n-06-67.pdf

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Part III – Administrative, Procedural, and Miscellaneous

GO Zone Bonus Depreciation

Notice 2006-67

SECTION 1. PURPOSE
This notice provides guidance with respect to the 50-percent additional first year
depreciation deduction provided by § 1400N(d) of the Internal Revenue Code (GO Zone
additional first year depreciation deduction) for qualified Gulf Opportunity Zone property
(GO Zone property).
SECTION 2. BACKGROUND AND GO ZONE PROPERTY
.01 Section 1400N(d), added by section 101 of the Gulf Opportunity Zone Act of
2005, Pub. L. No. 109-135, 119 Stat. 2577, generally allows a 50-percent additional first
year depreciation deduction for GO Zone property. The GO Zone additional first year
depreciation deduction is allowable in the taxable year in which the GO Zone property is
placed in service by the taxpayer. The computation of the allowable GO Zone
additional first year depreciation deduction and the otherwise allowable depreciation
deduction for GO Zone property is made in accordance with rules similar to the rules for
50-percent bonus depreciation property in § 1.168(k)-1T(d)(1)(i), (1)(iii), and (2) of the
Income Tax Regulations.
.02 GO Zone property is depreciable property that meets all of the following
requirements:

(1) Property that is described in § 168(k)(2)(A)(i) and § 1.168(k)-1T(b)(2)(i), or
property that is nonresidential real property (as defined in § 168(e)(2)(B)) or residential
rental property (as defined in § 168(e)(2)(A)) and depreciated under § 168;
(2) Substantially all of the use of the property is in the Gulf Opportunity (GO)
Zone (as defined in § 1400M(1)) and in the active conduct of a trade or business by the
taxpayer in the GO Zone (for further guidance, see section 3 of this notice);
(3) The original use of the property commences with the taxpayer in the GO
Zone on or after August 28, 2005. For purposes of this section 2.02(3), rules similar to
the original use rules in § 1.168(k)-1T(b)(3) apply. In addition, used property will satisfy
the original use requirement so long as the property has not been previously used within
the GO Zone;
(4) The property is acquired by the taxpayer by purchase (as defined in
§ 179(d) and § 1.179-4(c)) on or after August 28, 2005, but only if no written binding
contract for the acquisition of the property was in effect before August 28, 2005. For
purposes of this section 2.02(4), the rules in § 1.168(k)-1T(b)(4)(ii) (binding contract),
rules similar to the rules in § 168(k)(2)(E)(i) and § 1.168(k)-1T(b)(4)(iii) (self-constructed
property), and rules similar to the rules in § 168(k)(2)(E)(iv) and § 1.168(k)-1T(b)(4)(iv)
(disqualified transactions) apply; and
(5) The property is placed in service by the taxpayer on or before December
31, 2007 (December 31, 2008, in the case of qualified nonresidential real property and
residential rental property).
.03 Depreciable property is not eligible for the GO Zone additional first year
depreciation deduction if:

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(1) The property is described in § 168(k)(2)(D)(i) and § 1.168(k)-
1T(b)(2)(ii)(A)(2);
(2) The property is described in § 168(f);
(3) Any portion of the property is financed with the proceeds of any obligation
the interest on which is tax-exempt under § 103;
(4) The property is a qualified revitalization building (as defined in § 1400I(b))
for which the taxpayer has made an election under § 1400I(a)(1) or (a)(2) in accordance
with section 7 of Rev. Proc. 2003-38 (2003-1 C.B. 1017);
(5) The property is included in any class of property for which the taxpayer
elects not to deduct the GO Zone additional first year depreciation (for further guidance,
see section 4 of this notice);
(6) The property is described in § 1400N(p)(3) (for further guidance, see
section 5 of this notice);
(7) The property is placed in service and disposed of during the same taxable
year. However, rules similar to the rules in § 1.168(k)-1T(f)(1)(ii) and (iii) (technical
termination of a partnership under § 708(b)(1)(B) or transactions described in
§ 168(i)(7)) apply; or
(8) The property is converted from business or income-producing use to
personal use in the same taxable year in which the property is placed in service by a
taxpayer.
.04 The counties and parishes in Alabama, Louisiana, and Mississippi that
comprise the GO Zone are listed on page 2 of IRS Publication 4492, Information for

