletin No. 2019–41 879 October 7, 2019
• The emailed submission should include a maximum of 3 PDFs to include: a checksheet, a cover
letter or accompanying statement, and a single PDF that includes all of the forms listed on your
checksheet, cover letter, or accompanying statement.
• A submission should contain a maximum of 15 forms.
• An approval checksheet listing the forms you are submitting should always be included in the
PDF file along with the forms. Excluding the checksheet can slow the reviewing process down,
which can result in a delayed response to your submission. See a sample checksheet in Exhibit
B.
• Optimize PDF files before submitting.
• The maximum allowable email attachment is 2.5 megabytes.
• The Program accepts zip files.
• To alleviate delays during the peak time of September through December, submit advance draft
forms as early as possible.
If the guidelines are not followed, you may need to resubmit.
Emailing PDF submissions will not expedite review and approval. Submitting your substitute
forms package via email is the preferred and suggested method for submitting forms for review. If,
for some reason, you are not able to email your submission(s), you can mail your submission(s) to:
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:P:TP
1111 Constitution Ave. NW, Room 6554
Washington, DC 20224
2.1.3
Expediting the
Pr
ocess
Follow these basic guidelines for expediting the process.
• Always include a checksheet for the Program’s response.
• Include an accompanying statement identifying most, if not all, of the deviations your substitute
forms may include which the official IRS version of the form does not.
• Follow the guidance in this publication for general substitute form guidelines. Follow the guid-
ance in specialized publications produced by the Program for other specific forms.
• To spread out the workload, send in draft versions of substitute forms when they are posted.
Note. Be sure to make any changes to approved drafts before releasing final versions.
2.1.4
Schedules
Schedules are considered to be an integral part of a complete tax return. A schedule may be includ-
ed as part of a form or printed separately.

October 7, 2019 880 Bulletin No. 2019–41
2.1.5
Examples of
Schedules That
Must Be Submitted
With the Return
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example of
this situation. Its Schedules A through U have pages numbered as part of the basic return. For Form
706 to be considered for approval, the entire form, including Schedules A through U, as well as
Schedule PC, must be submitted.
2.1.6
Examples of
Schedules That
Can Be Submitted
Separately
Schedules C, D, and E for Form 1040 or 1040-SR are examples of schedules that can be submitted
separately. Although printed by the IRS as a supplement to Form 1040 and 1040-SR, none of these
schedules are required to be filed with Form 1040 or 1040-SR. These schedules may be separated
from Form 1040 or 1040-SR and submitted as substitute forms.
2.1.7
Use and Distribution
of Unapproved
Forms
The IRS is continuing a program to identify and contact tax return preparers, forms developers,
and software publishers who use or distribute unapproved forms that do not conform to this reve-
nue procedure. The use of unapproved forms hinders the processing of the returns.
Section 2.2 – Highlights of Permitted Changes and Requirements
2.2.1
Methods of
Reproducing IRS
Forms
There are methods of reproducing IRS printed tax forms suitable for use as substitutes without
prior approval.
• You can photocopy most tax forms and use them instead of the official ones. The entire substi-
tute form, including entries, must be legible.
• You can reproduce any current tax form as cut sheets, snap sets, and marginally punched, pin-
fed forms as long as you use an official IRS version as the master copy.
• You can reproduce a form that requires a signature as a valid substitute form. Many tax forms
(including returns) have a taxpayer signature requirement as part of the form layout. The jurat/
perjury statement/ signature line areas must be retained and worded exactly as on the official
form. The requirement for a signature, by itself, does not prohibit a tax form from being prop-
erly computer generated.
Section 2.3 – Vouchers
2.3.1
Overview
All payment vouchers (Forms 940-V, 941-V, 943-V, 944-V, 945-V, 1040-ES, 1040-V, 1041-V,
and 2290-V) must be reproduced in conjunction with their forms. Substitute vouchers must be
the same size as the officially printed vouchers. Vouchers that are prepared for printing on a laser
printer may include a scan line.

Bulletin No. 2019–41 881 October 7, 2019
2.3.2
Scan Line
Specifications
NNNNNNNNNAAXXXXNNNNNNNNNNNN
Item:
ABCDEFG
A.Social Security Number/Employer Identification Number (SSN/EIN) has 9 numeric (N)
spaces.
B.Check Digits have 2 alpha (A) spaces.
C.Name Control has 4 alphanumeric (X) spaces.
D.
Master File Tax (MFT) Code has 2 numeric (N) spaces (see Section 2.3.3).
E.Taxpayer Identification Number (TIN) Type has 1 numeric (N) space (see
Section 2.3.4).
F.Tax Period has 6 numeric (N) spaces in year/month format (YYYYMM).
G.Transaction Code has 3 numeric (N) spaces.
2.3.3
MFT Code
Code Number for Forms:
• 1040 (family) – 30,
• 940 – 10,
• 941 – 01,
• 943 – 11,
• 944 – 14,
• 945 – 16,
• 1041-V – 05,
• 2290 – 60, and
• 4868 – 30.
2.3.4
TIN T ype
T
ype Number for:
• Form 1040 (family), 4868 – 0 and
• Forms 940, 941, 943, 944, 945, 1041-V, and 2290 – 2.
2.3.5
Voucher Size
The
voucher size must be exactly 8.0′′ x 3.25′′ (Forms 1040-ES and 1041-ES must be 7.625′′ x
3.0′′). The document scan line must be vertically positioned 0.25 inches from the bottom of the
scan line to the bottom of the voucher. The last character on the right of the scan line must be
placed 3.5 inches from the right leading edge of the document. The minimum required horizontal
clear space between characters is 0.014 inches. The line to be scanned must have a clear band 0.25
inches in height from top to bottom of the scan line, and from border to border of the document.
“Clear band” means no printing except for dropout ink.

October 7, 2019 882 Bulletin No. 2019–41
2.3.6
Print and Paper
Weight
Vouchers must be imaged in black ink using OCR A, OCR B, or Courier 10. These fonts may not
be mixed in the scan line. The horizontal character pitch is 10 CPI. The preferred paper weight is
20 to 24 pound OCR bond.
2.3.7
Specifications for
Software Developers
Certain vouchers may be reproduced for use in the IRS lockbox system. These include the 1040-V,
1040-ES, 1041-V, the 94X family, and 2290 vouchers. Software developers must follow these spe-
cific guidelines to produce scannable vouchers strictly for lockbox purposes. Also see Exhibit A.
• The total depth must be 3.25 inches.
• The scan line must be 0.5 inches from the bottom edge and 1.75 inches from the left edge of the
voucher and left justified.
• Software developers’ vouchers must be 8.5 inches wide (instead of 8 inches with a cut line).
Therefore, no vertical cut line is required.
• Scan line positioning must be exact.
• Do not use the over-the-counter format voucher and add the scan line to it.
• All scanned data must be in 12-point OCR A font.
• The 4-digit NACTP ID code or IRS source code should be placed under the payment indicator
arrow.
• Windowed envelopes must not display the scan line in order to avoid disclosure and privacy
issues.
Note. All software developers must ensure that their software uses OCR A font so taxpayers will
be able to print the vouchers in the correct font.
2.3.8
Specific Line
Positions
Follow these line specifications for entering taxpayer data in the lockbox vouchers.
Start RowStart ColumnWidthEnd Column
Line Specifications for Tax-
payer Data:
Taxpayer Name5663641
Taxpayer Address, Apt.5763641
Taxpayer City, State, ZIP5863641
Foreign Country Name5963641
Foreign Province/Country6061722
Foreign Postal Code60261641
Line Specifications for Mail
To Data:
Mail Name56433880

Bulletin No. 2019–41 883 October 7, 2019
Start RowStart ColumnWidthEnd Column
Mail Address57433880
Mail City, State, ZIP58433880
Line Specifications for:
Scan Line6326n/an/a
2.3.9
How
To Get
Approval
To receive approval, please send in 25 voucher samples yearly for each form type or scenario, by
December 13, 2019, for testing to the following address.
Internal Revenue Service
Attn: Doris Bethea, C5-226
5000 Ellin Road
Lanham, MD 20706
For further information, contact Doris Bethea, Doris.E.Bethea@irs.gov, at 240-613-5922 (not toll
free), or Kathryn Wheelock, Kathryn.F.Wheelock@irs.gov, at 816-499-4443 (not toll free).
Section 2.4 – Restrictions on Changes
2.4.1
What
You Cannot
Do to Forms
Suitable for
Substitute Tax
Forms
You cannot, without prior IRS approval, change any IRS tax form or use your own (nonapproved)
versions including graphics, unless specifically permitted by this revenue procedure. See Sections
2.5.7 to 2.5.11.
You cannot adjust any of the graphics on Form 1040 or 1040-SR (except in those areas specified
in Part 5 of this revenue procedure) without prior approval from the Program.
You cannot rearrange or redistribute data entry fields, and/or allow data entry fields to flow from
one page onto the next (that is, each page of a substitute form must contain the exact number of
data entry fields as there are on the official IRS form). The order of information on the substitute
form must be identical to the IRS version of the form. Publications for specific substitute forms
will state allowances for those respective forms.
Note. The 20-business-day turnaround policy may not apply to extensive changes.
Section 2.5 – Guidelines for Obtaining IRS Approval
2.5.1
Basic Requirements
Preparers who submit substitute privately designed, privately printed, computer-generated, or
computer-prepared tax forms must develop these substitutes using the guidelines established in
this part. These forms, unless there is an exception outlined by the revenue procedure, must be
approved by the IRS before being filed.

October 7, 2019 884 Bulletin No. 2019–41
2.5.2
Conditional
Approval Based on
Advance Drafts
The IRS cannot grant final approval of your substitute form until the official form has been pub-
lished. However, the IRS posts advance draft forms on its website at IRS.gov/DraftForms
We encourage submission of proposed substitutes of these advance draft forms and will grant con-
ditional approval based solely on these early drafts. These advance drafts are subject to significant
change before forms are finalized. If these advance drafts are used as the basis for your substitute
forms, you will be responsible for subsequently updating your final forms to agree with the final
official version. These revisions need not be resubmitted for further approval.
Note. Approval of forms based on advance drafts will not be granted after the final version of an
official form is published.
2.5.3
Submission
Procedures
Follow these general guidelines when submitting substitute forms for approval.
• Any alteration of forms must be within the limits acceptable to the IRS. It is possible that, from
one filing period to another, a change in law or a change in internal need (processing, audit,
compliance, etc.) may change the allowable limits for the alteration of the official form.
• When approval of any substitute form (other than those exceptions specified in Part 1, Section
1.2 – IRS Contacts) is requested, a sample of the proposed substitute form should be emailed
for consideration to the Program at the address shown in Section 1.2.1.
• Schedules and forms (for example, Forms 3468, 4136, etc.) that can be used with more than one
type of return (for example, 1040, 1040-SR, 1041, 1120, etc.) should be submitted only once for
approval, without regard to the number of different tax returns with which they may be associ-
ated. Also, all pages of multi-page forms or returns should be submitted in the same package.
2.5.4
Appr
oving Offices
Because only the Program is authorized to approve substitute forms, unnecessary delays may
occur if forms are sent to the wrong office. You may receive an interim letter about the delay. The
Program may then coordinate the response with the originator responsible for revising that partic-
ular form. Such coordination may include allowing the originator to officially approve the form.
No IRS office is authorized to allow deviations from this revenue procedure.
2.5.5
IRS Review of
Software Programs,
etc.
The IRS does not review or approve the logic of specific software programs, nor does the IRS
confirm the calculations on the forms produced by these programs. The accuracy of the program
remains the responsibility of the software package developer, distributor, or user.
The Program is primarily concerned with the pre-filing quality review of the final forms that are
expected to be processed by IRS field offices. For this purpose, you should submit forms without
including any taxpayer information such as names, addresses, monetary amounts, etc.
If the software used is programmed to produce copies with populated fields, then you must use
dummy information. This will allow the Program to review and provide feedback or approval.
Vendors should use “0” for all number values and “X” for any information that requires alpha
characters.

Bulletin No. 2019–41 885 October 7, 2019
2.5.6
When To Send
Proposed Substitutes
Proposed substitutes, which are required to be submitted per this revenue procedure, should be
sent as much in advance of the filing period as possible. This is to allow adequate time for analysis
and response.
2.5.7
Accompanying
Statement
When submitting sample substitutes, you should include an accompanying statement that lists
each form number and its changes from the official form (position, arrangement, appearance, line
numbers, additions, deletions, etc.). With each of the items, you should include a detailed reason
for the change.
When requesting approval, please include a checksheet. Checksheets expedite the approval pro-
cess. The checksheet may look like the example in Exhibit B displayed in the back of this proce-
dure or may be one of your own design.
Please include your email address on the checksheet.
2.5.8
Approval/
Nonapproval Notice
The Program will email the checksheet or an approval letter to the originator, unless:
• The requester has asked for a formal letter, or
• Significant corrections to the submitted forms are required.
Notice of approval may impose qualifications before using the substitutes. Notices of unapproved
forms may specify the changes required for approval and require resubmission of the form(s) in
question. When appropriate, you will be contacted by telephone.
2.5.9
Duration of
Appr
oval
Most signature tax returns and many of their schedules and related forms have the tax (liability)
year printed in the upper right corner. Approvals for these annual forms are usually good for 1 cal-
endar year (January through December of the year of filing). Quarterly tax forms in the 94X series
and Form 720 require approval for any quarter in which the form has been revised.
Because changes are usually made to an annual form every year, each new filing season generally
requires a new submission of a substitute form. Very rarely is updating the preprinted year the only
change made to an annual form. However, if no significant content, formatting, or layout changes
were made to a tax form, then review and approval received for the prior tax year can be carried
over into the current tax year.
2.5.10
Limited Continued
Use of an Approved
Change
Limited changes approved for one tax year may be allowed for the same form in the following tax
year. Examples are the use of abbreviated words, revised form spacing, compressed text lines, and
shortened captions, etc., which do not change the integrity of lines or text on the official forms.
If the vendor or filer makes substantial changes to the form, new substitutes must be submitted for
approval. If the vendor or filer makes only insubstantial editorial changes to the form, or makes
any changes that mirror changes the IRS makes to the form’s official version, the new substitute
need not be submitted for approval. It is the responsibility of each vendor who has been granted

October 7, 2019 886 Bulletin No. 2019–41
permission to produce substitute forms to monitor and revise forms to mirror any revisions to offi-
cial forms made by the IRS. If there are any questions, please contact the Program.
2.5.11
When
Approval Is
Not Required
If you received approval for a specific change on a form last year, you may make the same change
this year if the item is still present on the official form.
• The new substitute form does not have to be submitted to the IRS and approval based on that
change is not required.
• However, the new substitute form must conform to the official current year IRS form in other
respects: date, Office of Management and Budget (OMB) approval number, attachment se-
quence number, Paperwork Reduction Act Notice statement, arrangement, item caption, line
number, line reference, data sequence, etc.
• The new substitute form must also comply with changes to the guidelines in this revenue proce-
dure. The procedure may have eliminated, added to, or otherwise changed the guideline(s) that
affected the change approved in the prior year.
• An approved change is authorized only for the period from a prior tax year substitute form to a
current tax year substitute form.
Exception. Forms with temporary, limited, or interim approvals (or with approvals that state a
change is not allowed in any other tax year) are subject to review in subsequent years.
2.5.12
Requir
ed Copies
Generally, you must send us one copy of each form being submitted for approval. However, if you
are producing forms for different computer platforms (for example, Microsoft vs. Apple), different
tax preparation software (for example, TurboTax® vs. TaxSlayer®), or different types of printers
(for example, inkjet vs. impact), and these forms differ significantly in appearance, submit one
copy for each type of platform, tax preparation software, or printer.
2.5.13
Requestor’s
Responsibility
Following receipt of an initial approval for a substitute forms package or a software output pro-
gram to print substitute forms, it is the responsibility of the originator (designer or distributor) to
provide client firms or individuals with forms that meet the IRS’s requirements for continuing
acceptability. Examples of this responsibility include:
• Using the prescribed print paper, font size, legibility, state tax data deletion, etc.; and
• Informing all users of substitute forms of the legal requirements of the Paperwork Reduction
Act Notice, which is generally found in the instructions for the official IRS forms.
2.5.14
Sour
ce Code
The Program will assign a unique source code to each firm that submits substitute forms for ap-
proval. This source code will be a permanent identifier that must be used on every submission by
a particular firm.

Bulletin No. 2019–41 887 October 7, 2019
The source code consists of three alpha characters and should generally be printed under or to the
left of the “Paperwork Reduction Act” statement. Vendors must ensure that the source code is not
printed too close to or within the left or bottom 1/2-inch margin to avoid the source code from
being cut off during printing.
Section 2.6 – Office of Management and Budget (OMB) Requirements for All Substitute Forms
2.6.1
OMB
Requir
ements for
All Substitute Forms
There are legal requirements of the Paperwork Reduction Act of 1995 (the Act). Public Law 104-
13 requires the following.
• OMB approves all IRS tax forms that are subject to the Act.
• Each IRS form contains (in the upper right corner) the OMB number, if assigned.
• Each IRS form (or its instructions) states why the IRS needs the information, how it will be
used, and whether or not the information is required to be furnished to the IRS.
This information must be provided to every user of official or substitute IRS forms or instructions.
2.6.2
Application of
the Paperwork
Reduction
Act
On forms that have been assigned OMB numbers:
• All substitute forms must contain in the upper right corner the OMB number that is on the
official form, and
• The required format is: OMB No. 1545-XXXX (preferred) or OMB # 1545-XXXX (accept-
able).
2.6.3
Requir
ed
Explanation to
Users
You must inform the users of your substitute forms of the IRS use and collection requirements
stated in the instructions for official IRS forms.
• If you provide your users or customers with the official IRS instructions, each form must retain
either the Paperwork Reduction Act Notice (or Disclosure, Privacy Act, and Paperwork Reduc-
tion Act Notice), or a reference to it as the IRS does on the official forms (usually in the lower
left corner of the forms).
• This notice reads, in part, “We ask for tax return information to carry out the tax laws of the
United States....”
Note. If no IRS instructions are provided to users of your forms, the exact text of the Paperwork
Reduction Act Notice (or Disclosure, Privacy Act, and Paperwork Reduction Act Notice) must be
furnished separately or on the form.

October 7, 2019 888 Bulletin No. 2019–41
2.6.4
Finding the
OMB Number
and Paperwork
Reduction Act
Notice
The OMB number and the Paperwork Reduction Act Notice, or references to it, may be found
printed on an official form (or its instructions). The number and the notice are included on the
official paper format and in other formats produced by the IRS.
Part 3
Physical Aspects and Requirements
Section 3.1 – General Guidelines for Substitute Forms
3.1.1
General Information
The official form is the standard. Because a substitute form is a variation from the official form,
you should know the requirements of the official form for the year of use before you modify it to
meet your needs. To obtain the most frequently used tax forms, visit IRS.gov/OrderForms.
3.1.2
Design
Each form must follow the design of the official form as to format arrangement, item caption, line
numbers, line references, and sequence.
3.1.3
State Tax
Information
Prohibited
Generally, state tax information must not appear on the federal tax return, associated form, or
schedule that is filed with the IRS. Exceptions occur when amounts are claimed on, or required
by, the federal return (for example, state and local income taxes on Schedule A (Form 1040 or
1040-SR)).
IF a form is to be...
THEN...
manually prepared and the
official IRS form still has a
separate cents entry field
1.the entry column must have a vertical line or some type
of indicator in the amount field to separate dollars from
cents.
2.the cents column must be at least 3/10′′ wide.
computer generated1.vertically align the amount entry fields where possible.
2.use one of the following amount formats.
a) 0,000,000.
b) 0,000,000.00.
computer prepared1.you may remove the vertical line in the amount field
that separates dollars from cents.
2.use one of the following amount formats.
a) 0,000,000.
b) 0,000,000.00.
3.1.4
V
ertical Alignment
of Amount Fields

Bulletin No. 2019–41 889 October 7, 2019
3.1.5
Attachment
Sequence Number
Many individual income tax forms have a required “attachment sequence number” located just be-
low the year designation in the upper right corner of the form. The IRS uses this number to indicate
the order in which forms are to be attached to the tax return for processing. Some of the attachment
sequence numbers may change from year to year.
The following applies to computer-prepared forms.
• The sequence number may be printed in no less than 12-point boldface type and centered below
the form’s year designation.
• The sequence number may also be placed following the year designation for the tax form and
separated with an asterisk.
• The actual number may be printed without labeling it the “Attachment Sequence Number.”
3.1.6
Assembly of Forms
When developing software or forms for use by others, please inform your customers/clients that
the order in which the forms are arranged may affect the processing of the package. A return must
be arranged in the order indicated below.
IF the form is...THEN the sequence is...
1040 or 1040-SRForm 1040 or 1040-SR, and schedules and forms in attachment
sequence number order.
any other tax return
(Form 1120, 1120-S,
1065, 1041, etc.)
the tax returns, directly associated schedules (Schedule D, etc.),
directly associated forms, additional schedules in alphabetical
order, and additional forms in numerical order.
Supporting statements should then follow in the same sequence as the forms they support. Addi-
tional information required should be attached last.
In this way, the forms are received in the order in which they must be processed. If you do not send
returns to the IRS in order, processing may be delayed.
3.1.7
Paid Pr
eparer’s
Information and
Signature Area
On Forms 1040, 1040-SR, 1120, etc., the “Paid Preparer Use Only” area may not be rearranged or
relocated. You may, however, add three extra lines to the paid preparer’s address area, and remove
the horizontal rules in that area without prior approval. This applies to other tax forms as well.
3.1.8
Some Common
Reasons for
Requiring Changes
to Substitute Forms
Some reasons that substitute form submissions may require changes include the following.
• Shading areas incorrectly.
• Failing to include a reference to the location of the Paperwork Reduction Act Notice.
• Not including parentheses for losses.
• Not including “Attach Statement” when appropriate.
• Including line references or entry spaces that do not match the official form.

October 7, 2019 890 Bulletin No. 2019–41
• Printing text that is different from the official form.
• Altering the jurat (perjury statement).
• Having an incorrect OMB number.
• Including the IRS catalog number (Cat. No.) on the form.
• Failing to include preprinted amounts in entry fields.
• Missing IRS source code or NACTP software ID.
• Incorrect dimensions.
Section 3.2 – Paper
3.2.1
Paper
Content
The paper must be:
• Chemical wood writing paper that is equal to or better than the quality used for the official form,
• At least 18 pound (17′′ x 22′′, 500 sheets), or
• At least 50 pound offset book (25′′ x 38′′, 500 sheets).
3.2.2
Paper
With
Chemical Transfer
Properties
There are several kinds of paper prohibited for substitute forms. These are:
1. Carbon-bonded paper, and
2. Chemical transfer paper except when the following specifications are met.
a. Each ply within the chemical transfer set of forms must be labeled.
b. Only the top ply (ply one and white in color), the one that contains chemical on the back only
(coated back), may be filed with the IRS.
Example. A set containing three plies would be constructed as follows: ply one (coated back),
“Federal Return, File with IRS”; ply two (coated front and back), “Taxpayer’s copy”; and ply three
(coated front), “Preparer’s copy.”
The file designation, “Federal Return, File with IRS” for ply one, must be printed in the bottom
right margin (just below the last line of the form) in 12-point boldface type.
It is not mandatory, but recommended, that the file designation “Federal Return, File with IRS” be
printed in a contrasting ink for visual emphasis.

