Rev. Proc. 2017-33

Where this comes from

Section 168(k)(5) was added to the tax code by the Tax Relief Act of 2010. It created a special bonus depreciation election for specified plants, which include trees or vines that produce fruit or nuts, such as orchards and vineyards.

Under the general rule, these plants would not qualify for bonus depreciation because they are grown over several years before bearing fruit. The 168(k)(5) election lets a qualifying producer claim the bonus in the year of planting or grafting rather than waiting for the plant to be placed in service.

Revenue Procedure 2017-33, published in May 2017, replaced prior guidance and set the current rules for making and revoking the election.

What it established

The procedure tells a taxpayer how to make the 168(k)(5) election: attach a statement to the return for the year the plant is planted or grafted, describing the property and the election being made. The election applies to all specified plants planted or grafted in that taxable year.

A taxpayer who wants to revoke the election generally needs IRS consent. But the procedure includes a 6-month automatic extension. If the original return was filed before the revocation, the taxpayer can file an amended return within 6 months of the original due date to revoke the election without needing prior IRS approval.

The procedure also addresses partial elections. A taxpayer cannot make the 168(k)(5) election for some specified plants in a year and not others within the same asset class. It is all-or-nothing for the class.

How it shows up in a study

This procedure has limited direct application in most cost segregation studies, which focus on buildings and their components rather than agricultural plants. However, it shows the structure of election-making that runs throughout the 168(k) rules.

For agricultural operations with orchard or vineyard development, the 168(k)(5) election can produce a large first-year deduction in the planting year. A study that also covers farm buildings, packing facilities, or equipment sheds would address the 168(k) component separately from the plant election.

What it does not mean

This procedure is narrow in scope. It applies only to specified plants under 168(k)(5), not to the broader bonus depreciation rules for equipment and buildings.

It also does not change the fundamental requirement that the taxpayer must be the one who plants or grafts the specified plant. Buyers of an existing orchard do not get the election for the trees already in the ground. The election is for the year of planting or grafting by the producer making the election.