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Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, under Gulf Opportunity
(GO) Zone (Core Disaster Area).
.05 If depreciable property is not GO Zone property in the taxable year in which
the property is placed in service by the taxpayer, the GO Zone additional first year
depreciation deduction is not allowable for the property even if a change in use of the
property subsequent to the placed-in-service year of the property results in the property
being GO Zone property. See § 1.168(k)-1T(f)(6)(iv)(B).
.06 Limitation provisions of the Code (for example, §§ 465, 469, and 704(d))
apply and may limit the amount of the GO Zone additional first year depreciation
deduction that may be claimed by a taxpayer subject to such a provision.
SECTION 3. SUBSTANTIALLY ALL AND ACTIVE CONDUCT REQUIREMENTS
UNDER § 1400N(d)(2)(A)(ii)
.01 Substantially All Requirement. Each depreciable property will meet the
requirements of § 1400N(d)(2)(A)(ii) if substantially all of the use of the property is in the
GO Zone and in the active conduct of a trade of business by the taxpayer in the GO
Zone. For this purpose, the term “substantially all” means 80 percent or more during
each taxable year. If greater than 20 percent of the use of the property either is outside
the counties and parishes designated as being part of the GO Zone or is not in the
active conduct of a trade or business by the taxpayer in the GO Zone, then the property
is not GO Zone property and is not eligible for the GO Zone additional first year
depreciation deduction.
The following example illustrates the provisions of this section 3.01 and section
2.05 of this notice.

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Example. A, a calendar-year taxpayer, owns and operates a furniture store in
the GO Zone. In December 2006, A purchases a new delivery truck and places it in
service for use in
A’s business. The delivery truck is used less than 80 percent in the
GO Zone in 2006 and is used 80 percent or more in the GO Zone in 2007 and 2008.
Because the delivery truck does not meet the substantially all requirement described in
this section 3.01 in its placed-in-service year (2006), the truck is not GO Zone property.
Thus, the truck does not qualify for the GO Zone additional first year depreciation
deduction, regardless of the fact that substantially all of the use of the truck is in the GO
Zone in 2007 and 2008.
.02
Active Conduct of a Trade or Business Requirement.
(1) Trade or business definition. For purposes of § 1400N(d)(2)(A)(ii), the term
“trade or business” has the same meaning as in § 162 and the regulations thereunder.
Thus, property held merely for the production of income or used in an activity not
engaged in for profit (as described in § 183) does not qualify for the GO Zone additional
first year depreciation deduction.
(2)
Active conduct. Solely for purposes of § 1400N(d)(2)(A)(ii), the
determination of whether a trade or business is actively conducted by the taxpayer is to
be made based on all of the facts and circumstances. A taxpayer generally is
considered to actively conduct a trade or business if the taxpayer meaningfully
participates in the management or operations of the trade or business. Furthermore, for
purposes of § 1400N(d)(2)(A)(ii), a partner, member, or shareholder of a partnership,
limited liability company, or S corporation, respectively, is considered to actively conduct
a trade or business of the partnership, limited liability company, or S corporation if the

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partnership, limited liability company, or S corporation meaningfully participates
(through the activities performed by itself, or by others on behalf of the partnership,
limited liability company, or S corporation, respectively) in the management or
operations of the trade or business. Similar rules apply to other pass-thru entities such
as trusts or estates.
(3) Examples. The following examples illustrate the provisions of section 3.02
of this notice.
(a) Example 1. During 2006, MNO, a limited liability company, constructs and
places in service a new apartment building in the GO Zone. MNO is treated as a
partnership for federal tax purposes. B, a member in MNO, manages and operates this
apartment building for MNO. Because B manages and operates the apartment building
for
MNO, MNO meaningfully participates in the management and operations of the
apartment building. Consequently, all of the use of the apartment building is in the GO
Zone and in the active conduct of a trade or business by
MNO in the GO Zone.
Accordingly, the unadjusted depreciable basis (as defined in § 1.168(b)-1T(a)(3)) of the
apartment building qualifies for the GO Zone additional first year depreciation deduction
(assuming all other requirements are met). However, limitation provisions of the Code
(for example, § 469) apply and may limit the amount of the GO Zone additional first year
depreciation deduction that may be claimed by the members of
MNO.
(b) Example 2. During 2006, C, an individual, places in service a new
restaurant in the GO Zone and employs
D to operate it. During 2006, C periodically met
with
D to review operations relating to the restaurant. C also approved the restaurant's
budget for 2006 that was prepared by
D. D performs all the necessary operating