Bulletin No. 2019–41 891 October 7, 2019
3.2.3
Paper and Ink Color
It is preferred that the color and opacity of paper substantially duplicates that of the original form.
This means that your substitute must be printed in black ink and may be on white or on the colored
paper the IRS form is printed on. Form 1040 or 1040-SR substitute reproductions may be in black
ink without the colored shading. The only exception to this rule is Form 1041-ES, which should be
printed with a PMS 100 yellow shading in the color screened area. This is necessary to assist us in
expeditiously separating this form from the very similar Form 1040-ES.
3.2.4
Page Size
Substitute or reproduced forms and computer-prepared/-generated substitutes may be the same
size as the official form or they may be the standard commercial size (8 1/2′′ x 11′′). The thickness
of the stock cannot be less than 0.003 inches.
Section 3.3 – Printing
3.3.1
Printing Medium
The private printing of all substitute tax forms must be by conventional printing processes, photo-
copying, computer graphics, or similar reproduction processes.
3.3.2
Legibility
All forms must have a high standard of legibility as to printing, reproduction, and fill-in matter.
Entries of taxpayer data may be no smaller than 8 points. The IRS reserves the right to reject those
with poor legibility. The ink and printing method used must ensure that no part of a form (includ-
ing text, graphics, data entries, etc.) develops “smears” or similar quality deterioration. This stan-
dard must be followed for any subsequent copies or reproductions made from an approved master
substitute form, either during preparation or during IRS processing.
3.3.3
Type Font
Many federal tax forms are printed using “Helvetica” as the basic type font. It is preferred that you
use this type font when composing substitute forms.
3.3.4
Print Spacing
Substitute forms should be printed using a 6 lines/inch vertical print option. They also should be
printed horizontally in 10-pitch pica (that is, 10 print characters per inch) or 12-pitch elite (that is,
12 print positions per inch).
3.3.5
Image Size
The image size of a printed substitute form should be as close as possible to that of the official
form. You may omit any text on both computer-prepared and computer-generated forms that is
solely instructional.

October 7, 2019 892 Bulletin No. 2019–41
3.3.6
Title Area Changes
To allow a large top margin for marginal printing and more lines per page, the title line(s) for all
substitute forms (not including the form’s year designation and sequence number, when present)
may be photographically reduced by 40% or reset as one line of type. When reset as one line, the
type size may be no smaller than 14-point. You may omit “Department of the Treasury—Internal
Revenue Service” and all reference to instructions in the form’s title area.
3.3.7
Remove
Government
Printing Office
Symbol and IRS
Catalog Number
When privately printing substitute tax forms, the Government Printing Office (GPO) symbol and/
or jacket number must be removed. In the same place using the same type size, print the Employer
Identification Number (EIN) of the printer or designer or the IRS-assigned source code. (We prefer
this last number be printed in the lower left area of the first page of each form.) Also, remove the
IRS catalog number (Cat. No.) and the recycle symbol if the substitute is not produced on recycled
paper.
3.3.8
Printing Single Page
Forms
Substitute single page forms should be reproduced the same as IRS single page forms. Other forms
or schedules should not be printed on the back or on blank portions of a single page form. How-
ever, printing instructions on the back or on blank portions of a single page form is acceptable.
3.3.9
Photocopy
Equipment
The IRS does not undertake to approve or disapprove the specific equipment or process used in re-
producing official forms. Photocopies of forms must be entirely legible and satisfy the conditions
stated in this and other revenue procedures.
3.3.10
Reproductions
Reproductions of official forms and substitute forms that do not meet the requirements of this
revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject
to being returned to the filer for resubmission of legible copies.
3.3.11
Removal of
Instructions
Generally, you may remove references to instructions. No prior approval is needed. However, in
some instances, you may be requested to include references to instructions.
Exception. The words “For Paperwork Reduction Act Notice, see instructions” must be retained,
or a similar statement indicating the location of the Notice must be provided on each form.
Section 3.4 – Margins
3.4.1
Margin Size
The format of a reproduced tax form when printed on the page must have margins on all sides at
least as large as the margins on the official form. This allows room for IRS employees to make
necessary entries on the form during processing.

Bulletin No. 2019–41 893 October 7, 2019
• A ½-inch to ¼-inch margin must be maintained across the top, bottom, and both sides of all
substitute forms.
• The marginal, perforated strips containing pin-fed holes must be removed from all forms prior
to filing with the IRS.
3.4.2
Marginal Printing
Prior approval is not required for the marginal printing allowed when printed on an official form
or on a photocopy of an official form.
• With the exception of the actual tax return forms (for example, Forms 1040, 1040-SR, 1120,
940, 941, etc.), you may print in the left vertical margin and in the left half of the bottom margin.
• Printing is never allowed in the top right margin of the tax return form (for example, Forms
1040, 1040-SR, 1120, 940, 941, etc.). The IRS uses this area to imprint a Document Locator
Number for each return. There are no exceptions to this requirement.
Section 3.5 – Miscellaneous Information for Substitute Forms
3.5.1
Filing Substitute
Forms
To be acceptable for filing, a substitute form must print out in a format that will allow the filer to
follow the same instructions that accompany official forms.
The form must be legible, must be on the appropriately sized paper, and must include a jurat (per-
jury statement) where one appears on the published form.
3.5.2
Caution to Softwar
e
Publishers
The IRS has received returns produced by software packages with approved output where either
the form heading was altered or the lines were spaced irregularly. This produces an illegible or
unrecognizable return or a return with the wrong number of pages. We realize that many of these
problems are caused by individual printer differences but they may delay input of return data and,
in some cases, generate correspondence to the taxpayer. Therefore, in the instructions to the pur-
chasers of your product, both individual and professional, please stress that their returns will be
processed more efficiently if they are properly formatted. This includes:
• Having the correct form numbers, six-digit form identifying numbers, and titles at the top of
the return; and
• Submitting the same number of pages as if the form were an official IRS form with the line
items on the proper pages.
3.5.3
Caution to
Pr
oducers of
Software Packages
If you are producing a software package that generates name and address data onto the tax re-
turn, do not, under any circumstances, program either the IRS preprinted check digits or a practi-
tioner-derived name control to appear on any return prepared and filed with the IRS.

October 7, 2019 894 Bulletin No. 2019–41
3.5.4
Programming to
Print Forms
Whenever applicable:
• Use only the following label information format for single filers: JOHN Q. DOE 000 OAK
DRIVE HOMETOWN, STATE 00000
• Use only the following information for joint filers: JOHN Q. DOE MARY Q. DOE 000 OAK
DRIVE HOMETOWN, STATE 00000
• Use “0” for number values and “X” for alpha characters entered in data entry fields as dummy
copy.
Part 4
Additional Resources
Section 4.1 – Guidance From Other Revenue Procedures
4.1.1
General
The IRS publications listed below provide guidance for substitute tax forms not covered in this
revenue procedure. These publications are available on the IRS website. Use the publication num-
ber listed below to search for the requested document.
• Pub. 1141, General Rules and Specifications for Substitute Forms W-2 and W-3.
• Pub. 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and
Certain Other Information Returns.
• Pub. 1223, General Rules and Specifications for Substitute Forms W-2c and W-3c.
• Pub. 4436, General Rules and Specifications for Substitute Form 941, Schedule B (Form 941),
Schedule D (Form 941), Schedule R (Form 941), and Form 8974.
• Pub. 5223, General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A,
1094-B, 1095-B, 1094-C, and 1095-C.
Section 4.2 – Electronic Tax Products
4.2.1
The IRS
Website
Copies of tax forms, their instructions, publications, fillable forms, and prior year forms and pub-
lications, may be found on the IRS website at IRS.gov/FormsPubs.
Draft forms and instructions may be found at IRS.gov/DraftForms.
Other tax-related information may be found at IRS.gov.

Bulletin No. 2019–41 895 October 7, 2019
4.2.2
System
Requirements and
Ordering Forms and
Instructions
For system requirements, contact the National Technical Information Service (NTIS) at NTIS.gov.
Prices are subject to change.
You can order IRS forms and other tax material at IRS.gov/OrderForms.
Part 5
Requirements for Specific Tax Returns
Section 5.1 – Tax Returns (Forms 1040, 1040-SR, 1120, etc.)
5.1.1
Acceptable Forms
Tax return forms (such as Forms 1040, 1040-SR, and 1120) require a signature and establish tax
liability. Computer-generated versions are acceptable under the following conditions.
• These substitute forms must be printed on plain white paper.
• Substitute forms must conform to the physical layout of the corresponding IRS form although
the typeface may differ. The text should match the text on the officially published form as close-
ly as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
Caution. All jurats (perjury statements) must be reproduced verbatim. No text can be added,
deleted, or changed in meaning.
• Various computer graphic print media such as laser printing, inkjet printing, etc., may be used
to produce the substitute forms.
• The substitute form must be the same number of pages and contain the same line text as the
official form.
• All substitute forms must be submitted for approval prior to their original use. You do not need
approval for a substitute form if its only change is the preprinted year and you had received a
prior year approval letter. Exception. If the approval letter specifies a one-time exception for
your form, the next year’s form must be approved.
5.1.2
Pr
ohibited Forms
The following are prohibited.
• Computer-generated tax forms (for example, Form 1040, 1040-SR, etc.) on lined or color-barred
paper.
• Tax forms that differ from the official IRS forms in a manner that makes them nonstandard or
unable to process.
5.1.3
Changes Permitted
to Form 1040
Certain changes (listed in Section 5.2) are permitted to the graphics of the form without prior ap-
proval, but these changes apply to only acceptable preprinted forms. Changes not requiring prior
approval are good only for the annual filing period, which is the current tax year. Such changes are
valid in subsequent years only if the official form does not change.

October 7, 2019 896 Bulletin No. 2019–41
5.1.4
Other Changes Not
Listed
All changes not listed in Section 5.2 require approval from the IRS before the form can be filed.
Section 5.2 – Changes Permitted to Graphics (Form 1040 or 1040-SR)
5.2.1
Adjustments
You may make minor vertical and horizontal spacing adjustments to allow for computer or word
processing printing. This includes widening the amount columns or tax entry areas if the adjust-
ments comply with other provisions stated in revenue procedures. No prior approval is needed for
these changes.
Schedules 1–3 cannot be combined for filing purposes. For the client copy of the return, the num-
bered schedules may be printed two to a page (for example, Schedule 3 below Schedule 2, if both
are completed as part of the return). If numbered schedules are combined on the client copy, it must
include a statement that it is “Not for Filing.”
5.2.2
Name and Address
Area
The horizontal rules and instructions within the name and address area may be removed and the
entire area left blank. No line or instruction can remain in the area. The heavy-ruled border (when
present) that outlines the name, address area, and social security number must not be removed,
relocated, expanded, or contracted.
5.2.3
Required Format
When the name and address area is left blank, the following format must be used when printing
the taxpayer’s name and address.
• 1st name line (35 characters maximum).
• 2nd name line (35 characters maximum).
• In-care-of name line (35 characters maximum).
• City, state (25 characters maximum), one blank character, and ZIP code.
5.2.4
Conventional Name
and
Address Data
When there is no in-care-of name line, the name and address will consist of only three lines (single
filer) or four lines (joint filer). Name and address (joint filer) with no in-care-of name line:
JOHN Q. DOE
MARY Q. DOE
000 ANYWHERE ST., APT. 000
ANYTOWN, STATE 00000

Bulletin No. 2019–41 897 October 7, 2019
Example of in-care-of name line. Name and address (single filer) with in-care-of name line:
JOHN Q. DOE
C/O JOHN R. DOE
0000 SOMEWHERE AVE.
SAMETOWN, STATE 00000
5.2.5
SSN and Employer

Identification
Number (EIN) Area
The broken vertical lines separating the format arrangement of the SSN/EIN may be removed.
When the vertical lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-
0000000, respectively.
5.2.6
Entering Cents
• You may remove the vertical rule that separates the dollars from the cents if it is still included
on the official IRS form.
• All entries in the amount column should have a decimal point following the whole dollar
amounts whether or not the vertical line that separates the dollars from the cents is present.
• You may omit printing the cents, but all amounts entered on the form must follow a consistent
format. You are strongly urged to round off the figures to whole dollar amounts, following the
official form instructions.
• When several amounts are added together, the total should be rounded off after addition (that is,
individual amounts should not be rounded off for computation purposes).
• When printing money amounts, you must use one of the following formats: (a) 0,000,000; (b)
0,000,000.00.
• When there is no entry for a line, leave the line blank.
5.2.7
Changes to Lines
No prior approval is needed for the following changes (for use with computer-prepared forms
only). Specific line numbers in the following headings may have changed due to tax law changes.
5.2.8
Dependents on
Form 1040
The vertical lines separating columns (1) through (4) may be removed. The captions may be short-
ened to allow a one-line caption for each column.
5.2.9
Other
Lines
Any other line with text that takes up two or more vertical lines may be compressed to one line by
using contractions, etc., and by removing instructional references.

October 7, 2019 898 Bulletin No. 2019–41
5.2.10
Form 1040 – Tax
You may change the line caption to read “Tax” and computer print the words “Total includes tax
from” and either “Form(s) 8814” or “Form 4972” or “962 election.” If both forms are used, print
both form numbers. This specific line number may have changed.
5.2.11
Color Screening
It is not necessary to duplicate the color screening used on the official form. A substitute Form
1040 or 1040-SR may be printed in black and white only with no color screening.
5.2.12
Other Changes
Prohibited
No other changes to the Form 1040 or 1040-SR graphics are permitted without prior approval
except for the removal of instructions and references to instructions.
Part 6
Format and Content of Substitute Returns
Section 6.1 – Acceptable Formats for Substitute Forms and Schedules
6.1.1
Exhibits and Use of
Acceptable Formats
Exhibit A is an acceptable format for Form 1040-ES.
• If your computer-generated Form 1040-ES appears exactly like Exhibit A, no prior authoriza-
tion is needed.
• You may computer-generate forms not shown here, but you must design them by following the
manner and style discussed in Part 3.
• Take care to observe other requirements and conditions in this revenue procedure. The IRS
encourages the submission of all proposed forms covered by this revenue procedure.
6.1.2
Instructions
The format of each substitute form or schedule must follow the format of the official form or
schedule as to item captions, line references, line numbers, sequence, form arrangement and for-
mat, etc. Basically, try to make the form look like the official one, with readability and consistency
being primary factors. You may use periods and/or other similar special characters to separate the
various parts and sections of the form. Do not use alpha or numeric characters for these purposes.
All line numbers and items must be printed even though an amount is not entered on the line.
6.1.3
Line Numbers
When a line on an official form is designated by a number or a letter, that designation (reference
code) must be used on a substitute form. The reference code must be printed to the left of the text
of each line and immediately preceding the data entry field, even if no reference code precedes
the data entry field on the official form. If an entry field contains multiple lines and shows the line
references once on the left and right side of the form, use the same number of line references on
the substitute form.

Bulletin No. 2019–41 899 October 7, 2019
In addition, the reference code that is immediately before the data field must either be followed
by a period or enclosed in parentheses. There must also be at least two blank spaces between the
period or the right parenthesis and the first digit of the data field. (See Section 6.1.4.)
6.1.4
Decimal Points
A decimal point (a period) should be used for each money amount regardless of whether the amount
is reported in dollars and cents or in whole dollars, or whether or not the vertical line that separates
the dollars from the cents is present. The decimal points must be vertically aligned when possible.
Example:
5 State and local taxes
a State and local income taxes.....................5a.000.00
b State and local real estate taxes................5b.
c State and local personal property taxes....5c.000.00
or
a State and local income taxes.....................(5a)000.00
b State and local real estate taxes................(5b)
c State and local personal property taxes....(5c)000.00
6.1.5
Multi-Page Forms
When submitting a multi-page form, send all its pages in the same package. If you will not be
producing certain pages, please note that in your cover letter.
Section 6.2 – Additional Instructions for All Forms
6.2.1
Use of
Your Own
Internal Control
Numbers and
Identifying Symbols
You may show the computer-prepared internal control numbers and identifying symbols on the
substitute if using such numbers or symbols is acceptable to the taxpayer and the taxpayer’s rep-
resentative. Such information must not be printed in the top 1/2-inch clear area of any form or
schedule requiring a signature.
Except for the actual tax return form (Forms 1040, 1040-SR, 1120, 940, 941, etc.), you may print
in the left vertical and bottom left margins. The bottom left margin you may use extends 31/2 inch-
es from the left edge of the form. You may print internal control numbers in place of the removed
IRS catalog number.
6.2.2
Required Software
ID Number (Source
Code) on Computer-
Prepared Substitutes
In the February 2009 Government Accountability Office (GAO) report, “Many Taxpayers Rely on
Tax Software and IRS Needs to Assess Associated Risks” (GAO-09-297), the GAO recommend-
ed that the IRS require a software identification number on all individual returns to specifically
identify the software package used to prepare each tax return. The IRS already has this capability
for all e-filed returns. In addition, many tax preparation software firms already print an IRS-issued
3-letter Source Code on paper returns that are generated by their individual tax software. This
Source Code was assigned when the firms were seeking substitute forms approval under this cur-
rent publication.

October 7, 2019 900 Bulletin No. 2019–41
In order to respond properly to this GAO recommendation, the IRS will require all tax preparation
software firms to include the 3-letter Source Code on all paper tax returns created by their individ-
ual tax preparation software. The many firms that currently have and display their Source Code on
paper returns generated from their software should continue to do so, and no change is necessary.
We have reviewed all software companies that passed Assurance Testing System (ATS) testing
last filing season and have determined that some firms do not currently have a Source Code. To
save you the burden of contacting us and for your convenience, we have assigned Source Codes
to those firms.
You should program your Source Code to be placed in the bottom left-hand corner of page one of
each paper form that will be generated by your individual tax return package. You do not need to
apply for a new Source Code annually.
If you already use a 3-letter Source Code and we have issued you one in error, you are unsure if
you were ever issued one, or have other questions or concerns, you may contact Tax Forms and
Publications Special Services Section at substituteforms@irs.gov.
6.2.3
Descriptions for

Captions, Lines, etc.
Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print
line by using abbreviations and contractions, and by omitting articles, prepositions, etc. However,
sufficient keywords must be retained to permit ready identification of the caption, line, or item.
6.2.4
Determining Final
Totals
Explanatory detail and/or intermediate calculations for determining final line totals may be in-
cluded on the substitute. We prefer that such calculations be submitted in the form of a supporting
statement. If intermediate calculations are included on the substitute, the line on which they appear
may not be numbered or lettered. Intermediate calculations may not be printed in the right column.
This column is reserved only for official numbered and lettered lines that correspond to the ones on
the official form. Generally, you may choose the format for intermediate calculations or subtotals
on supporting statements to be submitted.
6.2.5
Instructional Text
on the Official Form
Text on the official form, which is solely instructional (for example, “See instructions,” etc.), may
generally be omitted from the substitute form.
6.2.6
Intermingling Is
Prohibited
Showing more than one form or schedule on the same printout page is prohibited. Both sides of the
paper may be used for multi-page forms, but it is unacceptable to intermingle forms.
For instance, Schedule E can be printed on both sides of the paper because the official form is
multi-page, with page 2 continued on the back. However, do not print Schedule E on the front page
and Schedule SE on the back, or Schedule A on the front and Form 8615 on the back, etc. Both
pages of a substitute form must match the official form. The back page may be left blank if the
back page of the official form contains only the instructions.

Bulletin No. 2019–41 901 October 7, 2019
6.2.7
Identifying
Substitutes
Identify all computer-prepared substitutes clearly. Print the form designation 1/2 inch from the top
margin and 1½ inches from the left margin. Print the title centered on the first line of print. Print
the tax year and, where applicable, the sequence number on the same line 1/2 inch to 1 inch from
the right margin.
Include the taxpayer’s name and SSN on all forms and attachments. Also, print the OMB number
as reflected on the official form.
6.2.8
Negative Amounts
Negative (or loss) amount entries should be enclosed in brackets or parentheses or include a minus
sign. This assists in accurate computation and input of form data. The IRS preprints parentheses
in negative data fields on many official forms. These parentheses should be retained or inserted on
printouts of affected substitute forms.
Part 7
Miscellaneous Forms and Programs
Section 7.1 – Specifications for Substitute Schedules K-1
7.1.1
Requirements for
Schedules K-1 That
Accompany Forms
1041, 1065, and
1120-S
Because of significant changes to improve processing, prior approval is now required for substitute
Schedules K-1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships),
or Form 1120-S (for S corporations). Substitute Schedules K-1 should be as close as possible to
exact replicas of copies of the official IRS schedules and follow the same process for submitting
other substitute forms and schedules. Before releasing their substitute forms, software vendors are
responsible for making any subsequent changes that have been made to the final official IRS forms
after the draft forms have been posted.
Submit substitute Schedule K-1 forms, in PDF format, to scrips@irs.gov for scannability accep-
tance. Schedule K-1 forms that require testing do not need to be mailed to the Program. You must
include information on the substitute that can be tested. This information should be dummy infor-
mation. Use an “X” for alpha characters and “0” for numbers. The IRS will review and provide
feedback of any changes needed so that your forms can be recognized correctly.
Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and
1120-S. Please allow at least 1/4 inch of white space around the 6-digit code.
• 661117 for Form 1041.
• 651119 for Form 1065.
• 671119 for Form 1120-S.
Schedules K-1 that accompany Forms 1041, 1065, or 1120-S must meet all specifications. The
specifications include, but are not limited to, the following requirements.
• You will no longer be able to produce Schedules K-1 that contain only those lines or boxes that
taxpayers are required to use. All lines must be included.

October 7, 2019 902 Bulletin No. 2019–41
• The words “*See attached statement for additional information.” must be preprinted in the low-
er right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
• All Schedules K-1 that are filed with the IRS should be printed on standard 8.5” x 11” paper (the
international standard (A4) of 8.27” x 11.69” may be substituted).
• 10-point Helvetica Light Standard is preferred for all entries that are typed or made using a
computer.
• Submissions should include IRS source code or NACTP vendor ID code printed on the lower
left corner of the form or in place of the IRS catalog number.
• Each recipient’s information must be on a separate sheet of paper. Therefore, you must separate
all continuously printed substitutes, by recipient, before filing with the IRS.
• No carbon copies or pressure-sensitive copies will be accepted.
• The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity (estate,
trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).
• The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the
related form number (1041, 1065, or 1120-S), and the official schedule name in substantially
the same position and format as shown on the official IRS schedule.
• The Schedule K-1 must contain all the line items as shown on the official form, except for the
instructions, if any are printed on the back of the official Schedule K-1.
• The line items or boxes must be in the same order and arrangement as those on the official form.
• The amount of each recipient’s share of each item must be shown. A partial percent should be
reflected as a decimal (for example, 50 1/2% should be 50.5%). Furnishing a total amount of
each item and a percentage (or decimal equivalent) to be applied to such total amount by the
recipient does not satisfy the law and the specifications of this revenue procedure.
• State or local tax-related information may not be included on the Schedules K-1 filed with the
IRS.
• The entity may have to pay a penalty if substitute Schedules K-1 are filed that do not conform
to specifications.
• Additionally, the IRS may consider the Schedules K-1 that do not conform to specifications as
not being able to be processed and may return Forms 1041, 1065, or 1120-S to the filer to be
filed correctly.
Schedules K-1 that are 2-D bar-coded will continue to require prior approval from the IRS (see
Sections 7.1.3 through 7.1.5).
7.1.2
Special
Requir
ements for
Recipient Copies of
Schedules K-1
Standardization for reporting information is required for recipient copies of substitute Schedules
K-1 of Forms 1041, 1065, and 1120-S. Uniform visual standards are provided to increase com-
pliance by allowing recipients and practitioners to more easily recognize a substitute Schedule
K-1. The entity must furnish to each recipient a copy of Schedule K-1 that meets the following
requirements.

