IRS offers flexibility on tax deduction elections

The Internal Revenue Service issued a revenue procedure offering guidance on how businesses can take advantage of new tax breaks offered by the One Big Beautiful Bill Act and withdraw some previous elections they made under the old rules. 

Revenue Procedure 2026-17, issued by the IRS last week, provides guidance on the withdrawal of elections to be excepted trades or businesses under Section 163(j)(7) of the Tax Code for purposes of the business interest limitation and to make a late election under Section 168(k)(7) to be exempt from bonus depreciation. 

The revenue procedure also includes guidance on the early election or revocation of a controlled foreign corporation group election under Section 163(j)-7(e).  Taxpayers in the identified fields of business are allowed to withdraw an election previously made under Section 163(j) and make the associated depreciation adjustments under Section 168(k) or make a late election out of applying bonus depreciation under Section 168(k). 

Separately, a CFC group can either make or revoke their specific group election regardless of whether the required 60-month requirement of Section 1.163(j)-7(e)(5)(ii) is satisfied.

The new guidance can provide a real boon for many companies and their tax advisors.

"For tax professionals advising clients on the business interest deduction limitation, Revenue Procedure 2026-17 offers crucial administrative relief," wrote Ed Zollars of Thomas, Zollars & Lynch in his Current Federal Tax Developments blog. "Following the sweeping legislative changes introduced by the One, Big, Beautiful Bill Act, this procedure permits eligible taxpayers to withdraw previously irrevocable IRC § 163(j)(7) and § 1.163(j)-1(b)(15)(iii) elections. By doing so, taxpayers can capitalize on newly restored adjusted taxable income add-backs and permanent 100% bonus depreciation."