Urgent Notice

New Proposal to Permit Immediate Expensing of Plant and Equipment Placed in Service in 2011

      Undoubtedly, you have heard President Obama announce that one element of the tax compromise with Republicans would be a new provision permitting the immediate expensing of expenditures for depreciable property placed in service in 2011.  At this point, there is no written description of the proposal and few details are available.  However, a word of caution is in order.

      When this proposal was initially floated a few months ago, we checked informally with the Treasury Department as to what would be the model for determining what property would qualify and what rules would govern the application of the immediate expensing proposal.  We were told that the model that the Treasury envisioned would be patterned after Section 168(k) (bonus depreciation), not section 179 (immediate expensing for $250,000 of property in existing law).  While we do not know whether that will be the approach that this newly-announced proposal will adopt, if the newly-announced proposal does follow the section 168(k) model, there is a danger that any binding contract to acquire plant and equipment entered into prior to December 31, 2010, will be ineligible for the 2011 immediate expensing provision.  Please take that possibility into account in your planning until further guidance is forthcoming.

      Second, the type of property that qualifies for bonus depreciation under section 168(k) is somewhat different than the type of property that qualifies for immediate expensing under section 179.  Accordingly, if section 168(k) turns out to be the model that the newly-announced proposal will follow, please look to the section 168(k) provisions for guidance as to what types of property will qualify for the new expensing provision.