Bulletin No. 2019–41 903 October 7, 2019
• Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and
1120-S. Please allow white space around the 6-digit code.
– 661117 for Form 1041.
– 651119 for Form 1065.
– 671119 for Form 1120-S.
• You will no longer be able to produce Schedules K-1 that contain only those lines or boxes that
taxpayers are required to use. All lines must be included.
• The words “*See attached statement for additional information.” must be preprinted in the low-
er right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
• The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity and re-
cipient.
• The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the
related form number (1041, 1065, or 1120-S), and the official schedule name in substantially
the same position and format as shown on the official IRS schedule.
• All applicable amounts and information required to be reported must be titled and numbered
in the same manner as shown on the official IRS schedule. The line items or boxes must be in
the same order and arrangement and must be numbered like those on the official IRS schedule.
• The Schedule K-1 must contain all items required for use by the recipient. The instructions for
the schedule must identify the line or box number and code, if any, for each item as shown in
the official IRS schedule.
• The amount of each recipient’s share of each item must be shown. A partial percent should be
reflected as a decimal (for example, 50 1/2% should be 50.5%). Furnishing a total amount of
each line item and a percentage (or decimal equivalent) to be applied to such total amount by
the recipient does not satisfy the law and the specifications of this revenue procedure.
• Instructions to the recipient that are substantially similar to those on or accompanying the offi-
cial IRS schedule must be provided to aid in the proper reporting of the items on the recipient’s
income tax return. Where items are not reported to a recipient because they do not apply, the
related instructions may be omitted.
• The quality of the ink or other material used to generate recipients’ schedules must produce
clearly legible documents. In general, black chemical transfer inks are preferred.
• In order to assure uniformity of substitute Schedules K-1, the paper size should be standard 8.5”
x 11” (the international standard (A4) of 8.27” x 11.69” may be substituted).
• The paper weight, paper color, font type, font size, font color, and page layout must be such that
the average recipient can easily decipher the information on each page. The preferred font is
“Helvetica” and a minimal of 10-point font.
• State or local tax-related information may be included on recipient copies of substitute Sched-
ules K-1. All non-tax-related information should be separated from the tax information on the
substitute schedule to avoid confusion for the recipient.
• The legend “Important Tax Return Document Enclosed” must appear in a bold and conspicuous
manner on the outside of the envelope that contains the substitute recipient copy of Schedule
K-1.

October 7, 2019 904 Bulletin No. 2019–41
• The entity may have to pay a penalty if a substitute Schedule K-1 furnished to any recipient does
not conform to the specifications of this revenue procedure and results in impeding processing.
7.1.3
Requir
ements for
Schedules K-1 With
Two- Dimensional
(2-D) Bar Codes
Electronic filing is now and will continue to be the preferred method of filing; however, 2-D bar
code is the best alternative method for paper processing.
In an effort to improve efficiency and increase data accuracy, the IRS partnered with the tax soft-
ware development community on a two-dimensional bar code project in 2003. Certain tax soft-
ware packages have been modified to generate 2-D bar codes on Schedules K-1. As a result, when
Schedules K-1 are printed using these programs, a bar code will print on the page.
Rather than manually transcribe information from the Schedule K-1, the IRS will scan the bar code
and electronically upload the information from the Schedule K-1. The results will be more efficient
operation within the IRS and fewer transcription errors for your clients.
Note. If software vendors do not want to produce bar-coded Schedules K-1, they may produce the
official IRS Schedules K-1 but cannot use the expedited process for approving bar-coded Sched-
ules K-1 and their parent returns as outlined in Section 7.1.6.
In addition to the requirements in Sections 7.1.1 and 7.1.2, the bar-coded Schedules K-1 must meet
the following specifications.
• The bar code should print in the space labeled “For IRS Use Only” on each Schedule K-1. The
entire bar code must print within the “For IRS Use Only” box surrounded by a white space of
at least ¼ inch.
• Bar codes must print in PDF 417 format.
• The bar codes must always be in the specified format with every field represented by at least a
field delimiter (carriage return). Leaving out a field in a bar code will cause every subsequent
field to be misread.
• Be sure to include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041,
1065, and 1120-S. Please allow white space around the 6-digit code.
– 661117 for Form 1041.
– 651119 for Form 1065.
– 671119 for Form 1120-S.
7.1.4
2-D Bar
Code
Specifications for
Schedules K-1
Follow these general specifications for preparing all 2-D bar-coded Schedules K-1.
• Numeric fields.
– Do not include leading zeros (except Taxpayer Identification Numbers, ZIP codes, and per-
centages).
– If negative value, the minus sign “–” must be present immediately to the left of the number
and part of the 12 position field.

Bulletin No. 2019–41 905 October 7, 2019
– Do not use non-numeric characters except that the literal “STMT” can be put in money fields.
– All money fields should be rounded to the nearest whole dollar amount—if a money amount
ends in 00 to 49 cents, drop the cents; if it ends in 50 to 99 cents, truncate the cents and in-
crement the dollar amount by one. Use the same rounding technique for the bar-coded and
the printed Schedules K-1.
– All numeric-only fields are right justified (except Taxpayer Identification Numbers and Zip
codes).
• All field lengths are expressed as maximum lengths. If the value in the field has fewer positions
or the software program does not support that many positions, put in the bar code only those
positions actually used.
• Alpha fields.
– Do not include leading blanks (left justified).
– Do not include trailing blanks.
– Use uppercase alpha characters only.
• Variable fields.
– Do not include leading blanks (left justified).
– Do not include trailing blanks.
– Use uppercase alpha characters, numerics, and special characters as defined in each field.
• Delimit each field with a carriage return.
• Express percentages as 6-digit numbers without the percent sign. Left justify with leading ze-
ro(s) (for percentages less than 100%) and no decimal point (decimal point is assumed be-
tween 3rd and 4th positions). Examples: 25.32% expressed as “025320”; 105% expressed as
“105000”; 8.275% expressed as “008275”; 10.24674% expressed as “010247.”
• It is vital that the print routine reinitialize the bar code prior to printing each succeeding Sched-
ule K-1. Failure to do this will result in each Schedule K-1 for a parent return having the same
bar code as the document before it.
7.1.5
Appr
oval Process
for Bar- Coded
Schedules K-1
Prior to releasing commercially available tax software that creates bar-coded Schedules K-1, the
printed schedule and the bar code must both be tested. If your company is creating bar-coded
Schedules K-1, you must receive certification for both the printed Schedule K-1, as well as the bar
code before offering your product for sale. Bar-code testing must be done using the final official
IRS Schedule K-1. Bar-code approval requests must be resubmitted for any subsequent changes
to the official IRS form that would affect the bar code. Below are instructions and a sequence of
events that will comprise the testing process.
• The IRS has released the final Schedule K-1 bar-code specifications by publishing them on the
IRS.gov website (see IRS.gov/E-file-Providers/ K-1-Bar-Code-Certification-Process).
• The IRS will publish a set of test documents that will be used to test the ability of tax prepara-
tion software to create bar codes in the correct format.

October 7, 2019 906 Bulletin No. 2019–41
• Software developers will submit two identical copies of the test documents—one to the IRS and
one to a contracted testing vendor.
• The IRS will use one set to ensure the printed schedules comply with standard substitute forms
specifications.
• If the printed forms fail to meet the substitute form criteria, the IRS will inform the software
developer of the reason for noncompliance.
• The software developer must resubmit the Schedule(s) K-1 until they pass the substitute forms
criteria.
• The testing vendor will review the bar codes to ensure they meet the published bar-code spec-
ifications.
• If the bar code(s) does not meet published specifications, the testing vendor will contact the
software developer directly informing them of the reason for noncompliance.
• Software developers must submit new bar-coded schedules until they pass the bar-code test.
• When the bar code passes, the testing vendor will inform the IRS that the developer has passed
the bar-code test and the IRS will issue an overall approval for both the substitute form and the
bar code.
• After receiving this consolidated response, the software vendor is free to release software for
tax preparation as long as any subsequent revisions to the schedules do not change the fields.
• Find the mailing address for the testing vendor below. Separate and simultaneous mailings to
the IRS and the vendor will reduce testing time.
7.1.6
Pr
ocedures for
Reducing Testing
Time
In order to help provide incentives to the software development community to participate in the
Schedule K-1 2-D project, the IRS has committed to expediting the testing of bar-coded Schedules
K-1 and their associated parent returns. To receive this expedited service, follow the instructions
below.
• Mail the parent returns (Forms 1065, 1120-S, 1041) and associated bar-coded Schedule(s) K-1
to the appropriate address below in a separate package from all other approval requests.
Internal Revenue Service
Attn: Bar-Coded K-1
SE:W:CAR:MP:T:M:S, IR-6526
1111 Constitution Ave. NW
Washington, DC 20224
• Mail one copy of the parent form(s) and Schedule(s) K-1 to the IRS and another copy to the
testing vendor at the address below.
Leidos-IRS Paper and Remittance
Processing Support (PRPS II)
Attn: Dana Hawkins
4701 Forbes Blvd.
Lanham, MD 20706

Bulletin No. 2019–41 907 October 7, 2019
• Include multiple email and phone contact points in the packages.
• While the IRS can expedite bar-coded Schedules K-1 and their associated parent returns, it
cannot expedite the approval of nonassociated tax returns.
• Vendors are encouraged to visit NACTP.org for compliance guidelines in regards to mil size and
error-correction level.
• Submissions should include IRS source code or NACTP vendor ID code printed on the lower
left corner of the form or in place of the IRS catalog number.
• If a change is made to the bar code after approval, be sure to increment the version number.
Section 7.2 – Guidelines for Substitute Forms 8655
7.2.1
Incr
eased
Standardization for
Forms 8655
Increased standardization for reporting information on substitute Forms 8655 is now required to
aid in processing and for compliance purposes. Please follow the guidelines in Section 7.2.2.
7.2.2
Requirements for
Substitute Forms
8655
Please follow these specific requirements when producing substitute Forms 8655.
• The first line of the title must be “Reporting Agent Authorization.”
• If you want to include a reference to “State Limited Power of Attorney,” it can be in parentheses
under the title. “State” must be the first word within the parentheses.
• You must include “Form 8655” on the form.
• While the line numbers do not have to match the official form, the sequence of the information
must be in the same order.
• The size of any variable data must be printed in a font no smaller than 10-point.
• For adequate disclosure checks, the following must be included for each taxpayer.
– Name.
– EIN.
– Address.
• At this time, Form 944 will not be required if Form 941 is checked. Only those forms that the
reporting agent company supports need to be listed.
• The jurat (perjury statement) must be identical with the exception of references to line numbers.
• A contact name and number for the reporting agent is not required.
• Any state information included should be contained in a separate section of the substitute form.
Preferably, this information will be in the same area as line 19 of the official form.

October 7, 2019 908 Bulletin No. 2019–41
• All substitute Forms 8655 must be approved by the Program as outlined in the Form 8655 spec-
ifications in this current publication.
• If you have not already been assigned a 3-letter Source Code, you will be given one when your
substitute form is submitted for approval. This Source Code should be included in the lower
left corner of the form.
• The 20-business-day assumed approval policy does not apply to Form 8655 approvals.
7.2.3
Exception for
Form
8655
Because of how Form 8655 is processed and distributed to recipients, vendors are allowed to affix
their logo onto the substitute version of the form. This exception is for Form 8655 only.
Part 8
Additional Information
Section 8.1 – Forms for Electronically Filed Returns
8.1.1
Electronic Filing
Program
Electronic filing is a method by which authorized providers transmit tax return information to an
IRS Service Center in the format of the official IRS forms. The IRS accepts both refund and bal-
ance due forms that are filed electronically.
8.1.2
Applying To
Participate in IRS
e-file
Anyone wishing to participate in IRS e-file of tax returns must submit an e-file application. The
application can be completed and submitted electronically on the IRS website at IRS.gov after first
registering for e-services on the website.
8.1.3
Obtaining the
Taxpayer Signature/
Submission of
Required Paper
Documents
Taxpayers choosing to electronically prepare and file their return will be required to use the
Self-Select PIN method as their signature.
Electronic Return Originators (EROs) can e-file individual income tax returns only if the returns
are signed electronically using either the Self-Select or Practitioner PIN method.
Taxpayers must use Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return,
to send supporting documents that are required to be submitted to the IRS.
For specific information about electronic filing, refer to Pub. 1345, Handbook for Authorized IRS
e-file Providers of Individual Income Tax Returns.

Bulletin No. 2019–41 909 October 7, 2019
8.1.4
Guidelines for
Preparing Substitute
Forms in the
Electronic Filing
Program
A participant in the electronic filing program who wants to develop a substitute form should follow
the guidelines throughout this publication and send a sample form for approval to the Program at
substituteforms@irs.gov. If you do not prepare substitute Form 8453 using a font in which all IRS
wording fits on a single page, the form will not be accepted.
Note. Use of unapproved forms could result in suspension of the participant from the electronic
filing program.
Section 8.2 – Effect on Other Documents
8.2.1
Effect on Other
Documents
This revenue procedure supersedes Revenue Procedure 2018-51, 2018-44 I.R.B. 721.
Section 8.3 – Exhibits
Exhibit A — Form 1040-ES Voucher 2019
Exhibit B — Substitute Form Checksheet

October 7, 2019 910 Bulletin No. 2019–41
39
Form 1040-ES (OCR)
Department of the Treasury
Internal Revenue Service
2019
OMB No. 1545-0074
Estimated Tax
Calendar year—
Due April 15, 2019
Software Developers Voucher
ExhibitAForm 1040-ESVoucher
Make your check or money order payable to “United States Treasury.”
Enter your SSN and “2019 Form 1040-ES” on your payment.
Amount of estimated tax you are
paying by check or money order.
Dollars
0,000
Cents
If your name, address, or SSN is incorrect,seeinstructions.
For Privacy Act and Paperwork Reduction Act Notice, seeinstructions.
John Q. Doe
000 Someplace Somewhere Blvd.
City, St
00000
PO Box 00000
City, St 00000 -0000
000000000 XX DOE 00 0 201912000
Payment
Voucher
1

Bulletin No. 2019–41 911 October 7, 2019
40
IRS Checksheet
ExhibitB
Substitute FormsChecksheet
Checksheetof IRSSubstituteForms20:
Submitted on
Company: .. . . . . . . . . . . . . . . . . . . . . . . . . . .
Contact: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Phone: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fax: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source Code: . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form
Number
Approved
Approved
With
Corrections
Comments
AuthorizedName:
Title:
Reviewer'sName:
Telephone:
Date:

October 7, 2019 912 Bulletin No. 2019–41
Part IV.
Notice of Proposed
Rulemaking
Additional First Year
Depreciation Deduction
REG-106808-19
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing; partial withdrawal of a notice of pro-
posed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
regarding the additional first year depre-
ciation deduction under section 168(k) of
the Internal Revenue Code (Code). These
proposed regulations reflect and clarify
the increase of the benefit and expansion
of the universe of qualifying proper-
ty, particularly to certain classes of used
property, made by the Tax Cuts and Jobs
Act. These proposed regulations generally
affect taxpayers who deduct depreciation
for qualified property acquired and placed
in service after September 27, 2017. This
document also provides notice of a public
hearing on these proposed regulations. Fi-
nally, this document withdraws a portion
of the proposed regulations published on
August 8, 2018.
DATES: Written or electronic comments
must be received by November 25, 2019.
Outlines of topics to be discussed at the
public hearing scheduled for Wednesday,
November 13, 2019, at 10 a.m. must be
received by October 23, 2019. If no out-
lines of topics are received by October 23,
2019, the public hearing will be cancelled.
ADDRESSES: Submit electronic submis-
sions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-106808-19) by following
the online instructions for submitting
comments. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availability
any comment received to its public dock-
et, whether submitted electronically or in
hard copy. Send hard copy submissions
to: CC:PA:LPD:PR (REG-106808-19),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-106808-19), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regu-
lations, Elizabeth R. Binder or Kathleen
Reed, (202) 317-7005; concerning sub-
missions of comments and outlines of
topics, the hearing, or to be placed on the
building access list to attend the hearing,
Regina L. Johnson, (202) 317-6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regu-
lations (26 CFR part 1) under section
168(k) of the Code. Section 168(k) was
added to the Code by section 101 of the
Job Creation and Worker Assistance Act
of 2002, Public Law 107-147 (116 Stat.
21). Section 168(k) allows an additional
first year depreciation deduction in the
placed-in-service year of qualified prop-
erty. Subsequent amendments to section
168(k) increased the percentage of the
additional first year depreciation deduc-
tion from 30 percent to 50 percent (to 100
percent for property acquired and placed
in service after September 8, 2010, and
generally before January 1, 2012), extend-
ed the placed-in-service date generally
through December 31, 2019, and made
other changes.
On December 22, 2017, section 168(k)
and related provisions were amended by
sections 12001(b)(13), 13201, and 13204
of the Tax Cuts and Jobs Act, Public Law
115-97 (131 Stat. 2054) (the “Act”) to
provide further changes to the additional
first year depreciation deduction. Unless
otherwise indicated, all references to sec-
tion 168(k) hereinafter are references to
section 168(k) as amended by the Act.
The Treasury Department and the
IRS published proposed regulations in-
terpreting section 168(k) on August 8,
2018 (the August Proposed Regulations)
(83 FR 39292). This notice of proposed
rulemaking withdraws §1.168(k)-2(b)(3)
(iii)(B)(3)(i) through (iii) and Examples
19 through 22 in §1.168(k)-2(b)(3)(vi)
of the August Proposed Regulations, and
proposes in their place §1.168(k)-2(b)
(3)(v)(A) through (E) and Examples 26
through 30 in §1.168(k)-2(b)(3)(vii)(Z)
through (DD), respectively. This notice
of proposed rulemaking also withdraws
§1.168(k)-2(b)(3)(iii)(C) and Example
18 in §1.168(k)-2(b)(3)(vi) of the August
Proposed Regulations, and proposes in
their place §1.168(k)-2(b)(3)(iii)(C) and
Examples 31 through 34 in §1.168(k)-2(b)
(3)(vii)(EE) through (HH), respectively.
The August Proposed Regulations, with
modifications in response to comments
and testimony received, were adopted as
final regulations, issued concurrently with
these proposed regulations and published
elsewhere in this issue of the Federal
Register (the Final Regulations).
Explanation of Provisions
These proposed regulations propose
amendments to the Final Regulations to
provide taxpayers with guidance that is
not addressed in the Final Regulations re-
garding the application of section 168(k).
Specifically, these proposed regulations
contain amendments to §1.168(k)-2(b)
(2), (3), and (5) of the Final Regulations,
each of which provides rules relevant to
the definition of qualified property for
purposes of the additional first year depre-
ciation deduction under section 168(k).
These proposed regulations also amend
§1.168(k)-2(b)(3)(v) by adding special
rules for consolidated groups. Addition-
ally, these proposed regulations amend
§1.168(k)-2(c) by adding rules regarding
components acquired or self-construct-
ed after September 27, 2017, for larger

Bulletin No. 2019–41 913 October 7, 2019
self-constructed property for which manu-
facture, construction, or production began
before September 28, 2017. Further, these
proposed regulations amend §1.168(k)-
2(g)(11) by adding rules regarding the
application of the mid-quarter convention,
as determined under section 168(d). These
additional proposed rules respond to com-
ments received on the August Proposed
Regulations as well as address certain
issues identified after additional study.
This Explanation of Provisions section
describes each of the proposed rules con-
tained in this document.
1. Property Excluded from the Additional
First Year Depreciation Deduction by
Section 168(k)(9)
Section 1.168(k)-2(b)(2)(ii)(F) of the
Final Regulations provides that qualified
property does not include any property
that is primarily used in a trade or business
described in section 163(j)(7)(A)(iv). Sec-
tion 1.168(k)-2(b)(2)(ii)(G) of the Final
Regulations provides that qualified prop-
erty does not include any property used in
a trade or business that has had floor plan
financing indebtedness, as defined in sec-
tion 163(j)(9), if the floor plan financing
interest, as defined in section 163(j)(9),
related to such indebtedness is taken into
account under section 163(j)(1)(C) for the
taxable year. Sections 1.168(k)-2(b)(2)(ii)
(F) and (G) of the Final Regulations ap-
ply to property placed in service by the
taxpayer in a taxable year beginning after
December 31, 2017.
A. Lessor Leasing Property to a Trade or
Business Described in Section 168(k)(9)
Several commenters to the August Pro-
posed Regulations requested guidance
on whether a taxpayer that leases prop-
erty to a trade or business described in
section 168(k)(9) is eligible to claim the
additional first year depreciation for the
property, and they recommend allowing
the additional first year depreciation de-
duction (assuming all other requirements
are met). The Treasury Department and
the IRS agree with the commenters’ rec-
ommendation, provided the lessor is not
described in section 168(k)(9)(A) or (B).
Accordingly, these proposed regulations
amend §1.168(k)-2(b)(2)(ii)(F) and (G)
to provide that such exclusion from the
additional first year depreciation deduc-
tion does not apply to lessors of property
to a trade or business described in section
168(k)(9) so long as the lessor is not de-
scribed in such Code section.
B. Property Described in Section 168(k)
(9)(A)
The Treasury Department and the
IRS are aware that taxpayers and prac-
titioners have questioned how to deter-
mine whether property is primarily used
in a trade or business described in section
168(k)(9)(A). For depreciation purposes,
§1.167(a)-11(b)(4)(iii)(b) and (e)(3)(iii)
classify property according to its primary
use. The Treasury Department and the IRS
believe that the same standard should ap-
ply for purposes of section 168(k)(9)(A).
Accordingly, these proposed regulations
amend §1.168(k)-2(b)(2)(ii)(F) to provide
that for purposes of section 168(k)(9)(A)
and §1.168(k)-2(b)(2)(ii)(F), the term pri-
marily used has the same meaning as that
term is used in §1.167(a)-11(b)(4)(iii)(b)
and (e)(3)(iii) for classifying property.
C. Property Described in Section 168(k)
(9)(B)
A commenter to the August Proposed
Regulations requested guidance on when
floor plan financing is “taken into ac-
count” for purposes of section 168(k)(9)
(B). The commenter believed that section
168(k)(9)(B) does not apply when a tax-
payer does not deduct interest in excess of
the sum of the amounts calculated under
section 163(j)(1)(A) and (B). The Trea-
sury Department and the IRS do not be-
lieve that section 163(j) is optional. How-
ever, the Treasury Department and the IRS
agree that, for purposes of section 168(k)
(9)(B), floor plan financing interest is not
taken into account by a trade or business
that has had floor plan financing indebted-
ness if the sum of the amounts calculat-
ed under section 163(j)(1)(A) and (B) for
the trade or business for the taxable year
equals or exceeds the business interest,
as defined in section 163(j)(5) (includ-
ing carryforwards of disallowed business
interest under section 163(j)(2)), which
includes floor plan financing interest of
the trade or business, for the taxable year.
Accordingly, these proposed regulations
amend §1.168(k)-2(b)(2)(ii)(G) to provide
that solely for purposes of section 168(k)
(9)(B) and §1.168(k)-2(b)(2)(ii)(G), floor
plan financing interest is not taken into
account for the taxable year by a trade or
business that has had floor plan financing
indebtedness if the sum of the amounts
calculated under section 163(j)(1)(A) and
(B) for the trade or business for the tax-
able year equals or exceeds the business
interest, as defined in section 163(j)(5),
for the taxable year.
If floor plan financing interest is tak-
en into account for a taxable year by a
trade or business that has had floor plan
financing indebtedness, the Treasury De-
partment and the IRS are aware that tax-
payers and practitioners have questioned
whether the additional first year deprecia-
tion deduction is not allowed for property
placed in service by that trade or business
in any subsequent taxable year. In such a
case, the additional first year depreciation
deduction for subsequent taxable years
would not be allowed, even if the amount
of the floor plan financing interest taken
into account for the current taxable year is
de minimis. For this reason, the Treasury
Department and the IRS have decided
that, for purposes of section 168(k)(9)(B),
the determination of whether a trade or
business that has had floor plan financing
indebtedness has taken into account floor
plan financing interest is made annually.
Accordingly, these proposed regulations
amend §1.168(k)-2(b)(2)(ii)(G) to pro-
vide that if the trade or business has taken
floor plan financing interest into account
pursuant to §1.168(k)-2(b)(2)(ii)(G) for a
taxable year, §1.168(k)-2(b)(2)(ii)(G) ap-
plies to any property placed in service by
that trade or business in that taxable year.
2. Used Property
A. Depreciable Interest
As a result of comments received on
the August Proposed Regulations regard-
ing sale-leaseback transactions, the Trea-
sury Department and the IRS have deter-
mined that it is appropriate to provide an
exception to the depreciable interest rule
in the Final Regulations when the taxpay-
er disposes of property within a short pe-
riod of time after the taxpayer placed such