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functions, including hiring chefs, acquiring the necessary food and restaurant supplies,
and writing the checks to pay all bills and the chefs' salaries. Based on these facts and
circumstances,
C meaningfully participates in the management of the restaurant.
Consequently, all of the use of the restaurant is in the GO Zone and in the active
conduct of a trade or business by
C in the GO Zone. Accordingly, the unadjusted
depreciable basis of the restaurant qualifies for the GO Zone additional first year
depreciation deduction (assuming all other requirements are met). However, limitation
provisions of the Code (for example, § 469) apply and may limit the amount of the GO
Zone additional first year depreciation deduction that may be claimed by
C.
(c) Example 3. During 2006, PRS, a partnership, constructs and places in
service a new small commercial building in the GO Zone and leases it to E, an
unrelated party, who uses the building as a fast food restaurant. This building is the
only property owned by
PRS. The lease agreement between PRS and E is a triple net
lease under which
E is responsible for all of the costs relating to the building (for
example, paying all taxes, insurance, and maintenance expenses) in addition to paying
rent. Because of the triple net lease,
PRS does not meaningfully participate in the
management or operations of the building and the building is not used in the active
conduct of a trade or business by PRS in the GO Zone. Accordingly, the building does
not qualify for the GO Zone additional first year depreciation deduction.
(d)
Example 4. Same facts as Example 3, except that PRS, during 2006,
constructs and places in service two other new commercial buildings in the GO Zone
and leases these buildings to F, an unrelated party, who uses the two other buildings as
office space. The lease agreement between
PRS and F is not a triple net lease. G, a

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partner in PRS, manages and operates the two office buildings for PRS. Because G
manages and operates the two office buildings for PRS, PRS meaningfully participates
in the management and operations of the two office buildings. Consequently, these two
office buildings are used in the active conduct of a trade or business by
PRS in the GO
Zone. Accordingly, the total unadjusted depreciable basis of the two office buildings
leased to F qualifies for the GO Zone additional first year depreciation deduction
(assuming all other requirements are met). However, limitation provisions of the Code
(for example, § 469) apply and may limit the amount of the GO Zone additional first year
depreciation deduction that may be claimed by the partners of
PRS with respect to the
two buildings leased to F. Further, because the requirements of § 1400N(d)(2)(A)(ii)
apply on a property-by-property basis, the building leased to E does not qualify for the
GO Zone additional first year depreciation deduction, as provided in
Example 3.
SECTION 4. ELECTION NOT TO DEDUCT GO ZONE ADDITIONAL FIRST YEAR
DEPRECIATION
.01 In General. Pursuant to § 1400N(d)(2)(B)(iv), a taxpayer may make an
election not to deduct the GO Zone additional first year depreciation for any class of
property that is GO Zone property placed in service during the taxable year. If a
taxpayer makes this election, then the election applies to all GO Zone property that is in
the same class of property and placed in service in the same taxable year, and no
additional first year depreciation deduction is allowable for the class of property. In
addition, the depreciation adjustments under § 56 apply to that property for purposes of
computing the taxpayer’s alternative minimum taxable income. The election not to
deduct the GO Zone additional first year depreciation is made by each person owning

