rom 4255 Tax from Recomputing a Prior Year Investment Credit
(Rev. Oct. 1977) (Computation of Recapture Tax)
Department of the Treasury > Attach to your income tax return.
For the calendar year 19 ......... , or other taxable year beginning ..............------sc-eeeeeeeeeey 19 ones , and ending . oy 1D
Name Identifying number as shown on page 1 of your tax return

Do not use this form if (1) there is an unused investment credit attributable to the disposed asset or (2) the disposed asset is progress expenditure
property. (See example (c) and instructions for line 2, column 13 on the back.) Compute the recapture tax for these items on separate schedules.

1. Original Investment Credit Recomputed Investment Credit Recapture Tax
(3) (4) (5) (6) 9) 10) 11) 12)
peset don of ® § » & 18). quitdes | on ha oat Nem ‘ » A An. ouiites necbnehted a)
property Date placed in ost mated | cable (iwestment investment credit geased tobe | Actus!) cable {treatment investment erdit Column 7 less
(also state whether service basis “ite | centage ‘column 5) applicable rate) credit property | life | centage column 10) applicable tate) column 12
(A)
(8)
(cy
(0)
(Ee)
La)
(6)
2. Total tax from recomputing a prior year investment credit—add lines (A) through (G), column (13), and, if applicable, combine this total tax (line 2) with any other re-
capture tax that has been computed on separate schedule(s). Enter this total on the line provided on your tax return . Pai

Note: The recapture tax is an addition to your income tax for the year in which you dispose of investment credit property. Do not use the recapture tax to offset the current year’s invest-
ment credit on Form 3468.

235-202-1 Form 4255 (Rev. 10-77)



General Instructions (References are to the Internal Revenue Code.)

Individuals, estates, trusts or corporations that dispose of
investment credit property subject to recapture tax before the
end of the useful life years category used in computing the
credit, may use this form to compute the recapture tax if the
maximum credit allowable has been allowed at the time of
disposition.

‘Small business corporations, partnerships, and estates and
trusts (which apportioned the investment between the estate or
trust and the beneficiaries) must inform their shareholders,
partners or beneficiaries of any early dispositions and furnish

them the information needed to compute the recapture tax.
(See sections 1.47—4, 1.47-5, and 1.47-6 of the regulations.)

Special disposition rules apply regarding certain motion pic-
ture films and video tapes (see section 47(a)(7)) and certain
ships (see section 46(g)(4)).

Corporations should see section 301(d)(8) and 301(f) of
the Tax Reduction Act of 1975 (as amended by section 803(c)
and (d) of the Tax Reform Act of 1976) regarding special rules
when the recapture of the 11% and 114% investment credit
is applicable. See instructions for column 7.

Specific Instructions

Column 2.—The date that section 38 property is placed in
service is the first day of the month in which such property is
placed in service. (See sections 1.46-3(d) and 1.47—1(c) of the
regulations.)

Column 3.—Enter the cost or basis used to compute the
investment in qualified property.

Column 5.—Enter the applicable percentage based on the
estimated useful life shown in column 4.

Estimated Useful Life

Property acquired before August 16, | Property acquired after August 15, i
‘1971 unless ordered after TB71 or ordered and acquired” | APPlicable
March 31, 1971 after March 31, 1971 Percentage
Attest | But less than Atleast | But less than
(a)4years | 6 years years |  Syears 33%
(b) 6 years 8 years Syears | 7years 66%
(c) 8 years or more 7 years or more 100
Progress expenditure
property
1975 expenditures 7 years or more 20
1976 expenditures 7 years or more 40

Column 7.—If the limitation did not apply (or if the limita-
tion did apply but the full credit was taken by a carryback
and carryover) in the year the investment credit was claimed,
the amount of credit allowed will be the applicable rate times
column 6. The applicable rate for section 38 property was
7% prior to January 22, 1975. (For public utility property
ordered and acquired after March 31, 1971, or acquired after
August 15, 1971 and before January 22, 1975 use 4% (other-
wise use 3%).) For property (including ‘public utility property)
acquired or constructed after January 21, 1975 and placed in
service during the taxable year, the rate is 10%. Corporate tax-
payers (including public utilities) may qualify for an 11% rate
after January 21, 1975 and before January 1, 1981, or for an
1114% rate after December 31, 1976 and before January 1,
1981.’ (See section 46(a)(2)(B)(i) and (ii).)