October 7, 2019 914 Bulletin No. 2019–41
property in service. Accordingly, these
proposed regulations amend §1.168(k)-2
by adding paragraph (b)(3)(iii)(B)(4) to
provide that if (a) a taxpayer acquires and
places in service property, (b) the taxpayer
or a predecessor did not previously have a
depreciable interest in the property, (c) the
taxpayer disposes of the property to an un-
related party within 90 calendar days after
the date the property was originally placed
in service by the taxpayer (without taking
into account the applicable convention),
and (d) the taxpayer reacquires and again
places in service the property, the taxpay-
er’s depreciable interest in the property
during that 90-day period is not taken into
account for determining whether the prop-
erty was used by the taxpayer or a prede-
cessor at any time prior to its reacquisition
by the taxpayer. The 90-day period is con-
sistent with the period of time specified
in section 168(k)(2)(E)(iii). To prevent
the churning of assets, this proposed rule
does not apply if the taxpayer reacquires
and again places in service the property
during the same taxable year the taxpay-
er disposed of the property. The proposed
regulations also define an unrelated party
as meaning a person not described in sec-
tion 179(d)(2)(A) or (B), and §1.179-4(c)
(1)(ii) or (iii), or (c)(2).
B. Application to Partnerships
One commenter to the August Pro-
posed Regulations asked for clarification
regarding a partner’s depreciable interest
in property held by a partnership. The
Treasury Department and the IRS clarify
in these proposed regulations the extent to
which a person is treated as having a de-
preciable interest in property by virtue of
being a partner in a partnership that holds
the property.
Under the August Proposed Regula-
tions, each partner is treated as having
owned and used the partner’s proportion-
ate share of partnership property for pur-
poses of determining whether a section
743(b) basis adjustment meets the used
property acquisition requirements of sec-
tion 168(k)(2)(E)(ii). Consistent with this
approach, a person should be considered
as having a depreciable interest in a por-
tion of property if the person is a partner
in the partnership while the partnership
owns the property. The same rule should
apply whether a current partner purchases
property directly from the partnership or a
person acquires property that the partner-
ship previously owned while the person
was a partner.
These proposed regulations amend
§1.168(k)-2 by adding paragraph (b)(3)
(iii)(B)(5) to provide that a partner is con-
sidered to have a depreciable interest in a
portion of property equal to the partner’s
total share of depreciation deductions with
respect to the property as a percentage of
the total depreciation deductions allocated
to all partners with respect to that prop-
erty during the current calendar year and
five calendar years immediately prior to
the partnership’s current placed-in-service
year of the property. For this purpose, only
the portion of the current calendar year
and previous 5-year period during which
the partnership owned the property and
the person was a partner is taken into ac-
count. The Treasury Department and the
IRS believe that this provides an accurate
reflection of the partner’s prior deprecia-
ble interest in the property.
C. Series of Related Transactions
Section 1.168(k)-2(b)(3)(iii)(C) of the
August Proposed Regulations provides
that, in the case of a series of related trans-
actions, property is treated as directly
transferred from the original transferor to
the ultimate transferee, and the relation-
ship between the original transferor and
the ultimate transferee is tested immedi-
ately after the last transaction in the series
(related transactions rule).
A commenter requested clarification
on whether the related transactions rule
applies only to test relatedness under
section 179(d)(2)(A) or whether this rule
applies more broadly for purposes of all
of the rules under section 168(k)(2)(E)
(ii). For example, if, in a series of related
transactions, A transfers property to B in
exchange for cash and B transfers prop-
erty to C in a nonrecognition transaction
in exchange for stock or other property,
the commenter states that it is not clear
whether the related transactions rule is
intended to test only the relatedness be-
tween A and C under section 179(d)(2)
(A). If this rule is intended to apply more
broadly, the commenter states that it is not
clear whether the rule also determines the
basis of the property or whether B’s prior
use of the property is relevant.
The commenter also requested clarifi-
cation on whether the related transactions
rule applies to transactions described in
§1.168(k)-2(f)(1)(iii) of the August Pro-
posed Regulations (qualified property that
is transferred in a transaction described
in section 168(i)(7) in the same taxable
year that the qualified property is placed
in service by the transferor). For example,
if a person purchased qualified property
and contributed it to a partnership in a
transaction described in section 721 in the
same taxable year, the commenter ques-
tioned whether the related transactions
rule would treat the transfer as occurring
directly between the original seller and
the partnership, assuming that the initial
acquisition of the property by the person
and the person’s transfer of such property
to the partnership are part of a series of
related transactions.
The Treasury Department and the IRS
intended to apply the related transactions
rule only for purposes of testing the relat-
edness of the parties under section 179(d)
(2)(A) or (B) in a series of related trans-
actions. The related transactions rule was
not intended to test relatedness between
the parties involved in a transaction de-
scribed in section 168(i)(7).
These proposed regulations amend
§1.168(k)-2 by revising paragraph (b)
(3)(iii)(C) to provide rules for a series
of related transactions (proposed related
transactions rule). The proposed related
transactions rule generally provides that
the relationship between the parties under
section 179(d)(2)(A) or (B) in a series of
related transactions is tested immediately
after each step in the series, and between
the original transferor and the ultimate
transferee immediately after the last trans-
action in the series.
The Treasury Department and the IRS
believe that the relationship between the
parties in a series of related transactions
should not be tested in certain cases. Ac-
cordingly, the proposed related transac-
tions rule provides that a party in the se-
ries that is neither the original transferor
nor the ultimate transferee is disregard-
ed in applying the relatedness test if the
party placed in service and disposed of
the property in the party’s same taxable
year or did not place the property in ser-

Bulletin No. 2019–41 915 October 7, 2019
vice. The proposed related transactions
rule also provides that any step in a series
of related transactions that is neither the
original step nor the ultimate step is dis-
regarded for purposes of testing related-
ness if the step is a transaction described
in §1.168(k)-2(g)(1)(iii) (that is, a transfer
of property in a transaction described in
section 168(i)(7) in the same taxable year
that the property is placed in service by
the transferor) (§1.168(k)-2(f)(1)(iii) of
the August Proposed Regulations). Final-
ly, these proposed regulations provide that
the proposed related transactions rule does
not apply when all transactions in the se-
ries are described in §1.168(k)-2(g)(1)(iii)
or to a syndication transaction described
in §1.168(k)-2(b)(3)(vi).
The commenter also requested clari-
fication on the application of the related
transactions rule in transactions involving
sections 179(d)(2)(B) and 1563. For ex-
ample, if there is a series of related trans-
actions involving a sale of qualified prop-
erty between two corporations that also
become members of the same controlled
group, section 179(d)(2)(B) would require
testing whether the two corporations are
component members of the same con-
trolled group for purposes of section 1563.
Under section 1563 and the regulations
issued thereunder, a corporation is gener-
ally a component member of a controlled
group if it is a member of the controlled
group for at least one half of the days in
the relevant taxable year. See §1.1563-
1(b). If the corporations both become
members of the controlled group pursuant
to a series of related transactions ending in
the first half of the taxable year, the corpo-
rations should be component members for
purposes of section 179(d)(2)(B). Howev-
er, if the series of related transactions ends
in the second half of the taxable year, the
commenter questioned whether the related
transactions rule applies to treat the two
corporations as non-members prior to the
end of the series of related transactions, in
which case the purchaser of the qualified
property may be eligible for immediate
expensing (setting aside the potential ap-
plication of section 179(d)(2)(A)).
The Treasury Department and the IRS
also received comments concerning the
application of section 179(d)(2)(B) to
Example 21 of §1.168(k)-2(b)(3)(vi) in
the August Proposed Regulations. In re-
sponse, the Treasury Department and the
IRS have proposed new rules covering
the application of section 179(d)(2)(B) to
acquisitions of depreciable property be-
tween members of the same consolidated
group, as explained in the following sec-
tion of this Explanation of Provisions.
D. Application to Members of a
Consolidated Group
i. Overview of Used Property Acquisition
Requirements
Section 1.168(k)-2(b)(3)(iii)(A) of
the August Proposed Regulations and
the Final Regulations lists the following
three requirements that must be satisfied
in order for acquisitions of used proper-
ty to qualify for the additional first year
depreciation deduction (used property ac-
quisition requirements). First, the property
must not have been used by the taxpayer
or a predecessor at any time prior to the
acquisition (No Prior Use Requirement).
Second, the acquisition of the property
must satisfy §1.168(k)-2(b)(3)(iii)(A)(2)
of the August Proposed Regulations and
the Final Regulations, which requires that
(a) the property was not acquired from
a related person (within the meaning of
section 179(d)(2)(A) and §1.179-4(c)(1)
(ii)) (Related Party Requirement), (b) the
property was not acquired by one compo-
nent member of a controlled group from
another component member of the same
controlled group (Component Member
Requirement), and (c) the basis of the
property in the hands of the acquirer is not
determined, in whole or in part, by refer-
ence to the adjusted basis in the hands of
the transferor. Third, the acquisition of the
property must meet the requirements of
section 179(d)(3) and §1.179-4(d) (con-
cerning like-kind exchanges and involun-
tary conversions).
ii. Application of the Used Property
Acquisition Requirements to
Consolidated Groups
Section 1.168(k)-2(b)(3)(iii)(B)(3) of
the August Proposed Regulations pro-
vides special rules applying the No Prior
Use Requirement to consolidated groups.
Section 1.168(k)-2(b)(3)(iii)(B)(3)(i) of
the August Proposed Regulations treats a
member that acquires depreciable prop-
erty as having a prior depreciable inter-
est in such property if the consolidated
group had a depreciable interest at any
time prior to the member’s acquisition of
the property (Group Prior Use Rule). For
these purposes, a consolidated group is
treated as having a depreciable interest in
property during the period in which any
current or previous member of the consol-
idated group had a depreciable interest in
the property while a member of the con-
solidated group. Section 1.168(k)-2(b)
(3)(iii)(B)(3)(ii) of the August Proposed
Regulations provides that, for purposes of
applying the No Prior Use Requirement, a
member is treated as having a depreciable
interest in property prior to the time of its
acquisition if, as part of a series of relat-
ed transactions, the property is acquired
by a member of a consolidated group
and a corporation that had a depreciable
interest in the property becomes a mem-
ber of that consolidated group (Stock and
Asset Acquisition Rule). For purposes of
applying these two rules, §1.168(k)-2(b)
(3)(iii)(B)(3)(iii) of the August Proposed
Regulations provides that, if the acquisi-
tion of property is part of a series of relat-
ed transactions that also includes one or
more transactions in which the transferee
of the property ceases to be a member of a
consolidated group, then whether the tax-
payer is a member of a consolidated group
is tested immediately after the last trans-
action in the series.
Commenters have asked for clarifica-
tion regarding the application of the Group
Prior Use Rule to situations in which a
consolidated group terminates as a result
of all of its members joining another con-
solidated group, including as a result of a
reverse acquisition as defined in §1.1502-
75(d)(3). By its terms, the Group Prior
Use Rule applies only to the acquisition
of property by a member of a consolidat-
ed group. Thus, the Treasury Department
and the IRS have determined that this rule
should apply only as long as the consol-
idated group remains in existence, as de-
termined under §1.1502-75(d) and other
applicable law.
Several commenters also have request-
ed confirmation that a member of a con-
solidated group that is treated as having a
depreciable interest in property solely as a
result of the application of the Group Prior

October 7, 2019 916 Bulletin No. 2019–41
Use Rule does not continue to be treated
under that rule as having a depreciable
interest in the property after the member
leaves the consolidated group (that is,
deconsolidates). Commenters have noted
that, if a former member continues to be
treated as having a depreciable interest
in the property after deconsolidation, the
Stock and Asset Acquisition Rule could
apply whenever one consolidated group
acquires from another consolidated group
both qualified property and the stock of a
member of that second consolidated group
(the target member), even if the target
member had no actual depreciable interest
in the qualified property (as opposed to a
depreciable interest arising solely from the
application of the Group Prior Use Rule).
The Treasury Department and the IRS
did not intend the Group Prior Use Rule to
continue to apply to a member of a con-
solidated group after the member leaves
that consolidated group. By its terms, the
Group Prior Use Rule applies only as long
as a corporation remains a member of a
consolidated group. Therefore, when a
member deconsolidates, it does not con-
tinue to be treated under that rule as hav-
ing a depreciable interest in the property.
Accordingly, a departing member does not
continue to have a depreciable interest in
the property unless it actually owned such
property.
Further, the Treasury Department and
the IRS intended the Stock and Asset
Acquisition Rule to apply only when the
member whose stock is acquired had an
actual depreciable interest in the quali-
fied property that also is acquired as part
of the same series of related transactions.
Accordingly, these proposed regulations
clarify that the phrase “a corporation that
had a depreciable interest in the property”
in the Stock and Asset Acquisition Rule
refers only to a corporation that has such
an interest without regard to the applica-
tion of the Group Prior Use Rule.
iii. Sales of Property Between Members
of the Same Consolidated Group
(Example 21 in §1.168(k)-2(b)(3)(vi) of
the August Proposed Regulations)
The Treasury Department and the IRS
have received comments regarding the
interaction of the August Proposed Reg-
ulations for consolidated groups with
the statutorily prescribed Related Party
Requirement and Component Member
Requirement, as illustrated by Example
21 in §1.168(k)-2(b)(3)(vi) of the August
Proposed Regulations (Former Example
21). Generally, a corporation qualifies as a
component member of a controlled group
if the corporation was a member of such
controlled group during the majority of
the corporation’s taxable year. See section
1563(b). In addition, the taxable year of a
member of a consolidated group ends for
all Federal income tax purposes at the end
of the day on which its status as a member
changes. See §1.1502-76(b). Therefore,
commenters have questioned how the Au-
gust Proposed Regulations for consolidat-
ed groups could apply to treat the Com-
ponent Member Requirement as satisfied
if a member acquires depreciable property
from another member of the same consol-
idated group (selling group) and, as part
of an integrated plan that includes the ac-
quisition, the acquiring member deconsol-
idates from the selling group.
In Former Example 21, Parent is the
common parent of a consolidated group
that includes F Corporation (F) and G
Corporation (G). G has a depreciable in-
terest in certain equipment (Equipment
#3). As part of a series of related transac-
tions, (1) G sells Equipment #3 to F, and
then (2) Parent sells all of its F stock to
X Corporation (X), the common parent of
an unrelated consolidated group. Based
on those facts, Former Example 21 con-
cludes that the Group Prior Use Rule does
not apply to treat F as previously having a
depreciable interest in Equipment #3 be-
cause F’s status as a member of the Parent
consolidated group is tested immediately
after the last transaction in the related se-
ries, at which point F has ceased to be a
member of the Parent consolidated group.
Former Example 21 relies on the same
analysis to conclude that the Related Par-
ty Requirement and Component Member
Requirement are also satisfied, and that,
assuming all other relevant requirements
are satisfied, F would be eligible to claim
the additional first year depreciation de-
duction for Equipment #3.
Commenters also have requested guid-
ance concerning the amount, location, and
timing of the additional first year depre-
ciation deduction in transactions similar
to the transaction described in Former
Example 21. In particular, commenters
have asked whether the deduction should
be reported on the consolidated return of
the Parent consolidated group (that is,
the selling group) or on the consolidated
return of the X consolidated group (that
is, the acquiring group), and whether the
deduction would be limited by section
168(i)(7). Commenters have noted that,
if F were treated as placing Equipment #3
in service while a member of the Parent
consolidated group, the deduction might
be reported on the consolidated return of
the Parent group. In addition, because the
transaction between F and G is an inter-
company transaction, section 168(i)(7)
(B)(ii) might apply to limit the amount of
the deduction to an amount equaling G’s
gain from the transaction. One commenter
further noted that, even if section 168(i)
(7)(B)(ii) did not apply to the transaction,
any amount of the deduction in excess of
G’s gain nevertheless might be disallowed
under §1.1502-13 as a noncapital, nonde-
ductible amount.
Commenters have asserted that these
potential results regarding the location
(the Parent consolidated group) and the
amount (an amount not in excess of G’s
gain) of the deduction would be improper
based on the legislative history of section
168(k), which indicates that Congress in-
tended to stimulate economic activity and
promote capital investment. See H. Rept.
115-409, at 232 (2017) (“The Committee
believes that providing full expensing for
certain business assets lowers the cost
of capital for tangible property used in a
trade or business. With lower costs of cap-
ital, the Committee believes that business-
es will be encouraged to purchase equip-
ment and other assets, which will promote
capital investment and provide economic
growth.”); H. Rept. 107-251, at 20 (2001)
(“The Committee believes that allowing
additional first-year depreciation will ac-
celerate purchases of equipment, promote
capital investment, modernization, and
growth, and will help to spur an economic
recovery.”).
The Treasury Department and the IRS
agree with commenters that, in situations
similar to Former Example 21, the addi-
tional first year depreciation deduction
should be reported on the consolidated
return of the acquiring group rather than
the selling group. With respect to Former

Bulletin No. 2019–41 917 October 7, 2019
Example 21, the Treasury Department and
the IRS note that F made the economic
outlay for Equipment #3, which was in-
cluded in the amount paid by X for F’s
stock. Additionally, F’s acquisition of
Equipment #3 and Parent’s sale of the F
stock to X occur as part of the same series
of related transactions; thus, at the time of
F’s acquisition of Equipment #3, the par-
ties expected F to deconsolidate from the
Parent consolidated group, and the sub-
stance of the transaction is the same as if
F first became a member of the X consoli-
dated group and then acquired Equipment
#3. Furthermore, F’s purchase of Equip-
ment #3 is the type of activity that section
168(k) was intended to encourage—if F
had become a member of the X consoli-
dated group before purchasing Equipment
#3, it is clear that F, as a member of the X
consolidated group, would be allowed the
deduction in its full amount.
Moreover, in circumstances similar to
Former Example 21, the statute and reg-
ulations disregard a transitory acquisition
of depreciable property when the property
is acquired and disposed of within 90 cal-
endar days. See section 168(k)(2)(E)(iii)
and §1.168(k)-2(b)(3)(vi) and (b)(4)(iv)
(concerning syndication transactions) of
the Final Regulations; see also §1.168(k)-
2(b)(3)(iii)(B)(4) of these proposed reg-
ulations (concerning de minimis uses of
property).
To ensure that the additional first year
depreciation deduction is reported on the
acquiring group’s consolidated return in
circumstances like those described in For-
mer Example 21, §1.168(k)-2(b)(3)(v)(C)
of these proposed regulations (Proposed
Consolidated Acquisition Rule) provides
that, if a member of a consolidated group
acquires depreciable property from anoth-
er member of the same consolidated group
(that is, the selling group) in a taxable
transaction, and if the transferee member
ceases to be a member of the selling group
in a series of related transactions that in-
cludes the property acquisition within 90
calendar days of the date of the property
acquisition, then (1) the disposition and
acquisition of the property are treated as
occurring one day after the date on which
the transferee member ceases to be a mem-
ber of the selling group (Deconsolidation
Date) for all Federal income tax purposes,
and (2) the transferee member is treated as
placing the depreciable property in service
not earlier than one day after the Decon-
solidation Date for purposes of claiming
depreciation or the investment credit.
The Proposed Consolidated Acqui-
sition Rule would ensure that the used
property acquisition requirements, in-
cluding the No Prior Use Requirement
and the Related Party Requirement, are
satisfied in cases similar to Former Ex-
ample 21. With respect to the No Prior
Use Requirement, because the proposed
rule treats the transferee member as ac-
quiring the property after it ceases to be
a member of the selling group, the trans-
feree member is not attributed the selling
group’s usage of the property under the
Group Prior Use Rule. The Related Par-
ty Requirement and Component Member
Requirements would be tested using the
same analysis.
The Proposed Consolidated Acqui-
sition Rule applies the same treatment
for purposes of determining whether the
transaction is covered by section 168(i)(7)
(B)(ii). Therefore, because the acquisition
is not treated as occurring between mem-
bers of the same consolidated group, if the
transferee member is eligible to claim the
additional first year depreciation deduc-
tion, then section 168(i)(7)(B)(ii) will not
apply to limit the amount of the deduction.
In order to allow the deduction to the
appropriate party, the Proposed Consoli-
dated Acquisition Rule also provides that
the transferee member is treated as plac-
ing the property in service not earlier than
one day after the Deconsolidation Date
for purposes of sections 167 and 168 and
§§1.46-3(d) and 1.167(a)-11(e)(1). In so
providing, the Treasury Department and
the IRS intend to prohibit the transfer-
ee member from claiming the additional
first year depreciation deduction on the
selling group’s consolidated return. The
rule also prevents the transferee member
from claiming regular depreciation or
the investment credit with respect to the
acquired property during the period after
the transferee member acquires the prop-
erty but before it leaves the selling group.
Example 28 (that is, revised Former Ex-
ample 21) in proposed §1.168(k)-2(b)(3)
(vii)(BB) illustrates the application of the
Proposed Consolidated Acquisition Rule
to the acquisition of depreciable property
by one member of a consolidated group
from another member of the same consol-
idated group.
iv. Deemed Acquisitions of Depreciable
Property Between Members of the Same
Consolidated Group
Commenters have noted that issues
similar to those in Former Example 21
also arise in the context of deemed ac-
quisitions of property within a consol-
idated group resulting from an election
under either section 338(h)(10) or section
336(e). The Treasury Department and the
IRS have determined that deemed ac-
quisitions of property should be treated
the same as actual acquisitions of prop-
erty. Thus, §1.168(k)-2(b)(3)(v)(D) of
these proposed regulations provides a
rule (Proposed Consolidated Deemed
Acquisition Rule) that applies if (1) the
transferee member acquires the stock of
another member of the same group that
holds depreciable property (target) in a
qualified stock purchase or a qualified
stock disposition for which a section 338
election or a section 336(e) election for
a disposition described in §1.336-2(b)
(1), respectively, is made, and (2) the
transferee member and target cease to be
members of the consolidated group with-
in 90 calendar days of the acquisition date
(within the meaning of §1.338-2(c)(1)) or
disposition date (within the meaning of
§1.336-1(b)(8)) as part of the same series
of related transactions that includes the
acquisition. The Proposed Consolidated
Deemed Acquisition Rule does not apply
to qualified stock dispositions described
in section 355(d)(2) or (e)(2) because the
rules applicable to such dispositions do
not treat a new target corporation as ac-
quiring assets from an unrelated person.
See §1.336-2(b)(2).
If the Proposed Consolidated Deemed
Acquisition Rule applies, then (a) the ac-
quisition date or disposition date, as ap-
plicable, is treated as the date that is one
day after the date on which the transferee
member and target cease to be members of
the consolidated group (Deconsolidation
Date) for all Federal income tax purposes,
and (b) new target is treated as placing the
depreciable property in service not earli-
er than one day after the Deconsolidation
Date for purposes of sections 167 and 168
and §§1.46-3(d) and 1.167(a)-11(e)(1).