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GO Zone property (for example, for each member of a consolidated group by the
common parent of the group, by the partnership, or by the S corporation).
.02
Definition of Class of Property. For purposes of the election under
§ 1400N(d)(2)(B)(iv) not to deduct the GO Zone additional first year depreciation, the
term "class of property" means:
(1) Except for the property described in this section 4.02(2), (3), (4), (5), and
(6), each class of property described in § 168(e) (for example, 5-year property);
(2) Water utility property as defined in § 168(e)(5) and depreciated under
§ 168;
(3) Computer software as defined in, and depreciated under, § 167(f)(1) and
the regulations thereunder;
(4) Qualified leasehold improvement property as defined in § 168(k)(3) and
§ 1.168(k)-1T(c) and depreciated under § 168;
(5) Nonresidential real property as defined in § 168(e)(2)(B) and depreciated
under § 168; or
(6) Residential rental property as defined in § 168(e)(2)(A) and depreciated
under § 168.
.03 Time and Manner of Making the Election.
(1)
In general. An election not to deduct the GO Zone additional first year
depreciation for any class of property that is GO Zone property placed in service during
the taxable year must be made by the due date (including extensions) of the federal
income tax return for the taxable year in which the GO Zone property is placed in

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service by the taxpayer. The election must be made in the manner prescribed on Form
4562, Depreciation and Amortization, and its instructions.
If a taxpayer files its 2004 or 2005 federal income tax return on or after
September 13, 2006, then the taxpayer must follow the instructions for the 2005 Form
4562 (Rev. January 2006) for the manner for making the election not to deduct the GO
Zone additional first year depreciation for any class of property that is GO Zone property
placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s
taxable year beginning in 2004 or 2005 (2004 or 2005 taxable year). If a taxpayer files
its 2004 or 2005 federal income tax return before September 13, 2006, then see section
4.03(2) of this notice for the procedures for making the election not to deduct the GO
Zone additional first year depreciation for any class of property that is GO Zone property
placed in service by the taxpayer on or after August 28, 2005, during the taxpayer’s
2004 or 2005 taxable year.
(2) Special rules for 2004 or 2005 federal income tax return filed before
September 13, 2006.
(a)
In general. If a taxpayer files its 2004 or 2005 federal income tax return
before September 13, 2006, then the taxpayer has made the election not to deduct the
GO Zone additional first year depreciation for a class of property that is GO Zone
property placed in service by the taxpayer on or after August 28, 2005, during the
taxpayer’s 2004 or 2005 taxable year, if the taxpayer:
(i) made the election within the time prescribed in section 4.03(1) of this
notice and in the manner prescribed in the instructions for the 2005 Form 4562 (Rev.
January 2006) (that is, attach a statement to the taxpayer’s timely filed return (including

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extensions) indicating the class of property for which the taxpayer is making the election
and that, for such class of property, the taxpayer is electing not to claim the GO Zone
additional first year depreciation deduction); or
(ii) made the deemed election provided for in section 4.03(2)(b) of this
notice.
(b) Deemed election. If section 4.03(2)(a)(i) of this notice does not apply, a
taxpayer that files its 2004 or 2005 federal income tax return before September 13,
2006, will be treated as having made the election not to deduct the GO Zone additional
first year depreciation for a class of property that is GO Zone property placed in service
by the taxpayer on or after August 28, 2005, during the taxpayer’s 2004 or 2005 taxable
year, if the taxpayer:
(i) on that return, did not claim the GO Zone additional first year
depreciation deduction for that class of property but did claim depreciation; and
(ii) does not file an amended federal tax return for the taxpayer's 2004 or
2005 taxable year on or before February 14, 2007, or a Form 3115, Application for
Change in Accounting Method, with the taxpayer's federal tax return for the taxpayer's
next succeeding taxable year, to claim the GO Zone additional first year depreciation
deduction for that class of property.
If a Form 3115 is filed under section 4.03(2)(b)(ii) of this notice, the Form 3115
must be filed in accordance with the automatic change in method of accounting
provisions of Rev. Proc. 2002-9, 2002-1 C.B. 327, as modified and clarified by
Announcement 2002-17, 2002-1 C.B. 561, modified and amplified by Rev. Proc. 2002-
19, 2002-1 C.B. 696, and amplified, clarified, and modified by Rev. Proc. 2002-54,

