IRS Revenue Procedure 2011-14: Claiming 179D Deductions Without Amending Tax Returns

IRS Revenue Procedure 2011-14: Energy efficiency and claiming the §179D deduction as far back as 1/1/2006 without amending any tax returns.

The §179D tax deduction came about as part of the Energy Policy Act of 2005 (EPAct). Congress wanted to incentivize the utilization of energy-efficiency components in a building to one of the following parties:

  1. The owner of the building
  2. The tenant
  3. The primary designer of an energy-efficient government building. (Architect, engineer, contractor etc.)

The deduction available is up to $.60 per sq.ft. for lighting, HVAC and building envelope, creating potential for $1.80 per sq.ft. if all three components qualify.  These deductions are applicable to buildings that were either built or retrofitted after 12/31/2005.

Since EPAct came into effect, the IRS has provided interim guidance on EPAct deductions through several additional notices. IRS Notice 2006-52 describes in detail the rules and how to ensure a building qualifies if it was a new build or a retrofit. It requires the taxpayer to obtain certification that the property satisfies the energy efficiency requirements of 179D and specifies the software that must be used to calculate energy and power consumption.  To further the cause, the IRS issued Notice 2008-40, which allowed a government building (non-taxpaying entity) to pass the deduction to the “primary designer” of the qualifying assets.

Until recently, taxpayers looking to claim the §179D deduction were limited by the three year statute of limitations for filing amended income tax returns for a particular tax year. That has changed with the issuance of Revenue Procedure 2011-14, which will allow some taxpayers to bypass this statute of limitations and claim this deduction all the way back to 1/1/2006 without filing one single amended income tax return. Taxpayers who wish to take the deduction without amending any returns will file a Form 3115 (Application for Change in Accounting Method) and will get to take the entire “catch up” deduction on the return that is being filed. This means that a taxpayer could potentially claim deductions from 2006-2010 (or 2011) all on one return and significantly reduce their tax burden, if not eliminate it altogether.

Deciding whether or not to amend returns or file for a Change in Accounting Method (Form 3115) is entirely dependent upon each taxpayer’s situation. If taxable income was higher in open years and therefore the taxpayer was in a higher tax bracket, it still may make sense to amend those returns. The impact of Revenue Procedure 2011-14 will also depend on whether or not any deductions have already been claimed or returns have been amended. A thorough analysis of each taxpayer’s scenario by an advisor experienced in §179D is advantageous to determining the best approach and claiming the maximum deduction allowed under the law.