October 7, 2019 918 Bulletin No. 2019–41
Without the proposed rule, new target
might be treated as having a depreciable
interest in the assets new target is deemed
to acquire by virtue of the Group Prior
Use Rule because old target, a member
of the same consolidated group, had a
depreciable interest in those assets. If ap-
plicable, the proposed rule prevents new
target from being treated as having a de-
preciable interest in the assets by moving
the acquisition date or disposition date to
the day after the Deconsolidation Date.
New target is therefore a member of the
acquiring group at the time it is deemed
to acquire the assets. Similar to the Pro-
posed Consolidated Acquisition Rule, this
deemed acquisition rule also provides that
the transferee member is treated as plac-
ing the property in service not earlier than
one day after the Deconsolidation Date
for purposes of sections 167 and 168 and
§§1.46-3(d) and 1.167(a)-11(e)(1). Exam-
ple 29 in proposed §1.168(k)-2(b)(3)(vii)
(CC) illustrates the application of the rule
to the deemed acquisition of depreciable
property by one member of a consolidated
group from another member of the same
consolidated group pursuant to a section
338(h)(10) election.
Neither the Proposed Consolidated Ac-
quisition Rule nor the Proposed Consoli-
dated Deemed Acquisition Rule applies if
the property that is acquired (or deemed
acquired) is subsequently disposed of by
the transferee member or new target, re-
spectively, in a transaction that is part of
the same series of related transactions as
the actual or deemed acquisition of the
property. For special rules governing the
transfer of property in a series of related
transactions, see §1.168(k)-2(b)(3)(iii)(C)
of these proposed regulations. For special
rules governing property placed in service
and disposed of in the same taxable year,
see §1.168(k)-2(g)(1).
3. Acquisition of Property
A. Definition of Binding Contract for
Acquisition of Entity
The Treasury Department and the IRS
are aware that taxpayers and practitioners
are having difficulty applying the bind-
ing contract rules in the August Proposed
Regulations to transactions involving the
acquisition of an entity. Because those
rules were written to apply to the purchase
of an asset instead of an entity, the Trea-
sury Department and the IRS recognize
that a binding contract rule for an acqui-
sition of a trade or business, or an entity,
is needed. Accordingly, these proposed
regulations amend §1.168(k)-2 by adding
paragraph (b)(5)(iii)(G) to provide that a
contract to acquire all or substantially all
of the assets of a trade or business or to
acquire an entity (for example, a corpo-
ration, a partnership, or a limited liability
company) is binding if it is enforceable
under State law against the parties to the
contract. The presence of a condition out-
side the control of the parties, including,
for example, regulatory agency approval,
will not prevent the contract from being a
binding contract. Further, the fact that in-
substantial terms remain to be negotiated
by the parties to the contract, or that cus-
tomary conditions remain to be satisfied,
does not prevent the contract from being a
binding contract. This proposed rule also
applies to a contract for the sale of the
stock of a corporation that is treated as an
asset sale as a result of an election under
section 338.
B. Property Not Acquired Pursuant to a
Written Binding Contract
The Treasury Department and the IRS
also are aware that, in some cases, a tax-
payer may acquire property that was not
pursuant to a written binding contract.
If such property is not self-constructed
property, a qualified film, television, or
live theatrical production, or a specified
plant, these proposed regulations amend
§1.168(k)-2 by adding paragraph (b)(5)
(v) to provide that the acquisition date of
property acquired pursuant to a contract
that is not a written binding contract is
the date on which the taxpayer paid or in-
curred more than 10 percent of the total
cost of the property, excluding the cost of
any land and preliminary activities such
as planning and designing, securing fi-
nancing, exploring, or researching. This
10-percent proposed rule is the same as the
safe harbor provided in §1.168(k)-2(b)(5)
(iv)(B)(2) of the Final Regulations for de-
termining the acquisition date of self-con-
structed property. This proposed rule does
not apply to the acquisition of a trade or
business, or an entity. The Treasury De-
partment and the IRS request comments
on this proposed rule.
4. Components
Multiple commenters to the August
Proposed Regulations requested an elec-
tion similar to the one provided in section
3.02(2)(b) of Rev. Proc. 2011-26 (2011-16
I.R.B. 664 (April 18, 2011)) for compo-
nents acquired or self-constructed after
September 27, 2017, of larger self-con-
structed property for which the manufac-
ture, construction, or production of the
larger self-constructed property begins
before September 28, 2017.
The Treasury Department and the IRS
have determined that it is appropriate to
allow a taxpayer to elect to treat one or
more components acquired or self-con-
structed after September 27, 2017, of
certain larger self-constructed property
as being eligible for the additional first
year depreciation deduction under sec-
tion 168(k). The larger self-constructed
property must be qualified property under
section 168(k)(2), as in effect before the
enactment of the Act, for which the manu-
facture, construction, or production began
before September 28, 2017. However, the
election is not available for components
of larger self-constructed property when
such property is not eligible for any addi-
tional first year depreciation deduction un-
der section 168(k) (for example, property
described in section 168(k)(9) and placed
in service by the taxpayer in any taxable
year beginning after December 31, 2017,
or qualified improvement property placed
in service by the taxpayer after December
31, 2017). These proposed regulations
amend §1.168(k)-2 by adding paragraph
(c) to provide for this election. These
proposed regulations also provide rules
regarding installation costs and the deter-
mination of the basis attributable to the
manufacture, construction, or production
before January 1, 2020, for longer pro-
duction period property or certain aircraft
property described in section 168(k)(2)
(B) or (C). Additionally, these proposed
regulations provide the time and manner
of making the election, and examples to
illustrate the proposed rules.
These proposed regulations also amend
§1.168(k)-2(e)(1)(iii) to provide rules re-
garding the determination of the basis

Bulletin No. 2019–41 919 October 7, 2019
attributable to the manufacture, construc-
tion, or production before January 1, 2027,
for longer production period property or
certain aircraft property described in sec-
tion 168(k)(2)(B) or (C).
Commenters to the August Proposed
Regulations requested guidance on wheth-
er property acquired before September 28,
2017, by a trade or business described in
section 168(k)(9)(A) is eligible for the ad-
ditional first year depreciation deduction
provided by section 168(k) as in effect
before the enactment of the Act. Anoth-
er commenter requested clarification on
whether any of the costs of property ac-
quired before September 28, 2017, pur-
suant to a written binding contract, and
placed in service after 2017 are eligible
for the additional first year depreciation
deduction under section 168(k). Property
acquired before September 28, 2017, is
eligible for the additional first year de-
preciation deduction provided by section
168(k) as in effect before the enactment of
the Act provided such property is qualified
property under section 168(k) as in effect
before the enactment of the Act. However,
if the taxpayer makes the election in pro-
posed §1.168(k)-2(c), as described above,
for components acquired or self-construct-
ed after September 27, 2017, those com-
ponents are eligible for the additional first
year depreciation deduction under section
168(k). Such election, however, does not
apply to, among other things, property de-
scribed in section 168(k)(9) and placed in
service in a taxable year beginning after
December 31, 2017.
5. Special Rules: Mid-quarter Convention
The Treasury Department and the IRS
are aware that taxpayers and practitioners
have questioned whether the unadjusted
depreciable basis of qualified property for
which the additional first year depreciation
deduction is claimed is taken into account
in determining whether the mid-quar-
ter convention under section 168(d) and
§1.168(d)-1 applies for the taxable year.
The Treasury Department and the IRS
agree that a rule is necessary and that it
should be consistent with the definition
of depreciable basis in §1.168(d)-1(b)(4).
Accordingly, the proposed regulations
amend §1.168(k)-2 by adding paragraph
(g)(11) to provide that in determining
whether the mid-quarter convention ap-
plies for a taxable year under section
168(d)(3) and §1.168(d)-1, the deprecia-
ble basis, as defined in §1.168(d)-1(b)(4),
for the taxable year the qualified property
is placed in service by the taxpayer, is not
reduced by the allowed or allowable addi-
tional first year depreciation deduction for
that taxable year.
Proposed Applicability Date
These regulations are proposed to ap-
ply to qualified property placed in service
or planted or grafted, as applicable, by the
taxpayer during or after the taxpayer’s
taxable year that includes the date of pub-
lication of a Treasury decision adopting
these rules as final regulations in the Fed-
eral Register. These regulations also are
proposed to apply to components acquired
or self-constructed after September 27,
2017, of larger self-constructed property
for which the manufacture, construction,
or production begins before September
28, 2017, and that is qualified property
under section 168(k)(2) as in effect be-
fore the enactment of the Act and placed
in service by the taxpayer during or after
the taxpayer’s taxable year that includes
the date of publication of a Treasury de-
cision adopting these rules as final regu-
lations in the Federal Register. Pending
the issuance of final regulations, a taxpay-
er may choose to rely on these proposed
regulations, in their entirety, to qualified
property acquired and placed in service
or planted or grafted, as applicable, af-
ter September 27, 2017, by the taxpayer
during taxable years ending on or after
September 28, 2017. Pending the issuance
of final regulations, a taxpayer also may
choose to rely on these proposed regula-
tions, in their entirety, to components ac-
quired or self-constructed after September
27, 2017, of larger self-constructed prop-
erty for which the manufacture, construc-
tion, or production begins before Septem-
ber 28, 2017, and that is qualified property
under section 168(k)(2) as in effect before
the enactment of the Act and placed in ser-
vice by the taxpayer during taxable years
ending on or after September 28, 2017. If
a taxpayer chooses to rely on these pro-
posed regulations, the taxpayer must con-
sistently apply all rules of these proposed
regulations.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 12866 and 13563 di-
rect agencies to assess costs and benefits
of available regulatory alternatives and, if
regulation is necessary, to select regulato-
ry approaches that maximize net benefits
(including (i) potential economic, envi-
ronmental, and public health and safety
effects, (ii) potential distributive impacts,
and (iii) equity). Executive Order 13563
emphasizes the importance of quantifying
both costs and benefits, reducing costs,
harmonizing rules, and promoting flexi-
bility.
These proposed regulations have been
designated as subject to review under
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) (MOA) between the Treasury De-
partment and the Office of Management
and Budget (OMB) regarding review of
tax regulations. The Office of Information
and Regulatory Affairs has designated
these proposed regulations as significant
under section 1(b) of the MOA. Accord-
ingly, the OMB has reviewed these pro-
posed regulations.
A. Background
i. Bonus Depreciation Generally
In general, section 168(k) allows tax-
payers to immediately deduct some por-
tion of investment in certain types of phys-
ical capital, what is colloquially known
as bonus depreciation. The Act changed
section 168(k) in several ways. Arguably
most substantially, the Act increased the
bonus percentage as it applies to prop-
erty generally acquired after September
27, 2017, which accelerates depreciation
deductions. The Act also removed the
“original use” requirement, meaning that
taxpayers could claim bonus depreciation
on “used” property. The Act made several
other modest changes to the operation of
section 168(k). First, it excluded from the
definition of qualified property any prop-
erty used by rate-regulated utilities and
firms (primarily automobile dealerships)
with “floor plan financing indebtedness”
as defined under section 163(j). Further-

October 7, 2019 920 Bulletin No. 2019–41
more, section 168(k)(2)(a)(ii)(IV) and (V)
allowed qualified film, television, and live
theatrical productions (as defined under
Section 181) to qualify for bonus depre-
ciation.
The regulations under §1.168(k)-2
generally provide structure and clar-
ity for the implementation of section
168(k). However, Treasury and the IRS
determined that there remained several
outstanding issues requiring clarification
that should be subject to notice and com-
ment. First, these proposed regulations
address some ambiguities related to the
operation of section 168(k)(9), which
describes some property that is ineligi-
ble for bonus depreciation. Second, these
proposed regulations create a de mini-
mis rule which provides that a taxpayer
will not be deemed to have had a prior
depreciable interest in a property – and
thus that property will be eligible for bo-
nus depreciation in that taxpayer’s hands
– if the taxpayer previously disposed of
that property within 90 days of the date
on which that property was placed in ser-
vice. Third, these proposed regulations
clarify the interpretation of an example in
the August Proposed Regulations regard-
ing an asset acquisition as part of a sale
of a member of a controlled group from
one group to another. Fourth, these pro-
posed regulations modify the treatment
of series of related transactions. Finally,
these proposed regulations provide that
certain components of larger self-con-
structed property can be eligible for the
increased bonus depreciation percentage
even if the construction of such larger
self-constructed property began before
September 28, 2017.
B.No-action Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Feder-
al income tax-related behavior in the ab-
sence of these proposed regulations.
C. Economic Analysis of NPRM
This section describes the main provi-
sions of these proposed regulations and
provides a qualitative economic analysis
of each one.
i. Property Excluded from Bonus
Depreciation by Section 168(k)(9)
As discussed above, section 168(k)
(9) provides that property used by certain
businesses is not eligible for bonus depre-
ciation. These businesses include certain
rate-regulated utilities and motor vehicle
dealerships with floor plan financing in-
debtedness.
These proposed regulations first clari-
fy that those taxpayers that lease property
to such businesses described by section
168(k)(9) may claim bonus depreciation,
so long as other requirements of section
168(k) are met. This approach broadly
follows the existing normalization rules
(which provide generally for the reconcil-
iation of tax income and book income for
regulatory purposes for utilities), which
provides that lessors to public utilities are
not bound by such rules so long as they
themselves are not a public utility. The
Treasury Department and the IRS project
that this guidance will be easy for taxpay-
ers to interpret and comply with. Addi-
tionally, this decision allows businesses to
receive some share of the economic ben-
efit of section 168(k). To the extent that
lessors can claim bonus depreciation, it
is plausible that the market-clearing lease
price for such assets will fall, potentially
enabling some expansions of output and
contributing to economic growth.
These proposed regulations next clarify
which businesses fall under the umbrella
of section 168(k)(9)(A) (utilities) and sec-
tion 168(k)(9)(B) (dealerships with floor
plan financing indebtedness). For utilities,
these proposed regulations clarify that the
“primary use” of an item described in the
Code is consistent with how primary use
is determined in existing regulations un-
der section 167. This application should
be familiar to taxpayers, and thus relative-
ly easy to comply with.
The statutory language of section
168(k)(9)(B) is somewhat more ambigu-
ous, and thus more substantive clarifica-
tions were necessary. First, section 168(k)
(9)(B) provides that dealerships with floor
plan financing indebtedness are ineligible
for bonus depreciation “if the floor plan
financing interest was taken into account
under [section 163(j)(1)(C)].” These pro-
posed regulations clarify that such interest
is in fact “taken into account” only if the
firm in fact received a benefit from section
163(j)(1)(C) – i.e., if total business inter-
est expense (including floor plan financing
interest) exceeds business interest income
plus 30 percent of adjusted taxable in-
come. This decision allows more firms to
claim bonus depreciation than if the Trea-
sury Department and the IRS had made
the opposite interpretation (deeming all
dealerships with floor plan financing inter-
est to be ineligible for bonus depreciation,
regardless of whether the firm received a
benefit from section 163(j)(1)(C)).
The Treasury Department and the IRS
have undertaken an analysis of the invest-
ment effects of this provision, under the
assumption that 10 to 50 percent of af-
fected taxpayers would have come to the
opposite interpretation in the absence of
the proposed regulations. Using tax return
data and parameters from the literature on
the effect of bonus depreciation on invest-
ment, this analysis has found that this pro-
vision would increase investment by an
annual maximum of $20 to $90 million,
although this range would likely decrease
over time as uncertainty over the interpre-
tation of the statute is resolved. Addition-
ally, these proposed regulations will re-
solve a substantial compliance uncertainty
facing these taxpayers.
An additional ambiguity in section
168(k)(9)(B) pertains to the length of
time that the section applies to a given
firm. The section refers to a “trade or
business that has had floor plan financing
indebtedness ... if the floor plan financing
interest related to such indebtedness was
taken into account under [section 163(j)
(1)(C)]”. Consider a firm (Example A)
that received a benefit from section 163(j)
(C)(1) in tax year 2018 (meaning that its
interest deduction would have been small-
er if not for section 163(j)(C)(1)) but not
in tax year 2019 or any other later year.
One interpretation of the statute would
deem that firm forever ineligible for bo-
nus depreciation, in 2019 and later. The
Treasury Department and the IRS came to
the opposite conclusion and deemed that
section 168(k)(9)(B) is determined on an
annual basis: for example, the firm in Ex-
ample A of this part of the Special Analy-
sis section would not be eligible for bonus
depreciation in 2018, but so long as the
other requirements were met, it would be
eligible for bonus depreciation in 2019.

Bulletin No. 2019–41 921 October 7, 2019
As with the interpretation of “taken into
account,” this interpretation enables more
firms to be eligible for bonus deprecia-
tion in more years, potentially increasing
investment by such firms. The Treasury
Department and the IRS expect that some
taxpayers would have come to a different
conclusion regarding the interpretation of
this timing in the absence of these pro-
posed regulations. Therefore, this provi-
sion could also have some economic ef-
fects. The Treasury Department and the
IRS engaged in an analysis on these ef-
fects based on historical tax data, param-
eter values from the economic literature
for the effect of bonus depreciation on
investment, and assumptions regarding
taxpayer interpretations in the absence of
these proposed regulations. The result of
this analysis projects that this provision
will cause investment to increase in this
industry by no greater than $55 million
in any year, and approximately $25 mil-
lion per year on average over the period
from 2019 to 2028. The Treasury Depart-
ment and the IRS additionally project that
some share of this increased investment
will reduce investment in other industries
through crowd-out effects.
Importantly, the estimated effect of this
provision interacts substantially with the
rule that floor plan financing is “taken into
account” only if the firm in fact received
a benefit from section 163(j)(1)(C). In the
absence of the proposed regulations, the
Treasury Department and the IRS project
that some share of taxpayers in this indus-
try would have interpreted section 168(k)
(9)(B) as rendering them ineligible for
bonus depreciation in substantially all cir-
cumstances. Therefore, the effect of both
provisions together is less than the sum
of each of the provisions considered inde-
pendently. In total, the Treasury Depart-
ment and the IRS have determined that
the effect of both rules related to section
168(k)(9)(B), when considered together,
would have a maximum annual effect on
investment in the range of $65 million to
$90 million and declining over time as
uncertainty over the interpretation of the
statute is resolved.
ii. Prior Depreciable Interest
In general, to be eligible for bonus
depreciation, a given property may not
have been owned by the same firm in the
past. This requirement was instituted by
Congress in order to prevent “churning”
of assets, whereby a firm could sell and
soon thereafter repurchase the same asset
in order to claim the 100 percent deduc-
tion. The August Proposed Regulations
defined “ownership” for this purpose
as having a prior depreciable interest.
Section 1.168(k)-2 finalizes this inter-
pretation. These proposed regulations
introduce an exception, providing that a
taxpayer does not have a depreciable in-
terest in a given property if the taxpayer
disposed of the property within 90 days
of the initial date when the property was
placed in service (so long as the asset is
not repurchased and placed in service
again within the same taxable year). The
Treasury Department and the IRS pri-
marily instituted this rule in order to co-
ordinate with the syndication transaction
rules of section 168(k)(E)(2)(iii). The
Treasury Department and the IRS do not
anticipate substantial economic effects
of this provision. Nevertheless, it will
generally have the effect of causing more
property to be eligible for bonus depre-
ciation (increasing incentives to invest),
while minimizing incentives for wasteful
churning of assets.
Furthermore, these proposed regula-
tions clarify that partners in a partnership
hold a depreciable interest in the property
held by that partnership, and that the share
of the property to which this applies equals
the partner’s share of the depreciation de-
ductions of the partnership over a certain
period. The Treasury Department and the
IRS have determined that this provides an
accurate reflection of the partner’s prior
depreciable interest in the property, and
therefore aligns tax consequences and
economic consequences, which is gen-
erally favorable for economic efficiency.
However, as is the case with the “prior
use” rules generally, the Treasury Depart-
ment and the IRS do not project this provi-
sion to substantially affect behavior.
iii. Group Prior Use Rule
These proposed regulations clarify
several aspects of the “Group Prior Use
Rule.” Under that rule, all members of a
consolidated group are treated as having
had a depreciable interest in a property
if any member of the consolidated group
had such a depreciable interest. First,
these proposed regulations clarify that the
rule ceases to be in effect once the consol-
idated group terminates as a result of join-
ing another consolidated group. Second,
these proposed regulations clarify that the
Group Prior Use Rule does not apply to
a corporation after it deconsolidates from
the consolidated group, so long as that
corporation did not in fact own that prop-
erty. As is the case with the prior use rules
generally, the Treasury Department and
the IRS do not anticipate large economic
effects as a result of this section of these
proposed regulations.
iv. Purchases of Assets as Part of
Acquisition of Entire Business
Additionally, these proposed regu-
lations clarify the proper procedure for
certain purchases of assets by a given
corporation from a related party that are
a part of an integrated plan involving the
selling of that corporation from one group
to another. Specifically, these proposed
regulations provide that the deduction
for bonus depreciation is allowed in such
circumstances, and should be claimed by
the acquiring group. These proposed reg-
ulations provide for a similar treatment in
the case of deemed acquisitions in the case
of an election under section 338(h)(10) or
section 336(e). These rules cause the tax
treatment to reflect the economic reality,
in which the acquiring group is bearing
the economic outlay of the asset purchase,
and that acquiring group had no economic
prior depreciable interest. By aligning the
tax consequences with the economic allo-
cations, this treatment minimizes potential
distortions caused by the anti-churning
rules.
v. Component Rule Election
In 2010, Congress increased the bo-
nus percentage from 50 percent to 100
percent for property placed in service be-
tween September 9, 2010 and December
31, 2011. In 2011, the IRS issued Revenue
Procedure 2011-26 to allow taxpayers to
elect to have the 100 percent bonus rate
apply to components of larger self-con-
structed property whose construction be-
gan before September 9, 2010, so long

October 7, 2019 922 Bulletin No. 2019–41
as (1) the components were acquired (or
self-constructed) after than that date and
(2) the larger self-constructed proper-
ty itself qualifies for bonus depreciation
generally. These proposed regulations
provide an analogous rule, replacing Sep-
tember 9, 2010 with September 27, 2017.
This provision will allow more property
to qualify for 100 percent bonus deprecia-
tion. Furthermore, this provision provides
neutrality between taxpayers who acquire
distinct, smaller pieces of depreciable
property and those taxpayers that invest a
similar amount in fewer, larger pieces of
depreciable property whose construction
takes place over a longer period of time.
By treating similar taxpayers (and similar
choices) similarly, this rule enhances eco-
nomic efficiency by minimizing tax-relat-
ed distortions. However, the Treasury De-
partment and the IRS project these rules to
have only a modest effect on future eco-
nomic decisions. These rules affect only
taxpayers (1) that acquire (or self-con-
struct) components after the date of en-
actment of these proposed regulations
and (2) for whom the construction of the
larger self-constructed property began pri-
or to September 28, 2017 (approximately
21 months ago). The Treasury Department
and the IRS expect relatively few taxpay-
ers to be affected by this provision going
forward.
vi. Series of Related Transactions
The August Proposed Regulations
provided that, in a series of related trans-
actions, the relationship between the
transferor and transferee of an asset was
determined only after the final transaction
in the series (the “Series of Related Trans-
action Rule”). Commenters had expressed
confusion regarding whether this applies
to testing whether parties are related under
section 179(d)(2), or whether it applies
more broadly (e.g., in determining wheth-
er the taxpayer had a prior depreciable
interest). These proposed regulations clar-
ify that this Series of Related Transaction
Rule is intended only to test the related-
ness of two parties.
These proposed regulations further
revise the Series of Related Transaction
Rule to address its application in various
situations. Under these proposed regula-
tions, the relatedness is tested after each
step of the series of related transactions,
with the substantial exception that any in-
termediary (i.e., a taxpayer other than the
original transferor or ultimate transferee)
is disregarded so long as that intermedi-
ary (1) never places the property in ser-
vice or (2) disposes of the property in the
same taxable year in which it was placed
in service. This would tend to eliminate
the benefit of the Series of Related Trans-
action Rule in cases where intermediate
transferees maintained use of the prop-
erty for a non-trivial length of time. The
Treasury Department and the IRS project
that this interpretation will prevent abuse.
The Treasury Department and the IRS do
not predict substantial economic effects of
this provision.
vii. Miscellaneous
Lastly, these proposed regulations put
forward rules to the extent existing reg-
ulations apply in slightly new contexts.
In particular, these proposed regulations
clarify when a binding contract is in force
to acquire all or substantially all the as-
sets of a trade or business. Additionally,
consistent with the rules of §1.168(d)-
1(b)(4), these proposed regulations pro-
vide that, for the purpose of determining
whether the mid-quarter convention ap-
plies, depreciable basis is not reduced by
the amount of bonus depreciation. The
Treasury Department and the IRS do not
anticipate large economic effects of these
clarifications, though the additional clari-
ty of these regulations will likely reduce
compliance burdens.
II. Paperwork Reduction Act
The collection of information in these
proposed regulations are in proposed
§1.168(k)-2(c). The collection of infor-
mation in proposed §1.168(k)-2(c) is
an election that a taxpayer may make to
treat one or more components acquired or
self-constructed after September 27, 2017,
of certain larger self-constructed property
as being eligible for the 100-percent ad-
ditional first year depreciation deduction
under section 168(k). The larger self-con-
structed property must be qualified prop-
erty under section 168(k)(2) as in effect
before the enactment of the Act and for
which the manufacture, construction, or
production began before September 28,
2017. The election is made by attaching
a statement to a Federal income tax return
indicating that the taxpayer is making the
election under proposed §1.168(k)-2(c)
and whether the taxpayer is making the
election for all or some of the components
described in proposed §1.168(k)-2(c).
For purposes of the Paperwork Re-
duction Act of 1995 (44 U.S.C. 3507(d))
(PRA), the reporting burden associated
with proposed §1.168(k)-2(c) will be re-
flected in the PRA submission associated
with income tax returns in the Form 1120
series, Form 1040 series, Form 1041 series,
and Form 1065 series (for OMB control
numbers, see chart at the end of this part II
of this Special Analysis section). The esti-
mate for the number of impacted filers with
respect to the collection of information de-
scribed in this part is 0 to 137,000 respon-
dents. Historical data was not available to
directly estimate the number of impacted
filers. This estimate assumes that no more
than 10 percent of income tax return filers
with a nonzero entry on Form 4562 Line
14 (additional first year depreciation de-
duction) will make this election (5 percent
in the case of filers of Form 1040 series).
The IRS estimates the number of affected
filers to be the following:
Tax Forms Impacted
Collection of information
Number of respondents
(estimated)
Forms to which the information may be
attached
Section 1.168(k)-2(c) Election for components of larger
self-constructed property for which the manufacture, con-
struction, or production begins before September 28, 2017
0-137,000Form 1120 series, Form 1040 series,
Form 1041 series, and Form 1065
series
Source: IRS:RAAS:KDA (CDW 6-1-19)