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2002-2 C.B. 432, or any successor. The change in method of accounting from filing the
Form 3115 results in a § 481(a) adjustment. Further, the scope limitations in section
4.02 of Rev. Proc. 2002-9 do not apply. Moreover, for purposes of section 6.02(4)(a) of
Rev. Proc. 2002-9, the taxpayer should include on line 1a of the Form 3115 the
designated automatic accounting method change number “104”.
Section 1.446-1(e)(3)(ii) authorizes the Commissioner of Internal Revenue to
prescribe administrative procedures setting forth the limitations, terms, and conditions
deemed necessary to permit a taxpayer to obtain consent to change a method of
accounting. In addition, section 2.04 of Rev. Proc. 2002-9 provides that unless
specifically authorized by the Commissioner, a taxpayer may not request, or otherwise
make, a retroactive change in method of accounting, regardless of whether the change
is from a permissible or an impermissible method.
See generally Rev. Rul. 90-38,
1990-1 C.B. 57.
.04 Revocation. An election not to deduct the GO Zone additional first year
depreciation for a class of property that is GO Zone property is revocable only with the
prior written consent of the Commissioner. To seek the Commissioner's consent, the
taxpayer must submit a request for a letter ruling in accordance with the provisions of
Rev. Proc. 2006-1 (2006-1 I.R.B. 1) (or any successor).
.05 Failure to Make Election Not to Deduct GO Zone Additional First Year
Depreciation. If a taxpayer does not make the election described in section 4.01 of this
notice within the time and in the manner prescribed in section 4.03 of this notice, the
amount of depreciation allowable for that property under § 167(f)(1) or under § 168, as
applicable, must be determined for the placed-in-service year and for all subsequent

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taxable years by taking into account the GO Zone additional first year depreciation
deduction. Thus, the election not to deduct the GO Zone additional first year
depreciation cannot be made by the taxpayer in any other manner (for example, through
a request under § 446(e) to change the taxpayer's method of accounting).
SECTION 5. CERTAIN PROPERTY NOT ELIGIBLE FOR THE GO ZONE ADDITIONAL
FIRST YEAR DEPRECIATION DEDUCTION
.01 In General. Section 1400N(p)(1) disallows the GO Zone additional first year
depreciation deduction for any property described in § 1400N(p)(3). Pursuant to
§ 1400N(p)(3)(A), such property includes:
(1) any property used in connection with any private or commercial golf course,
massage parlor, hot tub facility, suntan facility, or any store the principal business of
which is the sale of alcoholic beverages for consumption off premises ("prohibited
activities"); or
(2) any gambling or animal racing property.
.02 Prohibited Activities.
(1)
Real property used for both a prohibited activity and a non-prohibited
activity. Solely for purposes of § 1400N(d), the portion of any real property (determined
by square footage) that is dedicated to any prohibited activity described in section
5.01(1) of this notice is not eligible for the GO Zone additional first year depreciation
deduction. If real property is used for both a prohibited activity and an activity not
described in section 5.01(1) of this notice, the portion of the real property (determined
by square footage) that is not dedicated to the prohibited activity is eligible for the GO
Zone additional first year depreciation deduction (assuming all other requirements under

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§ 1400N(d) are met). For example, the GO Zone additional first year depreciation
deduction for a shopping center that has both a suntan salon and businesses not
described in section 5.01(1) of this notice (and that otherwise qualifies for the GO Zone
additional first year depreciation deduction under § 1400N(d)), is determined without
regard to the portion of the shopping center's unadjusted depreciable basis that bears
the same percentage to the total unadjusted depreciable basis as the percentage of
square footage dedicated to the prohibited activity (that is, the suntan salon) bears to
the total square footage of the shopping center.
(2) Trade or business activity that derives a small percentage of gross receipts
from certain prohibited activities.
(a) De minimis rule. Solely for purposes of § 1400N(p)(3)(A)(i), a taxpayer's
trade or business activity that has less than 10 percent of its total gross receipts derived
from massages, tanning services, or a hot tub facility is not treated as, respectively, a
massage parlor, a suntan facility, or a hot tub facility. Such trade or business activity
may include, for example, a physical therapy office or a beauty/day spa salon if its gross
receipts derived from massages, suntanning, and hot tub facilities are less than 10
percent of its total gross receipts. In determining whether this less than 10 percent test
is satisfied, only gross receipts from the taxpayer's trade or business activity that
includes the massages, tanning services, or hot tub facility are taken into account.
Further, if a taxpayer is a member of a consolidated group, only the gross receipts of
the taxpayer (and not the consolidated group) are taken into account. Also, if the
taxpayer is a partnership, S corporation, or other pass-thru entity, only the gross

