Taxpayers Have until Dec. 31, 2003 to Elect Out of Mid-Quarter Convention for 2001

Notice 2003-45 allows taxpayers until Dec. 31, 2003 to elect not to apply the mid-quarter convention to property placed in service in the tax year that included 2001, if the third or fourth quarter of the taxpayers tax year included Sept. 11, 2001.

Under Sec. 168(d)(3), the mid-quarter convention is the applicable depreciation convention for all property placed in service during the tax year, if the aggregate basis of property placed in service during the last three months of the tax year exceeds 40% of the aggregate basis of property placed in service during the tax year.

Notice 2001-70 allowed taxpayers to elect not to apply the mid-quarter convention rules to property placed in service in the tax year that included Sept. 11, 2001, if the third quarter of the taxpayers tax year included that date. It provided that, pending issuance of regulations, an eligible taxpayer that wished to elect not to apply the mid-quarter convention rules could make the election by writing Election Pursuant to Notice 2001-70 across the
top of Form 4562, Depreciation and Amortization, for the taxpayers tax year that included Sept. 11, 2001.

Notice 2001-74 expanded Notice 2001-70 by permitting taxpayers to elect not to apply the mid-quarter convention rules if the fourth quarter of the taxpayers tax year included Sept. 11, 2001. That notice also provided guidance for taxpayers that file Form 2106, Employee Business Expenses, rather than Form 4562, or that file their returns electronically, to elect not to apply the mid-quarter convention rules. Under both notices, the taxpayer was required to make the election on its return for the tax year that included Sept. 11, 2001. No provision was made for an eligible taxpayer wishing to amend its return to make the election.

Certain taxpayers did not receive notice of the availability of this election until after they filed returns for their tax year that included Sept. 11, 2001. Notice 2003-45 is intended to relieve taxpayers of the burden of applying for an extension of time pursuant to Regs. Sec. 301.9100-3 to make the election on an amended return for that year.

Accordingly, a taxpayer qualifying under either notice who filed a timely return for the tax year that includes Sept.11, 2001 is granted an automatic extension of time until Dec. 31, 2003, to amend its return for the tax year that includes Sept. 11, 2001, and any subsequent tax years, to make the election under Notice 2001-70 or 2001-74 and reflect any necessary adjustments. The election on the amended return is made in the same manner provided in Notices 2001-70 and 2001-74.

Notice 2003-45, IRB 2003-29, 86