Bulletin No. 2019–41 923 October 7, 2019
The current status of the PRA submis-
sions related to the tax forms that will
be revised as a result of the information
collections in the section 168(k) regula-
tions is provided in the accompanying
table. As described above, the reporting
burdens associated with the information
collections in the regulations are includ-
ed in the aggregated burden estimates for
OMB control numbers 1545-0123 (which
represents a total estimated burden time
for all forms and schedules for corpo-
rations of 3.157 billion hours and total
estimated monetized costs of $58.148
billion ($2017)), 1545-0074 (which rep-
resents a total estimated burden time,
including all other related forms and
schedules for individuals, of 1.784 bil-
lion hours and total estimated monetized
costs of $31.764 billion ($2017)), and
1545-0092 (which represents a total es-
timated burden time, including all other
related forms and schedules for trusts and
estates, of 307,844,800 hours and total es-
timated monetized costs of $9.950 billion
($2016)). The overall burden estimates
provided for the OMB control numbers
below are aggregate amounts that relate
to the entire package of forms associated
with the applicable OMB control number
and will in the future include, but not iso-
late, the estimated burden of the tax forms
that will be created or revised as a result
of the information collections in the reg-
ulations. These numbers are therefore un-
related to the future calculations needed to
assess the burden imposed by the regula-
tions. These burdens have been reported
for other regulations that rely on the same
OMB control numbers to conduct infor-
mation collections under the PRA, and
the Treasury Department and the IRS urge
readers to recognize that these numbers
are duplicates and to guard against over
counting the burden that the regulations
that cite these OMB control numbers im-
posed prior to the Act. No burden esti-
mates specific to the forms affected by the
regulations are currently available. The
Treasury Department and the IRS have
not estimated the burden, including that of
any new information collections, related
to the requirements under the regulations.
For the OMB control numbers discussed
above, the Treasury Department and the
IRS estimate PRA burdens on a taxpay-
er-type basis rather than a provision-spe-
cific basis. Those estimates would capture
changes made by the Act, the final regu-
lations under section 168(k), and those
that arise out of discretionary authority
exercised in these proposed regulations
and other regulations that affect the com-
pliance burden for those forms.
The Treasury Department and the IRS
request comments on all aspects of infor-
mation collection burdens related to the
proposed regulations, including estimates
for how much time it would take to com-
ply with the paperwork burdens described
above for each relevant form and ways for
the IRS to minimize the paperwork bur-
den. In addition, when available, drafts
of IRS forms are posted for comment at
https://apps.irs.gov/app/picklist/list/draft-
TaxForms.htm. IRS forms are available
at https://www.irs.gov/forms-instructions.
Forms will not be finalized until after they
have been approved by OMB under the
PRA.
FormType of FilerOMB Number(s)Status
Form 1040
Individual
(NEW Model)
1545-0074
Published in the Federal Register on 7/20/18. Public Comment period
closed on 9/18/18.
Link: https://www.federalregister.gov/documents/2018/07/20/2018-15627/proposed- collection-comment-request-
for-regulation-project
Form 1041
Trusts and
estates
1545-0092
Published in the Federal Register on 4/4/18. Public Comment period closed
on 6/4/18.
Link: https://www.federalregister.gov/documents/2018/04/04/2018-06892/proposed-collection-comment-re-
quest-for-form-1041
Forms 1065
and 1120
Business
(NEW Model)
1545-0123
Published in the Federal Register on 10/8/18. Public Comment period
closed on 12/10/18.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-c-1120-f-1120-h-1120-nd
III. Regulatory Flexibility Act
It is hereby certified that these proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities within the meaning of sec-
tion 601(6) of the Regulatory Flexibility
Act (5 U.S.C. chapter 6).
Section 168(k) generally affects tax-
payers that own and use depreciable prop-
erty in their trades or businesses or for
their production of income. The reporting
burden in proposed §1.168(k)-2(c) gener-
ally affects taxpayers that elect to have the
100 percent additional first year deprecia-
tion deduction apply to components that
are acquired or self-constructed after Sep-
tember 27, 2017, of depreciable property
for which the manufacture, construction,
or production began before September 28,
2017, and was completed generally before
January 1, 2020. The election is made by
attaching a statement to a Federal income
tax return indicating that the taxpayer
is making the election under proposed
§1.168(k)-2(c) and whether the taxpayer
is making this election for all or some of
the components described in §1.168(k)-
2(c).
For purposes of the PRA, the Trea-
sury Department and the IRS estimate
that there are 0 to 181,500 respondents
of all sizes that are likely to be impact-

October 7, 2019 924 Bulletin No. 2019–41
ed by this collection of information.
Only a small proportion of these filers
are likely to be small entities (business
entities with gross receipts of $25 mil-
lion or less pursuant to section 448(c)
(1)). The Treasury Department and the
IRS estimate the number of filers affect-
ed by proposed §1.168(k)-2(c) to be the
following:
Form Gross receipts of $25 million or lessGross receipts over $25 million
Form 1040 0-12,000
Respondents (estimated)
0-32,500
Respondents (estimated)
Form 10650-1,250
Respondents (estimated)
0-35,000
Respondents (estimated)
Form 1120 0-1,750
Respondents (estimated)
0-11,000
Respondents (estimated)
Form 1120S 0-2,500
Respondents (estimated)
0-41,000
Respondents (estimated)
TOTAL0-29,500
Respondents (estimated)
0-152,000
Respondents (estimated)
Source: IRS:RAAS:KDA (CDW 6-1-19)
Regardless of the number of small
entities potentially affected by these pro-
posed regulations, the Treasury Depart-
ment and the IRS have concluded that
proposed §1.168(k)-2(c) will not have a
significant economic impact on a substan-
tial number of small entities. As a result of
all changes in these proposed regulations,
the Treasury Department and the IRS es-
timate that individual taxpayers who have
gross receipts of $25 million or less and
experience an increase in burden will in-
cur an average increase of 0 to 3 hours,
and business taxpayers that have gross
receipts of $25 million or less and expe-
rience an increase in burden will incur an
average increase of 0 to 2 hours (Source:
IRS:RAAS (8-28-2019)). Because the
election in proposed §1.168(k)-2(c) is one
of several changes in these proposed reg-
ulations, the Treasury Department and the
IRS expect the average increase in burden
to be less for the collection of information
in proposed §1.168(k)-2(c) than the aver-
age increase in burden in the preceding
sentence. The Treasury Department and
the IRS also note that many taxpayers
with gross receipts of $25 million or less
may experience a reduction in burden as
a result of all changes in these proposed
regulations.
Additionally: (1) Many small busi-
nesses are not required to capitalize un-
der section 263(a) the amount paid or
incurred for the acquisition of deprecia-
ble tangible property that costs $5,000
or less if the business has an applicable
financial statement or costs $500 or less
if the business does not have an appli-
cable financial statement, pursuant to
§1.263(a)-1(f)(1); (2) many small busi-
nesses are no longer required to capi-
talize under section 263A the costs to
construct, build, manufacture, install,
improve, raise, or grow depreciable
property if their average annual gross
receipts are $25,000,000 or less; and (3)
a small business that capitalizes costs of
depreciable tangible property may de-
duct under section 179 up to $1,020,000
(2019 inflation adjusted amount) of the
cost of such property placed in service
during the taxable year if the total cost of
depreciable tangible property placed in
service during the taxable year does not
exceed $2,550,000 (2019 inflation ad-
justed amount). Therefore, the Treasury
Department and the IRS have determined
that a substantial number of small enti-
ties will not be subject to these proposed
regulations. Finally, proposed §1.168(k)-
2(c) applies only if the taxpayer chooses
to make an election to a more favorable
rule. Consequently, the Treasury De-
partment and the IRS hereby certify that
these proposed regulations will not have
a significant economic impact on a sub-
stantial number of small entities.
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2019,
that threshold is approximately $154 mil-
lion. These proposed regulations do not
include any Federal mandate that may re-
sult in expenditures by state, local, or trib-
al governments, or by the private sector in
excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not

Bulletin No. 2019–41 925 October 7, 2019
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. These proposed reg-
ulations do not have federalism implica-
tions and do not impose substantial direct
compliance costs on state and local gov-
ernments or preempt state law within the
meaning of the Executive Order.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. All comments will
be available at https://www.regulations.
gov or upon request.
A public hearing is scheduled on No-
vember 13, 2019, beginning at 10 a.m. in
the Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC 20224. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In addi-
tion, all visitors must present photo iden-
tification to enter the building. Because
of access restrictions, visitors will not be
admitted beyond the immediate entrance
area more than 30 minutes before the
hearing starts. For more information about
having your name placed on the build-
ing access list to attend the hearing, see
the FOR FURTHER INFORMATION
CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit an outline of the topics to be
discussed and the time to be devoted to
each topic by October 23, 2019. Submit a
signed paper or electronic copy of the out-
line as prescribed in this preamble under
the ADDRESSES heading. A period of
10 minutes will be allotted to each person
making comments. An agenda showing
the scheduling of the speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
If no outline of the topics to be dis-
cussed at the hearing is received by Oc-
tober 23, 2019, the public hearing will
be cancelled. If the public hearing is can-
celled, a notice of cancellation of the pub-
lic hearing will be published in the Feder-
al Register.
Drafting Information
The principal authors of these proposed
regulations are Kathleen Reed and Eliza-
beth R. Binder of the Office of Associate
Chief Counsel (Income Tax and Account-
ing). However, other personnel from the
Treasury Department and the IRS partici-
pated in their development.
Partial Withdrawal of Proposed
Regulations
Under the authority of 26 U.S.C. 7805
and 26 U.S.C. 1502, §1.168(k)-2(b)(3)
(iii)(B)(3)(i) through (iii), §1.168(k)-2(b)
(3)(iii)(C), and §1.168(k)-2(b)(3)(vi) Ex-
amples 18 through 22 of the notice of pro-
posed rulemaking (REG-104397-18) pub-
lished in the Federal Register on August
8, 2018 (83 FR 39292) are withdrawn.
Statement of Availability
IRS Revenue Procedures and Notices
cited in this preamble are published in the
Internal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.168(k)-2 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.168(k)-2 also issued under
26 U.S.C. 1502.
* * * * *
Par. 2. Section 1.168(k)-0 is amended
by adding entries for §1.168(k)-2(b)(3)
(iii)(C), (b)(3)(v), (b)(5)(iii)(G), (b)(5)(v),
(c), and (g)(11); and adding an entry for
§1.168(k)-2(h)(4) to read as follows:
§1.168(k)-0 Table of contents.
* * * * *
§1.168(k)-2 Additional first year depre-
ciation deduction for property acquired
and placed in service after September 27,
2017.
* * * * *
(b) * * *
(3) * * *
(iii) * * *
(C) Special rules for a series of related
transactions.
* * * * *
(v) Application to members of a con-
solidated group.
* * * * *
(5)* * *
(iii) * * *
(G) Acquisition of a trade or business
or an entity.
* * * * *
(v) Determination of acquisition date
for property not acquired pursuant to a
written binding contract.
* * * * *
(c) Election for components of larger
self-constructed property for which the
manufacture, construction, or production
begins before September 28, 2017.
(1) In general.
(2) Eligible larger self-constructed
property.
(i) In general.
(ii) Exceptions.
(3) Eligible components.
(i) In general.
(ii) Acquired components.
(iii) Self-constructed components.
(4) Special rules.
(i) Installation costs.
(ii) Property described in section
168(k)(2)(B).
(5) Computation of additional first year
depreciation deduction.
(i) Election is made.
(ii) Election is not made.
(6) Time and manner for making elec-
tion.
(i) Time for making election.

October 7, 2019 926 Bulletin No. 2019–41
(ii) Manner of making election.
(7) Examples.
* * * * *
(g) * * *
(11) Mid-quarter convention.
(h) * * *
(4) Regulation project REG-106808-
19.
Par. 3. Section 1.168(k)-2 is amended
by:
1. At the end of paragraph (a)(1), adding
“, except as provided in paragraph (c)
of this section”;
2. Revising paragraph (b)(2)(ii)(F);
3. Adding three sentences at the end of
paragraph (b)(2)(ii)(G);
4. Adding paragraphs (b)(2)(iii)(F), (G),
and (H);
5. Adding paragraphs (b)(3)(iii)(B)(4)
and (5), (b)(3)(iii)(C), (b)(3)(v), and
(b)(3)(vii)(Y) through (HH);
6. Revising the last sentence in para-
graph (b)(5)(ii)(A);
7. In the first sentence in paragraph (b)
(5)(iii)(A), removing the word “A”
at the beginning of the sentence and
adding “Except as provided in para-
graph (b)(5)(iii)(G) of this section, a”
in its place;
8. In the first sentence in paragraph (b)
(5)(iii)(B), removing the word “A”
at the beginning of the sentence and
adding “Except as provided in para-
graph (b)(5)(iii)(G) of this section, a”
in its place;
9. Adding paragraph (b)(5)(iii)(G);
10. In the penultimate sentence in para-
graph (b)(5)(iv)(C)(1), removing the
period at the end of the sentence and
adding “, except as provided in para-
graph (c) of this section.” in its place;
11. In the penultimate sentence in para-
graph (b)(5)(iv)(C)(2), removing the
period at the end of the sentence and
adding “, except as provided in para-
graph (c) of this section.” in its place;
12. Adding paragraph (b)(5)(v);
13. Revising the second sentence in para-
graph (b)(5)(viii) introductory text;
14. Adding paragraph (c);
15. Adding two sentences at the end of
paragraph (e)(1)(iii);
16. Adding paragraph (g)(11);
17. In introductory paragraph (h)(1), re-
moving “paragraphs (h)(2) and (3)”
and adding “paragraphs (h)(2), (3),
and (4)” in its place; and
18. Adding paragraph (h)(4).
The additions and revisions read as fol-
lows:
§1.168(k)-2 Additional first year depre-
ciation deduction for property acquired
and placed in service after September 27,
2017.
* * * * *
(b) * * *
(2) * * *
(ii) * * *
(F) Primarily used in a trade or business
described in section 163(j)(7)(A)(iv), and
placed in service by the taxpayer in any
taxable year beginning after December
31, 2017. For purposes of section 168(k)
(9)(A) and this paragraph (b)(2)(ii)(F), the
term primarily used has the same meaning
as that term is used in §1.167(a)-11(b)(4)
(iii)(b) and (e)(3)(iii) for classifying prop-
erty. This paragraph (b)(2)(ii)(F) does not
apply to property that is leased to a trade
or business described in section 163(j)(7)
(A)(iv) by a lessor’s trade or business that
is not described in section 163(j)(7)(A)
(iv) for the taxable year; or
(G) * * * Solely for purposes of sec-
tion 168(k)(9)(B) and this paragraph (b)
(2)(ii)(G), floor plan financing interest is
not taken into account for the taxable year
by a trade or business that has had floor
plan financing indebtedness if the sum
of the amounts calculated under section
163(j)(1)(A) and (B) for the trade or busi-
ness for the taxable year equals or exceeds
the business interest, as defined in section
163(j)(5), of the trade or business for the
taxable year (which includes floor plan fi-
nancing interest). If the trade or business
has taken floor plan financing interest
into account pursuant to this paragraph
(b)(2)(ii)(G) for a taxable year, this para-
graph (b)(2)(ii)(G) applies to any property
placed in service by that trade or business
in that taxable year. This paragraph (b)(2)
(ii)(G) does not apply to property that is
leased to a trade or business that has had
floor plan financing indebtedness by a
lessor’s trade or business that has not had
floor plan financing indebtedness during
the taxable year or that has had floor plan
financing indebtedness but did not take
into account floor plan financing interest
for the taxable year pursuant to this para-
graph (b)(2)(ii)(G).
(iii) * * *
(F) Example 6. In 2019, a financial institution
buys new equipment for $1 million and then leas-
es this equipment to a lessee that primarily uses the
equipment in a trade or business described in sec-
tion 163(j)(7)(A)(iv). The financial institution is not
described in section 163(j)(7)(A)(iv). As a result,
paragraph (b)(2)(ii)(F) of this section does not apply
to this new equipment. Assuming all other require-
ments are met, the financial institution’s purchase
price of $1 million for the new equipment qualifies
for the additional first year depreciation deduction
under this section.
(G) Example 7. In 2019, F, an automobile dealer,
buys new computers for $50,000 for use in its trade
or business of selling automobiles. For purposes of
section 163(j), F has the following for 2019: $1,000
of adjusted taxable income, $40 of business interest
income, $400 of business interest (which includes
$100 of floor plan financing interest). The sum of
the amounts calculated under section 163(j)(1)(A)
and (B) for F for 2019 is $340 ($40 + ($1,000 x 30
percent)). F’s business interest, which includes floor
plan financing interest, for 2019 is $400. As a result,
F’s floor plan financing interest is taken into account
by F for 2019 pursuant to paragraph (b)(2)(ii)(G)
of this section. Accordingly, F’s purchase price of
$50,000 for the computers does not qualify for the
additional first year depreciation deduction under
this section.
(H) Example 8. The facts are the same as in Ex-
ample 7 in paragraph (b)(2)(iii)(G) of this section. In
2020, F buys new copiers for $30,000 for use in its
trade or business of selling automobiles. For purpos-
es of section 163(j), F has the following for 2020:
$1,300 of adjusted taxable income, $40 of business
interest income, $400 of business interest (which
includes $100 of floor plan financing interest). The
sum of the amounts calculated under section 163(j)
(1)(A) and (B) for F for 2020 is $430 ($40 + ($1,300
x 30 percent)). F’s business interest, which includes
floor plan financing interest, for 2020 is $400. As a
result, F’s floor plan financing interest is not taken
into account by F for 2020 pursuant to paragraph (b)
(2)(ii)(G) of this section. Assuming all other require-
ments are met, F’s purchase price of $30,000 for the
copiers qualifies for the additional first year depreci-
ation deduction under this section.
(3) * * *
(iii) * * *
(B) * * *
(4) De minimis use of property. If a
taxpayer acquires and places in service
property, the taxpayer or a predecessor did
not previously have a depreciable interest
in the property, the taxpayer disposes of
the property to an unrelated party within
90 calendar days after the date the proper-
ty was originally placed in service by the
taxpayer, without taking into account the
applicable convention, and the taxpayer
reacquires and again places in service the
property, the taxpayer’s depreciable inter-
est in the property during that 90-day peri-
od is not taken into account for determin-
ing whether the property was used by the

Bulletin No. 2019–41 927 October 7, 2019
taxpayer or a predecessor at any time prior
to its reacquisition by the taxpayer under
paragraphs (b)(3)(iii)(A)(1) and (b)(3)(iii)
(B)(1) of this section. This paragraph (b)
(3)(iii)(B)(4) does not apply if the taxpay-
er reacquires and again places in service
the property during the same taxable year
the taxpayer disposed of the property. For
purposes of this paragraph (b)(3)(iii)(B)
(4), an unrelated party is a person not de-
scribed in section 179(d)(2)(A) or (B), and
§1.179-4(c)(1)(ii) or (iii), or (c)(2).
(5) Partner’s prior depreciable interest
in property held by partnership. Solely
for purposes of applying paragraphs (b)
(3)(iii)(A)(1) and (b)(3)(iii)(B)(1) and (2)
of this section, a person is treated as hav-
ing a depreciable interest in a portion of
property prior to the person’s acquisition
of the property if the person was a part-
ner in a partnership at any time the part-
nership owned the property. For purposes
of the preceding sentence, the portion of
property that a partner is treated as hav-
ing a depreciable interest in is equal to
the total share of depreciation deductions
with respect to the property allocated to
the partner as a percentage of the total de-
preciation deductions with respect to that
property allocated to all partners during
the current calendar year and five calen-
dar years immediately prior to the part-
nership’s current placed-in-service year of
the property. If the person was not a part-
ner in the partnership for this entire peri-
od, or if the partnership did not own the
property for the entire period, only the pe-
riod during which the person was a partner
and the partnership owned the property is
taken into account for purposes of deter-
mining a partner’s share of depreciation
deductions.
(C) Special rules for a series of relat-
ed transactions—(1) In general. Solely
for purposes of paragraph (b)(3)(iii) of
this section, the relationship between par-
ties under section 179(d)(2)(A) or (B) in
a series of related transactions is tested
immediately after each step in the series,
and between the original transferor and
the ultimate transferee immediately after
the last transaction in the series. A series
of related transactions may include, for
example, a transfer of partnership assets
followed by a transfer of an interest in
the partnership that owned the assets; or
a disposition of property and disposition,
directly or indirectly, of the transferor or
transferee of the property.
(2) Special rules—(i) Property placed
in service and disposed of in same taxable
year or property not placed in service.
Any party in a series of related transac-
tions that is neither the original transferor
nor the ultimate transferee is disregarded
(disregarded party) for purposes of testing
the relationships under paragraph (b)(3)
(iii)(C)(1) of this section if the party places
in service and disposes of the depreciable
property subject to the series, other than in
a transaction described in paragraph (g)(1)
(iii) of this section, during the party’s same
taxable year or if the party does not place
in service the depreciable property subject
to the series for use in the party’s trade or
business or production of income. In this
case, the relationship is tested between the
party from which the disregarded party
acquired the depreciable property and the
party to which the disregarded party dis-
posed of the depreciable property. If the
series has consecutive disregarded parties,
the relationship is tested between the par-
ty from which the first disregarded party
acquired the depreciable property and the
party to which the last disregarded party
disposed of the depreciable property. The
rules for testing the relationships in para-
graph (b)(3)(iii)(C)(1) of this section con-
tinue to apply for the other transactions in
the series and for the last transaction in the
series.
(ii) All section 168(i)(7) transactions.
This paragraph (b)(3)(iii)(C) does not ap-
ply if all transactions in a series of related
transactions are described in paragraph
(g)(1)(iii) of this section (section 168(i)
(7) transactions in which property is trans-
ferred in the same taxable year that the
property is placed in service by the trans-
feror).
(iii) One or more section 168(i)(7)
transactions. Any step in a series of relat-
ed transactions that is neither the original
step nor the ultimate step is disregarded
(disregarded step) for purposes of testing
the relationships under paragraph (b)(3)
(iii)(C)(1) of this section if the step is a
transaction described in paragraph (g)(1)
(iii) of this section. In this case, the rela-
tionship is not tested between the trans-
feror and transferee of that transaction.
Instead, the relationship is tested between
the transferor in the disregarded step and
the party to which the transferee in the
disregarded step disposed of the depre-
ciable property, and the transferee in the
disregarded step and the party to which
the transferee in the disregarded step dis-
posed of the depreciable property. If the
series has consecutive disregarded steps,
the relationship is tested between the
transferor in the first disregarded step and
the party to which the transferee in the last
disregarded step disposed of the deprecia-
ble property, and the transferee in the last
disregarded step and the party to which
the transferee in the last disregarded step
disposed of the depreciable property. The
rules for testing the relationships in para-
graph (b)(3)(iii)(C)(1) of this section con-
tinue to apply for the other transactions in
the series and for the last transaction in the
series.
(iv) Syndication transaction. This para-
graph (b)(3)(iii)(C) does not apply to a
syndication transaction described in para-
graph (b)(3)(vi) of this section.
(v) Application of paragraph (g)(1) of
this section. Paragraph (g)(1) of this sec-
tion applies to each step in a series of re-
lated transactions.
* * * * *
(v) Application to members of a con-
solidated group—(A) In general. Solely
for purposes of applying paragraph (b)
(3)(iii)(A)(1) of this section, if a mem-
ber of a consolidated group, as defined in
§1.1502-1(h), acquires depreciable prop-
erty in which the group had a depreciable
interest at any time prior to the member’s
acquisition of the property, the member is
treated as having a depreciable interest in
the property prior to the acquisition. For
purposes of this paragraph (b)(3)(v)(A), a
consolidated group is treated as having a
depreciable interest in property during the
time any current or previous member of
the group had a depreciable interest in the
property while a member of the group.
(B) Certain acquisitions pursuant to a
series of related transactions. Solely for
purposes of applying paragraph (b)(3)(v)
(A) of this section, if a series of related
transactions includes one or more trans-
actions in which property is acquired by
a member of a consolidated group, and
one or more transactions in which a cor-
poration that had a depreciable interest in
the property, determined without regard
to the application of paragraph (b)(3)(v)