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receipts of the pass-thru entity (and not the owners of the pass-thru entity) are taken
into account.
(b)
Definition of gross receipts. For purposes of this section 5.02(2), the term
"gross receipts" means the taxpayer's receipts for the taxable year that are recognized
under the taxpayer's methods of accounting used for federal income tax purposes for
the taxable year. For this purpose, gross receipts include total sales (net of returns and
allowances) and all amounts received for services. In addition, gross receipts include
any income from investments, and from incidental or outside sources. For example,
gross receipts include interest (including original issue discount and tax-exempt interest
within the meaning of § 103), dividends, rents, royalties, and annuities, regardless of
whether the amounts are derived in the ordinary course of the taxpayer's trade or
business. Gross receipts are not reduced by cost of goods sold or by the cost of
property sold if such property is described in § 1221(a)(1), (3), (4), or (5). With respect
to sales of capital assets as defined in § 1221, or sales of property described in
§ 1221(a)(2) (relating to property used in a trade or business), gross receipts are
reduced by the taxpayer's adjusted basis in such property. Gross receipts do not
include the amounts received in repayment of a loan or similar instrument (for example,
a repayment of the principal amount of a loan held by a commercial lender). Finally,
gross receipts do not include amounts received by the taxpayer with respect to sales tax
or other similar state and local taxes if, under the applicable state or local law, the tax is
legally imposed on the purchaser of the good or service and the taxpayer merely
collects and remits the tax to the taxing authority. If, in contrast, the tax is imposed on

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the taxpayer under the applicable law, then gross receipts include the amounts received
that are allocable to the payment of such tax.
.03
Gambling or Animal Racing Property.
(1)
In general. Section 1400N(p)(3)(B)(i) defines the term “gambling or animal
racing property” as meaning:
(a) any equipment, furniture, software, or other property used directly in
connection with gambling, the racing of animals, or the on-site viewing of such racing;
and
(b) the portion of any real property (determined by square footage) that is
dedicated to gambling, the racing of animals, or the on-site viewing of such racing.
However, pursuant to § 1400N(p)(3)(B)(ii), if the portion of the real property dedicated to
gambling, the racing of animals, or the on-site viewing of such racing is less than 100
square feet, then that portion is not gambling or animal racing property. For example,
no apportionment is required under this 100-square-foot de minimis rule in the case of a
retail store that sells lottery tickets in a less than 100 square foot area.
(2)
Real property not dedicated to gambling or animal racing. Real property
that is not dedicated to gambling, the racing of animals, or the on-site viewing of such
racing but is attached to such gaming facilities is eligible for the GO Zone additional first
year depreciation deduction (assuming all other requirements under § 1400N(d) are
met). Such property may include, for example, hotels, restaurants, and parking lots of
gaming facilities. For example, the GO Zone additional first year depreciation deduction
for a building that is used as both a casino and a hotel (and that otherwise qualifies for
the GO Zone additional first year depreciation deduction under § 1400N(d)), is