In the case of property completed and placed into service
after January 21, 1975 and before January 1, 1981, that portion
of the property which was completed before January 22, 1975
qualifies for a 7% rate while the portion completed after Janu-
ary 21, 1975 and before January 1, 1981 qualifies for a 10%
rate. (See section 46(a)(2)(C) and (D).)

Column 8.—Enter the date of the event which caused sec-
tion 38 property to cease being section 38 property—e.g., the
date of sale of such property. (See section 1.47-1(c) of the
regulations.)

Column 10.—Enter the applicable percentage based on the
number of years the property was actually held as shown in
column 9.

Actual Useful Life Applicable
Percentage
At feast But less than
_ 3 years °
Byears 5 years 33%
5 years 7 years 66%

Column 12.—The applicable rate to be used for column 12
is whichever rate was used initially for the property in column 7.

Line 2, column 13.—Progress expenditure property: Compute
the recapture tax for early disposition of progress expenditure
Property on a separate schedule and include this amount with
line 2 total and enter it on the line provided on your tax return.
(See section 47(a)(3)(A) through (D) for recapture in respect to
progress expenditure property.)

Unused credit.—If you have an unused credit for a year in
which you also have an early disposition of an asset, in recom:
puting the recapture tax, you must take into account the current
year’s unused credit that may be carried back solely because of
recomputation of the investment credit for the prior year. Attach
a computation. (See section 1.47-1(d) of the regulations and
Revenue Ruling 72-221, 1972-1, C.B. 15.)

The following three examples show the investment credit recaptured (a) in full; (b)
in part; and (c) when there is an unused investment credit at time of disposition.

(a) In full.—On January 1, 1972, D, an individual on a calendar_year basis, placed into service qualified property with an 8-
year life and a basis of $9,000, D deducted $630 ($9,000 x 100% x 7%) investment credit which was used in full to reduce D’s
1972 tax liability. On November 1, 1974, D sold this property. Since it was held less than 3 years, no investment credit is allow-
able. Accordingly, $630 must be added to D's 1974 tax liability (the difference between the $630 credit allowed and the recom-
puted credit of zero).

(b) In part.—Assume the same facts in (a) above except D sold the property on March 1, 1975, D would add $420 to D’s 1975
tax liability as follows:

ol Original Investment Credit col Recomputed Investment Credit

ol. ol.

3 Cost or basis... ee ee ee ee ee $9,000 3 Costorbasis. . 2. 2... ee ee $9,000

4 Estimated Life. . 2. 2 2. eee «+ « BSyears QActual life. . 2 1 ee ee ee S years

5 Applicable percentage So ee ee 100 10 Applicable percentage. . . . . . . « 3314

6 Qualified investment (col. 3x col. 5)... 2. 2s $9,000 11 Qualified investment (col. 3x col.10). . . . $3,000

7 Original investment credit allowed (col. 6 x 7%) . see $630 12 Recomputed investment credit (col. 11 x 7%) . $210
TAX from recomputing a prior year investment credit (col. 7 less col.12) . . - 2 ee ee ee ee ee $420

(c) Unused investment credit at time of disposition.—E, an individual on a calendar year basis, placed in service on December
1, 1974, $50,000 of qualified property having a useful life of 10 years. Although the tentative investment credit was $3,500
($50,000 x 100% x 7%) the investment credit was limited to E's tax liability of $1,000. The excess $2,500 ($3,500 less $1,000)
was an unused investment credit carryback. Of this $2,500, E used $300 in 1971, $400 in 1972, and $400 in 1973. The total
credit taken by E through 1974, therefore, was $2,100. in 1975, E sold the property. Since the property was held less than 3
years, no investment credit is allowable. Accordingly, $2,100 must be added to E’s 1975 tax liability (the difference between the
$2,100 credit taken and the recomputed credit of zero). E would attach a schedule to the tax return showing this computation
and enter the recapture tax of $2,100 on the line provided on the tax return.

‘¥ US. GOVERNMENT PRINTING OFFICE : 1977—O-235-202 235-202-2