October 7, 2019 928 Bulletin No. 2019–41
(A) of this section, becomes a member of
the group, the member that acquires the
property is treated as having a depreciable
interest in the property prior to the time of
its acquisition.
(C) Sale of depreciable property to a
member that leaves the group. Except as
otherwise provided in paragraph (b)(3)(v)
(E) of this section, if a member of a consol-
idated group (transferee member) acquires
from another member of the same group
(transferor member) depreciable property
in an acquisition meeting the requirements
of paragraph (b)(3)(iii)(A) of this section
without regard to section 179(d)(2)(A) or
(B) or paragraph (b)(3)(v)(A) of this sec-
tion, and if, as part of the same series of
related transactions that includes the ac-
quisition, the transferee member ceases
to be a member of the consolidated group
within 90 calendar days of the date of the
acquisition, then—
(1) The transferor member is treated as
disposing of, and the transferee member is
treated as acquiring, the depreciable prop-
erty one day after the date on which the
transferee member ceases to be a member
of the consolidated group (Deconsolida-
tion Date) for all Federal income tax pur-
poses; and
(2) The transferee member is treat-
ed as placing the depreciable property in
service not earlier than one day after the
Deconsolidation Date for purposes of sec-
tions 167 and 168 and §§1.46-3(d) and
1.167(a)-11(e)(1).
(D) Deemed sales of depreciable prop-
erty under section 338 or 336(e) to a mem-
ber that leaves the group. This paragraph
(b)(3)(v)(D) applies only if a member of
a consolidated group (transferee member)
acquires the stock of another member of
the same group that holds depreciable
property (target) in either a qualified stock
purchase for which a section 338 election
is made or a qualified stock disposition
described in §1.336-2(b)(1) for which a
section 336(e) election is made. Except
as otherwise provided in paragraph (b)(3)
(v)(E) of this section, if the target would
be eligible for the additional first year
depreciation deduction under this section
with respect to the depreciable property
without regard to paragraph (b)(2)(v)(A)
of this section, and if the transferee mem-
ber and the target cease to be members of
the group within 90 calendar days of the
acquisition date, within the meaning of
§1.338-2(c)(1), or disposition date, within
the meaning of §1.336-1(b)(8), as part of
the same series of related transactions that
includes the acquisition, then–
(1) The acquisition date or disposition
date, as applicable, is treated as the date
that is one day after the Deconsolidation
Date for all Federal income tax purposes;
and
(2) New target is treated as placing the
depreciable property in service not earli-
er than one day after the Deconsolidation
Date for purposes of sections 167 and 168
and §§1.46-3(d) and 1.167(a)-11(e)(1).
(E) Disposition of depreciable proper-
ty pursuant to the same series of related
transactions. Paragraph (b)(3)(v)(C) of
this section does not apply if, following
the acquisition of depreciable property,
the transferee member disposes of such
property pursuant to the same series of
related transactions that includes the
property acquisition. Paragraph (b)(3)
(v)(D) of this section does not apply if,
following the deemed acquisition of de-
preciable property, the target disposes of
such property pursuant to the same series
of related transactions that includes the
deemed acquisition. See paragraph (b)(3)
(iii)(C) of this section for rules regarding
the transfer of property in a series of relat-
ed transactions. See also paragraph (g)(1)
of this section for rules regarding property
placed in service and disposed of in the
same taxable year.
* * * * *
(vii) * * *
(Y) Example 25. (1) On September 5, 2017, Y, a
calendar-year taxpayer, acquires and places in ser-
vice a new machine (Machine #1), and begins using
Machine #1 in its manufacturing trade or business.
On November 1, 2017, Y sells Machine #1 to Z, then
Z leases Machine #1 back to Y for 4 years, and Y con-
tinues to use Machine #1 in its manufacturing trade
or business. The lease agreement contains a purchase
option provision allowing Y to buy Machine #1 at
the end of the lease term. On November 1, 2021, Y
exercises the purchase option in the lease agreement
and buys Machine #1 from Z. The lease between Y
and Z for Machine #1 is a true lease for Federal tax
purposes.
(2) Because Y, a calendar-year taxpayer, placed
in service and disposed of Machine #1 during 2017,
Machine #1 is not eligible for the additional first year
depreciation deduction for Y pursuant to §1.168(k)-
1(g)(1)(i).
(3) The use of Machine #1 by Y prevents Z from
satisfying the original use requirement of paragraph
(b)(3)(ii) of this section. However, Z’s acquisition of
Machine #1 satisfies the used property acquisition
requirements of paragraph (b)(3)(iii) of this section.
Assuming all other requirements are met, Z’s pur-
chase price of Machine #1 qualifies for the addition-
al first year depreciation deduction for Z under this
section.
(4) During 2017, Y sold Machine #1 within 90
calendar days of placing in service Machine #1. Pur-
suant to paragraph (b)(3)(iii)(B)(4) of this section,
Y’s depreciable interest in Machine #1 during that
90-day period is not taken into account for determin-
ing whether Machine #1 was used by Y or a prede-
cessor at any time prior to its reacquisition by Y on
November 1, 2021. Accordingly, assuming all other
requirements are met, Y’s purchase price of Machine
#1 on November 1, 2021, qualifies for the addition-
al first year depreciation deduction for Y under this
section.
(Z) Example 26. Parent owns all of the stock of B
and C, which are members of the Parent consolidat-
ed group. C has a depreciable interest in Equipment
#1. During 2018, C sells Equipment #1 to B. Prior
to this acquisition, B never had a depreciable inter-
est in Equipment #1. B’s acquisition of Equipment
#1 does not satisfy the used property acquisition re-
quirements of paragraph (b)(3)(iii) of this section for
two reasons. First, B and C are related parties within
the meaning of section 179(d)(2)(B) and §1.179-4(c)
(2)(iii). Second, pursuant to paragraph (b)(3)(v)(A)
of this section, B is treated as previously having a
depreciable interest in Equipment #1 because B is
a member of the Parent consolidated group and C,
while a member of the Parent consolidated group,
had a depreciable interest in Equipment #1. Accord-
ingly, B’s acquisition of Equipment #1 is not eligible
for the additional first year depreciation deduction.
(AA) Example 27—(1) Facts. Parent owns all of
the stock of D and E, which are members of the Par-
ent consolidated group. D has a depreciable interest
in Equipment #2. No other current or previous mem-
ber of the Parent consolidated group has ever had a
depreciable interest in Equipment #2 while a mem-
ber of the Parent consolidated group. During 2018,
D sells Equipment #2 to BA, a person not related,
within the meaning of section 179(d)(2)(A) or (B)
and §1.179-4(c), to any member of the Parent con-
solidated group. In an unrelated transaction during
2019, E acquires Equipment #2 from BA or another
person not related to any member of the Parent con-
solidated group within the meaning of section 179(d)
(2)(A) or (B) and §1.179-4(c).
(2) Analysis. Pursuant to paragraph (b)(3)(v)(A)
of this section, E is treated as previously having a
depreciable interest in Equipment #2 because E is
a member of the Parent consolidated group and D,
while a member of the Parent consolidated group,
had a depreciable interest in Equipment #2. As a re-
sult, E’s acquisition of Equipment #2 does not satisfy
the used property acquisition requirements of para-
graph (b)(3)(iii) of this section. Thus, E’s acquisition
of Equipment #2 is not eligible for the additional
first year depreciation deduction. The results would
be the same if, after selling Equipment #2 to BA, D
had ceased to be a member of the Parent consolidat-
ed group prior to E’s acquisition of Equipment #2.
(BB) Example 28—(1) Facts. Parent owns all
of the stock of B and S, which are members of the
Parent consolidated group. S has a depreciable in-
terest in Equipment #3. No other current or previous

Bulletin No. 2019–41 929 October 7, 2019
member of the Parent consolidated group has ever
had a depreciable interest in Equipment #3 while a
member of the Parent consolidated group. X is the
common parent of a consolidated group and is not
related, within the meaning of section 179(d)(2)(A)
or (B) and §1.179-4(c), to any member of the Parent
consolidated group. No member of the X consol-
idated group has ever had a depreciable interest in
Equipment #3 while a member of the X consolidated
group. On January 1, 2019, B purchases Equipment
#3 from S. On February 15, 2019, as part of the same
series of related transactions that includes B’s pur-
chase of Equipment #3, Parent sells all of the stock
of B to X. Thus, B leaves the Parent consolidated
group at the end of the day on February 15, 2019, and
joins the X consolidated group on February 16, 2019.
See §1.1502-76(b).
(2) Application of paragraph (b)(3)(v)(C) of this
section. B was a member of the Parent consolidated
group when B acquired Equipment #3 from S, anoth-
er member of the same group. Paragraph (b)(3)(v)
(A) of this section generally treats each member of
a consolidated group as having a depreciable interest
in property during the time any member of the group
had a depreciable interest in such property while a
member of the group. However, B acquired Equip-
ment #3 in a transaction meeting the requirements
of paragraph (b)(3)(iii)(A) of this section, without
regard to section 179(d)(2)(A) or (B) or paragraph
(b)(3)(v)(A) of this section, and Parent sold all of the
stock of B to X within 90 calendar days of B’s ac-
quisition of Equipment #3 as part of the same series
of related transactions that included B’s acquisition
of Equipment #3. Thus, under paragraph (b)(3)(v)
(C) of this section, B’s acquisition of Equipment #3
is treated as occurring on February 16, 2019, for all
Federal income tax purposes.
(3) Eligibility for the additional first year depre-
ciation deduction. B’s acquisition of Equipment #3
on February 16, 2019, under paragraph (b)(3)(v)(C)
of this section satisfies the requirement in paragraph
(b)(3)(iii)(A)(1) of this section because B does not
have a prior depreciable interest in Equipment #3.
In addition, because no member of the X consoli-
dated group previously had a depreciable interest in
Equipment #3 while a member of the X consolidated
group, B is not treated as previously having a de-
preciable interest in Equipment #3 under paragraph
(b)(3)(v)(A) of this section. Further, because the
relation between S and B is tested as if B acquired
Equipment #3 while a member of the X consolidated
group, S and B are neither members nor component
members of the same controlled group on February
16, 2019. Therefore, section 179(d)(2)(A) and (B)
and §1.179-4(c)(1)(ii) and (iii) are satisfied. If the
other requirements of paragraph (b)(3)(iii)(A) of this
section are satisfied, B is treated as placing Equip-
ment #3 in service on a date not earlier than Febru-
ary 16, 2019, while a member of the X consolidated
group. Accordingly, assuming all other requirements
of this section are satisfied, B is eligible to claim
the additional first year depreciation deduction for
Equipment #3 on that date. In addition, because the
sale of Equipment #3 is deemed to occur between S,
a member of the Parent consolidated group, and B, a
member of the X consolidated group, the transaction
is not between members of the same consolidated
group and thus is not covered by section 168(i)(7)
(B)(ii). Therefore, B’s deduction is not limited by
section 168(i)(7)(A) when B is treated, under para-
graph (b)(3)(v)(C) of this section, as placing Equip-
ment #3 in service on a date not earlier than February
16, 2019.
(CC) Example 29—(1) Facts. The facts are the
same as Example 28 in paragraph (b)(3)(viii)(BB)(1)
of this section, except that S owns all of the stock
of T (rather than a depreciable interest in Equipment
#3), which is a member of the Parent consolidated
group; T has a depreciable interest in Equipment #3;
B acquires all of the stock of T (instead of a depre-
ciable interest in Equipment #3) on January 1, 2019;
and S and B make a section 338(h)(10) election for
B’s qualified stock purchase.
(2) Application of paragraph (b)(3)(v)(D) of this
section. As a result of the section 338(h)(10) elec-
tion, Old T is treated as transferring all of its assets,
including Equipment #3, to an unrelated person in a
single transaction in exchange for consideration at
the close of the acquisition date and then transfer-
ring the consideration received to S in liquidation. In
turn, New T is treated as acquiring all of its assets,
including Equipment #3, from an unrelated person in
exchange for consideration on the following day. See
§1.338-1(a)(1). New T was a member of the Parent
consolidated group on January 1, 2019, the date that
New T acquired Equipment #3. Paragraph (b)(3)(v)
(A) of this section generally treats each member of a
consolidated group as having a depreciable interest
in property during the time any member of the group
had a depreciable interest in such property while a
member of the group. However, New T would be eli-
gible for the additional first year depreciation deduc-
tion under this section without regard to paragraph
(b)(3)(v)(A) of this section, and Parent sold all of its
B stock to X within 90 calendar days of New T’s ac-
quisition of Equipment #3 as part of the same series
of related transactions that included the acquisition,
thereby causing B and New T to cease to be members
of the Parent consolidated group at the end of the day
on February 15, 2019. Thus, paragraph (b)(3)(v)(D)
applies to treat the acquisition date as February 16,
2019, for all Federal income tax purposes.
(3) Eligibility for the additional first year de-
preciation deduction. Pursuant to paragraph (b)(3)
(v)(D), Old T is treated as selling its assets to an
unrelated person on February 16, 2019, and New T
is treated as acquiring those assets on the following
day, February 17, 2019. If the other requirements of
paragraph (b)(3)(iii)(A) of this section are satisfied,
New T is treated as placing Equipment #3 in service
on a date not earlier than February 17, 2019, while a
member of the X consolidated group. Accordingly,
assuming all other requirements of this section are
satisfied, New T is eligible to claim the additional
first year depreciation deduction for Equipment #3
when New T places Equipment #3 in service. In ad-
dition, the amount of the deduction is not limited by
section 168(i)(7)(A).
(DD) Example 30—(1) Facts. G, which is not a
member of a consolidated group, has a depreciable
interest in Equipment #4. Parent owns all the stock
of H, which is a member of the Parent consolidated
group. No member of the Parent consolidated group
has ever had a depreciable interest in Equipment #4
while a member of the Parent consolidated group,
and neither Parent nor H is related to G within the
meaning of section 179(d)(2)(A) or (B) and §1.179-
4(c). During 2018, G sells Equipment #4 to a person
not related to G, Parent, or H within the meaning
of section 179(d)(2)(A) or (B) and §1.179-4(c). In
a series of related transactions, during 2019, Par-
ent acquires all of the stock of G, and H purchases
Equipment #4 from an unrelated person.
(2) Analysis. In a series of related transactions, G
became a member of the Parent consolidated group,
and H, also a member of the Parent consolidated
group, acquired Equipment #4. Because G previously
had a depreciable interest in Equipment #4, pursuant
to paragraph (b)(3)(v)(B) of this section, H is treated
as having a depreciable interest in Equipment #4. As
a result, H’s acquisition of Equipment #4 does not
satisfy the used property acquisition requirements of
paragraph (b)(3)(iii) of this section. Accordingly, H’s
acquisition of Equipment #4 is not eligible for the
additional first year depreciation deduction.
(EE) Example 31. (1) In a series of related trans-
actions, a father sells a machine to an unrelated in-
dividual in December 2019 who sells the machine
to the father’s daughter in January 2020 for use in
the daughter’s trade or business. Pursuant to para-
graph (b)(3)(iii)(C)(1) of this section, the time to
test whether the parties are related is immediately
after each step in the series, and between the original
transferor and the ultimate transferee immediately
after the last transaction in the series. As a result,
the following relationships are tested under section
179(d)(2)(A): the father and the unrelated individu-
al, the unrelated individual and the father’s daughter,
and the father and his daughter.
(2) Because the individual is not related to the fa-
ther within the meaning of section 179(d)(2)(A) and
§1.179-4(c)(ii), the individual’s acquisition of the
machine satisfies the used property acquisition re-
quirement of paragraph (b)(3)(iii)(A)(2) of this sec-
tion. Accordingly, assuming all other requirements
of this section are satisfied, the individual’s purchase
price of the machine qualifies for the additional first
year depreciation deduction under this section.
(3) The individual and the daughter are not relat-
ed parties within the meaning of section 179(d)(2)
(A) and §1.179-4(c)(ii). However, the father and his
daughter are related parties within the meaning of
section 179(d)(2)(A) and §1.179-4(c)(ii). According-
ly, the daughter’s acquisition of the machine does not
satisfy the used property acquisition requirements of
paragraph (b)(3)(iii) of this section and is not eligible
for the additional first year depreciation deduction.
(FF) Example 32. (1) The facts are the same as in
Example 31 of paragraph (b)(3)(viii)(EE)(1) of this
section, except that instead of selling to an unrelated
individual, the father sells the machine to his son in
December 2019 who sells the machine to his sister
(the father’s daughter) in January 2020. Pursuant to
paragraph (b)(3)(iii)(C)(1) of this section, the time
to test whether the parties are related is immediately
after each step in the series, and between the original
transferor and the ultimate transferee immediately
after the last transaction in the series. As a result,
the following relationships are tested under section
179(d)(2)(A): the father and his son, the father’s son
and his sister, and the father and the father’s daugh-
ter.
(2) Because the father and his son are related
parties within the meaning of section 179(d)(2)(A)

October 7, 2019 930 Bulletin No. 2019–41
and §1.179-4(c)(ii), the son’s acquisition of the ma-
chine does not satisfy the used property acquisition
requirements of paragraph (b)(3)(iii) of this section.
Accordingly, the son’s acquisition of the machine is
not eligible for the additional first year depreciation
deduction.
(3) The son and his sister are not related par-
ties within the meaning of section 179(d)(2)(A) and
§1.179-4(c)(ii). However, the father and his daugh-
ter are related parties within the meaning of sec-
tion 179(d)(2)(A) and §1.179-4(c)(ii). Accordingly,
the daughter’s acquisition of the machine does not
satisfy the used property acquisition requirements
of paragraph (b)(3)(iii) of this section and is not
eligible for the additional first year depreciation
deduction.
(GG) Example 33. (1) In June 2018, DA, an in-
dividual, bought and placed in service a new ma-
chine from an unrelated party for use in its trade or
business. In a series of related transactions, DA sells
the machine to DB and DB places it in service in
October 2019, DB sells the machine to DC and DC
places it in service in December 2019, and DC sells
the machine to DD and DD places it in service in
January 2020. DA and DB are related parties within
the meaning of section 179(d)(2)(A) and §1.179-4(c)
(ii). DB and DC are related parties within the mean-
ing of section 179(d)(2)(B) and §1.179-4(c)(iii). DC
and DD are not related parties within the meaning of
section 179(d)(2)(A) and §1.179-4(c)(ii), or section
179(d)(2)(B) and §1.179-4(c)(iii). DA is not related
to DC or to DD within the meaning of section 179(d)
(2)(A) and §1.179-4(c)(ii). All parties are calendar
year taxpayers.
(2) DA’s purchase of the machine in June 2018
satisfies the original use requirement of paragraph
(b)(3)(ii) of this section and, assuming all other re-
quirements of this section are met, qualifies for the
additional first year depreciation deduction under
this section.
(3) Pursuant to paragraph (b)(3)(iii)(C)(1) of this
section, the time to test whether the parties in the se-
ries of related transactions are related is immediately
after each step in the series, and between the original
transferor and the ultimate transferee immediate-
ly after the last transaction in the series. However,
because DB placed in service and disposed of the
machine in the same taxable year, DB is disregard-
ed pursuant to paragraph (b)(3)(iii)(C)(2)(i) of this
section. As a result, the following relationships are
tested under section 179(d)(2)(A) and (B): DA and
DC, DC and DD, and DA and DD.
(4) Because DA is not related to DC within the
meaning of section 179(d)(2)(A) and §1.179-4(c)(ii),
DC’s acquisition of the machine satisfies the used
property acquisition requirement of paragraph (b)(3)
(iii)(A)(2) of this section. Accordingly, assuming all
other requirements of this section are satisfied, DC’s
purchase price of the machine qualifies for the ad-
ditional first year depreciation deduction under this
section.
(5) Because DC is not related to DD and DA
is not related to DD within the meaning of section
179(d)(2)(A) and §1.179-4(c)(ii), or section 179(d)
(2)(B) and §1.179-4(c)(iii), DD’s acquisition of the
machine satisfies the used property acquisition re-
quirement of paragraph (b)(3)(iii)(A)(2) of this sec-
tion. Accordingly, assuming all other requirements
of this section are satisfied, DD’s purchase price of
the machine qualifies for the additional first year de-
preciation deduction under this section.
(HH) Example 34. (1) In June 2018, EA, an in-
dividual, bought and placed in service a new ma-
chine from an unrelated party for use in his trade
or business. In a series of related transactions, EA
sells the machine to EB and EB places it in service
in September 2019, EB transfers the machine to EC
in a transaction described in paragraph (g)(1)(iii) of
this section and EC places it in service in November
2019, and EC sells the machine to ED and ED plac-
es it in service in January 2020. EA and EB are not
related parties within the meaning of section 179(d)
(2)(A) and §1.179-4(c)(ii). EB and EC are related
parties within the meaning of section 179(d)(2)(B)
and §1.179-4(c)(iii). EB and ED are related parties
within the meaning of section 179(d)(2)(A) and
§1.179-4(c)(ii), or section 179(d)(2)(B) and §1.179-
4(c)(iii). EC and ED are not related parties within
the meaning of section 179(d)(2)(A) and §1.179-4(c)
(ii), or section 179(d)(2)(B) and §1.179-4(c)(iii). EA
is not related to EC or to ED within the meaning of
section 179(d)(2)(A) and §1.179-4(c)(ii). All parties
are calendar year taxpayers.
(2) EA’s purchase of the machine in June 2018
satisfies the original use requirement of paragraph
(b)(3)(ii) of this section and, assuming all other re-
quirements of this section are met, qualifies for the
additional first year depreciation deduction under
this section.
(3) Pursuant to paragraph (b)(3)(iii)(C)(1) of this
section, the time to test whether the parties in the
series of related transactions are related is immedi-
ately after each step in the series, and between the
original transferor and the ultimate transferee imme-
diately after the last transaction in the series. How-
ever, because EB placed in service and transferred
the machine in the same taxable year in a transaction
described in paragraph (g)(1)(iii) of this section, the
section 168(i)(7) transaction between EB and EC is
disregarded pursuant to paragraph (b)(3)(iii)(C)(2)
(iii) of this section. As a result, the following rela-
tionships are tested under section 179(d)(2)(A) and
(B): EA and EB, EB and ED, EC and ED, and EA
and ED.
(4) Because EA is not related to EB within the
meaning of section 179(d)(2)(A) and §1.179-4(c)(ii),
EB’s acquisition of the machine satisfies the used
property acquisition requirement of paragraph (b)(3)
(iii)(A)(2) of this section. Accordingly, assuming all
other requirements of this section are satisfied, EB’s
purchase price of the machine qualifies for the ad-
ditional first year depreciation deduction under this
section. Pursuant to paragraph (g)(1)(iii) of this sec-
tion, EB is allocated 2/12 of its 100-percent addition-
al first year depreciation deduction for the machine,
and EC is allocated the remaining portion of EB’s
100-percent additional first year depreciation deduc-
tion for the machine.
(5) EC is not related to ED and EA is not re-
lated to ED within the meaning of section 179(d)
(2)(A) and §1.179-4(c)(ii), or section 179(d)(2)(B)
and §1.179-4(c)(iii). However, EB and ED are relat-
ed parties within the meaning of section 179(d)(2)
(A) and §1.179-4(c)(ii), or section 179(d)(2)(B) and
§1.179-4(c)(iii). Accordingly, ED’s acquisition of
the machine does not satisfy the used property ac-
quisition requirements of paragraph (b)(3)(iii) of this
section and is not eligible for the additional first year
depreciation deduction.
* * * * *
(5) * * *
(ii) * * *
(A) * * * For determination of acqui-
sition date, see paragraph (b)(5)(ii)(B) of
this section for property acquired pursuant
to a written binding contract, paragraph
(b)(5)(iv) of this section for self-con-
structed property, and paragraph (b)(5)(v)
of this section for property not acquired
pursuant to a written binding contract.
* * * * *
(iii) * * *
(G) Acquisition of a trade or business
or an entity. A contract to acquire all or
substantially all of the assets of a trade
or business or to acquire an entity (for
example, a corporation, a partnership, or
a limited liability company) is binding if
it is enforceable under State law against
the parties to the contract. The presence
of a condition outside the control of the
parties, including, for example, regulato-
ry agency approval, will not prevent the
contract from being a binding contract.
Further, the fact that insubstantial terms
remain to be negotiated by the parties to
the contract, or that customary conditions
remain to be satisfied, does not prevent the
contract from being a binding contract.
This paragraph (b)(5)(iii)(G) also applies
to a contract for the sale of the stock of a
corporation that is treated as an asset sale
as a result of an election under section
338.
* * * * *
(v) Determination of acquisition date
for property not acquired pursuant to a
written binding contract. Except as pro-
vided in paragraphs (b)(5)(iv), (vi), and
(vii) of this section, the acquisition date
of property that the taxpayer acquires pur-
suant to a contract that does not meet the
definition of a written binding contract in
paragraph (b)(5)(iii) of this section, is the
date on which the taxpayer paid (in the
case of a cash basis taxpayer) or incurred
(in the case of an accrual basis taxpayer)
more than 10 percent of the total cost of
the property, excluding the cost of any
land and preliminary activities such as
planning and designing, securing financ-
ing, exploring, or researching. This para-
graph (b)(5)(v) does not apply to an ac-