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determined without regard to the portion of the building's unadjusted depreciable basis
that bears the same percentage to the total unadjusted depreciable basis as the
percentage of square footage dedicated to gambling (that is, the casino floor) bears to
the total square footage of the building.
SECTION 6. RECAPTURE RULES UNDER § 1400N(d)(5)
.01 In General. Section 1400N(d)(5) provides that for purposes of § 1400N(d),
rules similar to the recapture rules under § 179(d)(10) and § 1.179-1(e) apply with
respect to any GO Zone property that ceases to be GO Zone property.
.02 Application. If GO Zone property is no longer GO Zone property in the hands
of the same taxpayer at any time before the end of the GO Zone property’s recovery
period as determined under § 167(f)(1) or § 168, as applicable, then the taxpayer must
recapture in the taxable year in which the GO Zone property is no longer GO Zone
property (the recapture year) the benefit derived from claiming the GO Zone additional
first year depreciation deduction for such property. The benefit derived from claiming
the GO Zone additional first year depreciation deduction for the property is equal to the
excess of the total depreciation claimed (including the GO Zone additional first year
depreciation deduction) for the property for the taxable years before the recapture year
over the total depreciation that would have been allowable for the taxable years before
the recapture year as a deduction under § 167(f)(1) or § 168, as applicable, had the GO
Zone additional first year depreciation deduction not been claimed (regardless of
whether such excess reduced the taxpayer’s tax liability). The amount to be recaptured
is treated as ordinary income for the recapture year. For the recapture year and
subsequent taxable years, the taxpayer’s deductions under § 167(f)(1) or § 168, as

17

applicable, are determined as if no GO Zone additional first year depreciation deduction
was claimed with respect to the property. If, subsequent to the recapture year, a
change in the use of the property results in the property again being GO Zone property,
then the GO Zone additional first year depreciation deduction is not allowable for the
property.
.03 Examples. The following examples illustrate the provisions of this section 6.
(a) Example 1. H, a calendar-year taxpayer, owns and operates a furniture
store in the GO Zone. In December 2006,
H purchases a new delivery truck for
$50,000 and places it in service for use in H's business. For 2006, this delivery truck is
GO Zone property and is 5-year property under § 168(e). H depreciates its 5-year
property placed in service in 2006 using the optional depreciation table that corresponds
with the general depreciation system, the 200-percent declining balance method, a 5-
year recovery period, and the half-year convention. During 2007, the delivery truck is
used less than 80 percent in the GO Zone.
(i) For 2006, H is allowed the GO Zone additional first year depreciation
deduction of $25,000 for the delivery truck (unadjusted depreciable basis of $50,000
multiplied by .50). In addition,
H's depreciation deduction allowable in 2006 for the
remaining adjusted depreciable basis of $25,000 for the delivery truck (the unadjusted
depreciable basis of $50,000 reduced by the GO Zone additional first year depreciation
deduction of $25,000) is $5,000 (the remaining adjusted depreciable basis of $25,000
multiplied by the annual depreciation rate of .20 for recovery year 1). Thus,
H's
depreciation deduction allowable in 2006 for the delivery truck totals $30,000.

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(ii) For 2007, because the delivery truck does not meet the substantially all
requirement described in section 3.01 of this notice, the delivery truck is no longer GO
Zone property. Accordingly, for 2007,
H must recapture as ordinary income $20,000
($30,000 depreciation claimed by
H for the truck before 2007 less the $10,000
depreciation that would have been allowable for the truck before 2007 had the GO Zone
additional first year depreciation deduction not been claimed (unadjusted depreciable
basis of $50,000 multiplied by the cumulative annual depreciation rate of .20 before
2007)). In addition,
H's depreciation deduction allowable in 2007 for the delivery truck is
$16,000 (unadjusted depreciable basis of $50,000 multiplied by the annual depreciation
rate of .32 for recovery year 2) (determined as if no GO Zone additional first year
depreciation deduction was claimed for the truck).
(b) Example 2. Same facts as in Example 1, except that during 2008, the
delivery truck is used 80 percent or more in the GO Zone. The GO Zone additional first
year depreciation deduction is not allowable for the delivery truck even though the truck
is GO Zone property in the hands of
H in 2008. Thus, for 2008, H's depreciation
deduction allowable in 2008 for the delivery truck is $9,600 (unadjusted depreciable
basis of $50,000 multiplied by the annual depreciation rate of .1920 for recovery year 3)
(determined as if no GO Zone additional first year depreciation deduction was claimed
for the truck).
SECTION 7. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2002-9 is modified and amplified to include the automatic change in
method of accounting provided under section 4.03(2)(b) of this notice in section 2 of the
APPENDIX of Rev. Proc. 2002-9.

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SECTION 8. DRAFTING INFORMATION
The principal author of this notice is Douglas H. Kim of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice, contact Mr. Kim at (202) 622-3110 (not a toll-free call).

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