Bulletin No. 2019–41 931 October 7, 2019
quisition described in paragraph (b)(5)(iii)
(G) of this section.
* * * * *
(viii) * * * Unless the facts specifically
indicate otherwise, assume that the parties
are not related within the meaning of sec-
tion 179(d)(2)(A) or (B) and §1.179-4(c),
paragraph (c) of this section does not ap-
ply, and the parties do not have predeces-
sors:
* * * * *
(c) Election for components of larger
self-constructed property for which the
manufacture, construction, or production
begins before September 28, 2017—(1)
In general. A taxpayer may elect to treat
any acquired or self-constructed compo-
nent, as described in paragraph (c)(3) of
this section, of the larger self-constructed
property, as described in paragraph (c)
(2) of this section, as being eligible for
the additional first year depreciation de-
duction under this section, assuming all
requirements of section 168(k) and this
section are met. The taxpayer may make
this election for one or more such com-
ponents.
(2) Eligible larger self-constructed
property—(i) In general. Solely for pur-
poses of this paragraph (c) and except as
provided in paragraph (c)(2)(ii) of this
section, the larger self-constructed prop-
erty must be qualified property under
section 168(k)(2), as in effect on the day
before the date of the enactment of the
Act, for which the taxpayer begins the
manufacture, construction, or production
before September 28, 2017. The determi-
nation of when manufacture, construction,
or production of the larger self-construct-
ed property begins is made in accordance
with the rules in §1.168(k)-1(b)(4)(iii)
(B). A larger self-constructed property is
property that is manufactured, construct-
ed, or produced by the taxpayer for its
own use in its trade or business or for its
production of income, or property that is
manufactured, constructed, or produced
for the taxpayer by another person under
a written binding contract, as defined in
§1.168(k)-1(b)(4)(ii), that is entered into
prior to the manufacture, construction,
or production of the property for use by
the taxpayer in its trade or business or for
its production of income. If the taxpayer
enters into a written binding contract, as
defined in paragraph (b)(5)(iii) of this sec-
tion, before September 28, 2017, with an-
other person to manufacture, construct, or
produce the larger self-constructed prop-
erty and the manufacture, construction, or
production of this property begins after
September 27, 2017, paragraph (b)(5)(iv)
of this section applies and paragraph (c) of
this section does not apply.
(ii) Exceptions. This paragraph (c) does
not apply to any larger self-constructed
property that meets at least one of the fol-
lowing criteria—
(A) Is placed in service by the taxpayer
before September 28, 2017;
(B) Is placed in service by the taxpayer
after December 31, 2019, or for property
described in section 168(k)(2)(B) or (C)
as in effect on the day before the date of
the enactment of the Act, after December
31, 2020;
(C) Does not meet the original use re-
quirement in section 168(k)(2)(A)(ii) as
in effect on the day before the date of the
enactment of the Act;
(D) Is described in section 168(k)(9)
and §1.168(k)-2(b)(2)(ii)(F) or (G);
(E) Is described in section 168(g)(1)(F)
and (g)(8) (electing real property trade or
business) or section 168(g)(1)(G) (elect-
ing farming business) and placed in ser-
vice by the taxpayer in any taxable year
beginning after December 31, 2017;
(F) Is qualified leasehold improvement
property, as defined in section 168(e)(6) as
in effect on the day before amendment by
section 13204(a)(1) of the Act, and placed
in service by the taxpayer after December
31, 2017;
(G) Is qualified restaurant property, as
defined in section 168(e)(7) as in effect
on the day before amendment by section
13204(a)(1) of the Act, and placed in ser-
vice by the taxpayer after December 31,
2017;
(H) Is qualified retail improvement
property, as defined in section 168(e)(8) as
in effect on the day before amendment by
section 13204(a)(1) of the Act, and placed
in service by the taxpayer after December
31, 2017;
(I) Is qualified improvement proper-
ty as defined in §1.168(b)-1(a)(5)(i)(A)
(placed in service by the taxpayer after
December 31, 2017); or
(J) Is included in a class of property for
which the taxpayer made an election under
section 168(k)(7) (formerly section 168(k)
(2)(D)(iii)) not to deduct the additional
first year depreciation deduction.
(3) Eligible components—(i) In gen-
eral. Solely for purposes of this paragraph
(c), a component of the larger self-con-
structed property, as described in para-
graph (c)(2) of this section, must be qual-
ified property under section 168(k)(2) and
paragraph (b) of this section.
(ii) Acquired components. Solely for
purposes of this paragraph (c), a binding
contract, as defined in paragraph (b)(5)
(iii) of this section, to acquire a compo-
nent of the larger self-constructed prop-
erty must be entered into by the taxpayer
after September 27, 2017.
(iii) Self-constructed components.
Solely for purposes of this paragraph
(c), the manufacture, construction, or
production of a component of the larger
self-constructed property must begin after
September 27, 2017. The determination of
when manufacture, construction, or pro-
duction of the component begins is made
in accordance with the rules in paragraph
(b)(5)(iv)(B) of this section.
(4) Special rules—(i) Installation
costs. If the taxpayer pays or incurs costs,
including labor costs, to install a compo-
nent of the larger self-constructed prop-
erty, as described in paragraph (c)(2) of
this section, such costs are eligible for ad-
ditional first year depreciation under this
section, assuming all requirements are
met, only if the component being installed
meets the requirements in paragraph (c)
(3) of this section.
(ii) Property described in section
168(k)(2)(B). For purposes of this para-
graph (c), the unadjusted depreciable
basis, as defined in §1.168(b)-1(a)(3),
of qualified property in section 168(k)
(2)(B), as in effect on the day before the
date of the enactment of the Act, is lim-
ited to the property’s unadjusted depre-
ciable basis attributable to the property’s
manufacture, construction, or production
before January 1, 2020. The amounts of
unadjusted depreciable basis attributable
to the property’s manufacture, construc-
tion, or production before January 1,
2020, are referred to as “progress expen-
ditures.” Rules similar to the rules in sec-
tion 4.02(1)(b) of Notice 2007-36 (2007-
17 I.R.B. 1000) (see §601.601(d)(2)(ii)
(b) of this chapter) apply for determining
progress expenditures.

October 7, 2019 932 Bulletin No. 2019–41
(5) Computation of additional first
year depreciation deduction—(i) Election
is made. Before determining the allowable
additional first year depreciation deduc-
tion for property for which the taxpayer
makes the election specified in this para-
graph (c), the taxpayer must determine the
portion of the unadjusted depreciable ba-
sis, as defined in §1.168(b)-1(a)(3), of the
larger self-constructed property, including
all components, attributable to the compo-
nent that meets the requirements of para-
graph (c)(3) of this section (component
basis). The additional first year depreci-
ation deduction for the component basis
is determined by multiplying such com-
ponent basis by the applicable percentage
for the placed-in-service year of the larger
self-constructed property. The additional
first year depreciation deduction for the
remaining unadjusted depreciable basis
of the larger self-constructed property, as
described in paragraph (c)(2) of this sec-
tion, is determined by multiplying such
remaining unadjusted depreciable basis
by the phase-down percentage in section
168(k)(8) applicable to the placed-in-ser-
vice year of the larger self-constructed
property. For purposes of this paragraph
(c), the remaining unadjusted depreciable
basis of the larger self-constructed prop-
erty is equal to the unadjusted depreciable
basis, as defined in §1.168(b)-1(a)(3), of
the larger self-constructed property, in-
cluding all components, reduced by the
sum of the component basis of the com-
ponents for which the taxpayer makes the
election specified in this paragraph (c).
If the phase-down percentage in section
168(k)(8) is zero for the placed-in-service
year of the larger self-constructed proper-
ty, none of the components of the larger
self-constructed property qualify for the
additional first year depreciation deduc-
tion under this section.
(ii) Election is not made. If the taxpay-
er does not make the election specified
in this paragraph (c), the additional first
year depreciation deduction for the larg-
er self-constructed property, including
all components, that is qualified property
under section 168(k)(2), as in effect on
the day before the date of the enactment
of the Act, is determined by multiplying
the unadjusted depreciable basis, as de-
fined in §1.168(b)-1(a)(3), of the larger
self-constructed property, including all
components, by the phase-down percent-
age in section 168(k)(8) applicable to
the placed-in-service year of the larger
self-constructed property.
(6) Time and manner for making elec-
tion—(i) Time for making election. The
election specified in this paragraph (c)
must be made by the due date, including
extensions, of the Federal tax return for
the taxable year in which the taxpayer
placed in service the larger self-construct-
ed property.
(ii) Manner of making election. The
election specified in this paragraph (c)
must be made by attaching a statement
to such return indicating that the taxpay-
er is making the election provided in this
paragraph (c) and whether the taxpayer is
making the election for all or some of the
components described in paragraph (c)(3)
of this section. The election is made sep-
arately by each person owning qualified
property (for example, for each member
of a consolidated group by the common
parent of the group, by the partnership (in-
cluding a lower-tier partnership), or by the
S corporation).
(7) Examples. The application of this
paragraph (c) is illustrated by the follow-
ing examples. Unless the facts specifically
indicate otherwise, assume that the larg-
er self-constructed property is qualified
property under section 168(k)(2) as in
effect on the day before the date of the
enactment of the Act, and the components
acquired or self-constructed after Septem-
ber 27, 2017, are qualified property under
section 168(k)(2) and paragraph (b) of this
section.
(i) Example 1. (A) BC, a calendar year taxpayer,
is engaged in a trade or business described in section
163(j)(7)(A)(iv). In December 2015, BC decided to
construct an electric generation power plant for its
own use. This plant is property described in section
168(k)(2)(B) as in effect on the day before the date
of the enactment of the Act. However, the turbine for
the plant had to be manufactured by another person
for BC. In January 2016, BC entered into a written
binding contract with CD to acquire the turbine. BC
received the completed turbine in August 2017 at
which time BC incurred the cost of the turbine. The
cost of the turbine is 11 percent of the total cost of
the electric generation power plant to be constructed
by BC. BC began constructing the electric generation
power plant in October 2017 and placed in service
this new power plant, including all component parts,
in 2020.
(B) BC uses the safe harbor test in §1.168(k)-1(b)
(4)(iii)(B)(2) to determine when physical work of a
significant nature begins for the electric generation
power plant. Because the turbine that was manu-
factured by CD for BC is more than 10 percent of
the total cost of the electric generation power plant,
physical work of a significant nature for this plant
began before September 28, 2017. None of BC’s ex-
penditures for components of the power plant that
are acquired or self-constructed after September 27,
2017, are eligible for the election specified in this
paragraph (c) because the power plant is described
in section 168(k)(9)(A) and paragraph (b)(2)(ii)(F)
of this section and, therefore, are not eligible for
the election pursuant to paragraph (c)(2)(ii)(D) of
this section. Assuming all requirements are met un-
der section 168(k)(2) as in effect on the day before
the date of the enactment of the Act, the unadjusted
depreciable basis of the power plant, including all
components, attributable to its construction before
January 1, 2020, is eligible for the 30-percent addi-
tional first year depreciation deduction pursuant to
section 168(k)(8).
(ii) Example 2. (A) In August 2017, BD, a calen-
dar-year taxpayer, entered into a written binding con-
tract with CE for CE to manufacture a locomotive for
BD for use in its trade or business. Before September
28, 2017, BD incurred $500,000 of expenses for the
locomotive, which is more than 10 percent of the to-
tal cost of the locomotive. After September 27, 2017,
BD incurred $4,000,000 of expenses for components
of the locomotive. These components were acquired
or self-constructed after September 27, 2017. In Feb-
ruary 2019, CE delivered the locomotive to BD and
BD placed in service the locomotive. The total cost
of the locomotive is $4,500,000. The locomotive is
property described in section 168(k)(2)(B) as in ef-
fect on the day before the date of the enactment of
the Act. On its timely filed Federal income tax re-
turn for 2019, BD made the election specified in this
paragraph (c).
(B) BD uses the safe harbor test in §1.168(k)-1(b)
(4)(iii)(B)(2) to determine when physical work of a
significant nature begins for the locomotive. Because
BD had incurred more than 10 percent of the total
cost of the locomotive before September 28, 2017,
physical work of a significant nature for this loco-
motive began before September 28, 2017. Because
BD made the election specified in this paragraph (c),
the cost of $4,000,000 for the locomotive’s compo-
nents acquired or self-constructed after September
27, 2017, qualifies for the 100-percent additional
first year depreciation deduction, assuming all oth-
er requirements are met. The remaining cost of the
locomotive is $500,000 and such amount qualifies
for the 40-percent additional first year depreciation
deduction pursuant to section 168(k)(8).
(iii) Example 3. (A) In March 2017, BE, a cal-
endar-year taxpayer, decided to construct quali-
fied leasehold improvement property, as defined
in section 168(e)(6) as in effect on the day before
enactment of the Act, for its own use in its trade
or business. This qualified leasehold improvement
property also met the definition of qualified im-
provement property as defined in section 168(k)(3)
as in effect on the day before enactment of the Act.
Physical work of a significant nature for this qual-
ified leasehold improvement property began before
September 28, 2017. After September 27, 2017, BE
acquired components of the qualified leasehold im-
provement property at a cost of $100,000. BE placed
in service the qualified leasehold improvement prop-
erty in February 2018.

Bulletin No. 2019–41 933 October 7, 2019
(B) Because BE placed in service the qualified
leasehold improvement property after December
31, 2017, none of BE’s expenditures of $100,000
for components of the qualified leasehold improve-
ment property that are acquired after September 27,
2017, are eligible for the election specified in this
paragraph (c) pursuant to paragraph (c)(2)(ii)(F) of
this section. Additionally, BE’s unadjusted depre-
ciable basis of the qualified leasehold improvement
property, including all components, is not eligible for
any additional first year depreciation deduction un-
der section 168(k) and this section nor under section
168(k) as in effect on the day before enactment of
the Act.
* * * * *
(e) * * *
(1) * * *
(iii) * * * The amounts of unadjust-
ed depreciable basis attributable to the
property’s manufacture, construction, or
production before January 1, 2020, are re-
ferred to as “progress expenditures.” Rules
similar to the rules in section 4.02(1)(b)
of Notice 2007-36 (2007-17 I.R.B. 1000)
(see §601.601(d)(2)(ii)(b) of this chapter)
apply for determining progress expendi-
tures.
* * * * *
(g) * * *
(11) Mid-quarter convention. In de-
termining whether the mid-quarter con-
vention applies for a taxable year under
section 168(d)(3) and §1.168(d)-1, the
depreciable basis, as defined in §1.168(d)-
1(b)(4), for the taxable year the qualified
property is placed in service by the tax-
payer is not reduced by the allowed or
allowable additional first year deprecia-
tion deduction for that taxable year. See
§1.168(d)-1(b)(4).
(h) * * *
(4) Regulation project REG-106808-
19—(i) In general. Except as provided
in paragraph (h)(4)(ii) of this section, the
rules of this section in this regulation proj-
ect REG-106808-19 apply to—
(A) Qualified property under section
168(k)(2) that is placed in service by the
taxpayer during or after the taxpayer’s
taxable year that includes the date of pub-
lication of a Treasury decision adopting
these rules as final regulations in the Fed-
eral Register;
(B) A specified plant for which the
taxpayer properly made an election to ap-
ply section 168(k)(5) and that is planted,
or grafted to a plant that was previously
planted, by the taxpayer during or after the
taxpayer’s taxable year that includes the
date of publication of a Treasury decision
adopting these rules as final regulations in
the Federal Register; and
(C) Components acquired or self-con-
structed after September 27, 2017, of
larger self-constructed property for which
manufacture, construction, or production
begins before September 28, 2017, and
that is qualified property under section
168(k)(2) as in effect before the enact-
ment of the Act and placed in service by
the taxpayer during or after the taxpayer’s
taxable year that includes the date of pub-
lication of a Treasury decision adopting
these rules as final regulations in the Fed-
eral Register.
(ii) Early application of regulation
project REG-106808-19. A taxpayer may
rely on the provisions of this section in
this regulation project REG-106808-19,
in its entirety, for—
(A) Qualified property under section
168(k)(2) acquired and placed in service
after September 27, 2017, by the tax-
payer during the taxpayer’s taxable year
ending on or after September 28, 2017,
and ending before the taxpayer’s taxable
year that includes the date of publication
of a Treasury decision adopting these
rules as final regulations in the Federal
Register;
(B) A specified plant for which the
taxpayer properly made an election to ap-
ply section 168(k)(5) and that is planted,
or grafted to a plant that was previously
planted, after September 27, 2017, by the
taxpayer during the taxpayer’s taxable
year ending on or after September 28,
2017, and ending before the taxpayer’s
taxable year that includes the date of pub-
lication of a Treasury decision adopting
these rules as final regulations in the Fed-
eral Register; and
(C) Components acquired or self-con-
structed after September 27, 2017, of
larger self-constructed property for which
manufacture, construction, or production
begins before September 28, 2017, and
that is qualified property under section
168(k)(2) as in effect before the enactment
of the Act and placed in service by the tax-
payer during the taxpayer’s taxable year
ending on or after September 28, 2017,
and ending before the taxpayer’s taxable
year that includes the date of publication
of a Treasury decision adopting these
rules as final regulations in the Federal
Register.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on Sep-
tember 17, 2019, 4:15 p.m., and published in the is-
sue of the Federal Register for September 24, 2019,
84 F.R. 50152)

Bulletin No. 2019–41 i October 7, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

October 7, 2019 ii Bulletin No. 2019–41
Numerical Finding List1
Bulletin 2019–41
AOD:
2019-02, 2019-41 I.R.B. 806
Announcements:
2019-07, 2019-27 I.R.B. 62
2019-08, 2019-32 I.R.B. 621
Notices:
2019-12, 2019-27 I.R.B. 57
2019-40, 2019-27 I.R.B. 59
2019-41, 2019-28 I.R.B. 256
2019-42, 2019-29 I.R.B. 352
2019-27, 2019-31 I.R.B. 484
2019-43, 2019-31 I.R.B. 487
2019-24, 2019-31 I.R.B. 489
2019-45, 2019-32 I.R.B. 593
2019-48, 2019-36 I.R.B. 678
2019-46, 2019-37 I.R.B. 695
2019-49, 2019-37 I.R.B. 699
2019-50, 2019-37 I.R.B. 700
2019-47, 2019-39 I.R.B. 731
2019-51, 2019-41 I.R.B. 866
2019-52, 2019-41 I.R.B. 869
Proposed Regulations:
REG-105476-18, 2019-27 I.R.B. 63
REG-106282-18, 2019-28 I.R.B. 259
REG-101828-19, 2019-29 I.R.B. 412
REG-106877-18, 2019-30 I.R.B. 441
REG-121508-18, 2019-30 I.R.B. 456
REG-105474-18, 2019-31 I.R.B. 493
REG-118425-18, 2019-31 I.R.B. 539
REG-130700-14, 2019-36 I.R.B. 681
REG-101378-19, 2019-37 I.R.B. 702
REG-104554-18, 2019-39 I.R.B. 737
REG-104870-18, 2019-39 I.R.B. 754
REG-102508-16, 2019-40 I.R.B. 777
REG-125710-18, 2019-40 I.R.B. 785
REG-106808-19, 2019-41 I.R.B. 912
Revenue Rulings:
2019-16, 2019-28 I.R.B. 96
2019-17, 2019-32 I.R.B. 583
2019-18, 2019-35 I.R.B. 668
2019-19, 2019-36 I.R.B. 674
2019-20, 2019-36 I.R.B. 675
2019-21, 2019-38 I.R.B. 708
2019-22, 2019-40 I.R.B. 776
2019-23, 2019-41 I.R.B. 807
Revenue Procedures:
2019-24, 2019-29 I.R.B. 353
2019-28, 2019-32 I.R.B. 596
2019-29, 2019-32 I.R.B. 620
2019-30, 2019-33 I.R.B. 638
2019-31, 2019-33 I.R.B. 643
2019-32, 2019-33 I.R.B. 659
2019-33, 2019-34 I.R.B. 662
2019-34, 2019-35 I.R.B. 669
2019-23, 2019-38 I.R.B. 725
2019-36, 2019-38 I.R.B. 729
2019-37, 2019-39 I.R.B. 731
2019-35, 2019-41 I.R.B. 870
Treasury Decisions:
9863, 2019-27 I.R.B. 1
9864, 2019-27 I.R.B. 6
9865, 2019-27 I.R.B. 27
9867, 2019-28 I.R.B. 98
9868, 2019-28 I.R.B. 252
9866, 2019-29 I.R.B. 261
9861, 2019-30 I.R.B. 433
9869, 2019-30 I.R.B. 438
9862, 2019-31 I.R.B. 477
9872, 2019-32 I.R.B. 585
9871, 2019-33 I.R.B. 624
9873, 2019-33 I.R.B. 630
9874, 2019-41 I.R.B. 809
9875, 2019-41 I.R.B. 856
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2019–41 iii October 7, 2019
Finding List of Current Actions on
Previously Published Items1
Bulletin 2019–41
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Internal Revenue Service
Washington, DC 20224
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