corm 4255 Tax from Recomputing a Prior Year Investment Credit

(Rev. Nov. 1978) (Computation of Recapture Tax)
Pazactment of the Treasury > Attach to your income tax return.

For the calendar year 19 ........, or other taxable year beginning ... wy 19...

and ending ..
Identifying number as shown on page 1 of your tax return

Name

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
instructions for lines 3 and 4 and example (c) on the back.) Compute the recapture tax for these items on separate sheets.

1 Original Investment Credit Recomputed Investment Credit Recapture Tax
(3) (4) 5) (6) (8) (9) (10) (11) (12) ir
bese n of a ®) & | ae aualted ” cagten [rods] Ga | oles nected 3)
property Date placed in Cost mated cable investment ceased to be actu: cable investment investment credit Column 7 less
{also state whether service or useful | per- (column 3.x al investment ally per- (column 3x (column 11 x column 12

new or used) basis life | centage column 5) applicable rate) credit property | used | centage column 10) applicable rate)

i)

(8)

(c)

(0)

©

a)

2. Add column 13, lines (A) through (F)
3. Enter tax attributable to disposed assets involving unused investment credit (attach computation).
4. Enter tax attributable to disposed qualified progress expenditure property (attach computation). soe foe oe ee

. Total tax from recomputing a prior year investment credit—Add lines 2 through 4. Enter this total here and on the line provided on your taxt return .

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 investment
credit on Form 3468.

263-381-1 Form 4255 (Rev. 11-78)


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

For more information on recapture of investment credit obtain
Publication 572, Tax Information on Investment Credit, available
free from your Internal Revenue Service office.

Who May Use This Form.—If you are an individual, estate,
trust, or corporation, and

(a) you dispose of investment credit property subject to

recapture tax before the end of the useful life years
category you used to figure the credit; and

(b) you had used the maximum credit allowable at the time

you disposed of the property;
you may use this form to figure the recapture tax.

If you are a small business corporation, a partnership, or an
estate or trust that divided the investment between the estate
or trust and the beneficiaries, you must inform your share-
holders, partners, or beneficiaries of any early dispositions. You
must also give them the information they need to figure the

Specific
Column 2.—Section 38 property is counted as being placed
in service from the first day of the first month it is used.
Column 3.—Enter the cost or basis used to figure your in-
vestment 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 | Property acquired after August | Applicable
16, 1971 unless ordered after 15, 1971 or ordered and pequired
March 31, 1971 ‘after March 31, 1971 Percentage
At least But less than At least But less than
(a)4years | 6 years 3 years 5 years 33%
(e) 6 years |B years 5 years 7 years 66%
(©) B years or more Zyears or more 100

Column 7.—If the tax liability limitation did not apply, or if it
did apply but you took the full credit with a carryback and carry-
over in the year you claimed the investment credit, the credit
allowed will be the applicable rate multiplied by column 6.

Applicable Rate for Section 38 Property Percentage
Before January 22, 1975 .
Public utility property ordered and acquired after March 31, 1971, or
acquired after August 15, 1971, and before January 22,1975 . . . 4

Before April 1, 1971, use
Property (including public utility property) acquired or constructed after
January 21, 1975, and placed in service during the tax year

Certain corporate taxpayers may qualify for an additional 1 or 1%

percent after January 21, 1975,

(See section 46(a)(2).)

Property completed and placed in service after January 21, 1975:
The part completed before January 22,1975... .. 1... 7

The part completed after January 21,1975 . . . . . .... 10

(See section 46(a)(2).)

recapture tax. (See sections 1.47—-4, 1.47-5, and 1.47-6 of the
regulations.)

For disposition rules that apply to certain motion picture
films and video tapes, see section 47(a)(7). For the rules for
certain ships, see section 46(g)(4).

If you are a corporation, see section 48(n)(4) regarding ad-
justments to be made if the ESOP credit (additional 1% and
144% credit allowed by section 46(a)(2)(E)) is to be recap-
tured,

Effective for taxable years ending after March 31, 1976, a
section 374(c) transfer of railroad property to CONRAIL is not
treated as a disposition for purposes of the investment credit
recapture rules. (See section 47(b)(3).)

See section 47(a)(4) for special recapture rules regarding
commuter highway vehicles.

Instructions

Column 8.—Enter the date of the event that caused sec-
tion 38 property to stop being section 38 property—for ex-
ample, the date you sold the property. (See section 1.47~1(C)
of the regulations.)

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

Actual Useful Life Applicable
—________________| Percentage
At least But less than
_— 3 years o
Byears 5 years 33%
5 years 7 years 66%

Column 12.—Use the same rate in column 12 that you used
for that property in column 7.

Line 3—Unused Credit.—If you have an unused credit for a
year in which you also have early disposition of an asset, you
must take into account the current year's unused credit when
you figure the recapture tax. Figure the tax on a separate sheet
and enter it on line 3. (See section 1.47—1(d) of the regulations,
and Revenue Ruling 72-221, 1972-1, C.B. 15.)

Line 4—Progress Expenditure Property.—Figure the recap-
ture tax for early disposition of progress expenditure property
on a separate sheet and enter it on line 4. See section 47(a)(3)
(A) through (D) for recapture tax on progress expenditure prop-
erty.

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 the time of disposition.

(a) In full—On January 1, 1972, D, an individual on a
calendar year basis, placed in service qualified property with
an 8-year life and a basis of $9,000. D deducted $630 ($9,000
x 100 percent Xx 7 percent investment credit) that was used in
full to reduce D’s 1972 tax liability. On November 1, 1974, D
sold this property. Because D held it less than 3 years, no in-

vestment credit is allowable. Accordingly, $630 must be added
to D's 1974 tax liability (the difference between the $630 credit
allowed and the refigured credit of zero).

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

Original Investment Credit

Column
3 Cost or basis. 2. ee ee se $9,000
4 Estimated lifes 2 2 2 22 2 DDD ll D1 ff Byears
5 Applicable percentage . woe 100
6 Qualified investment (Multiply column 3 by column 5): - . . 9,000
7 Original investment credit allowed (Multiply column 6 by 7 percent) . 630

Tax from refiguring a previous year investment credit (Subtract column 12

Refigured Investment Credit

Column
3 Cost or basis. 2. 2 2 ee ee ee ee $9,000
9 Period actually used: | 2 2 2 2] ll ll lL Byars
10 Applicable percentage | Dll 33%
11 Qualified investment (Multiply column 3 by column 10). . : 3,000

12 Refigured investment credit t (Multiply column 11 by 7 paren « 210

from column 7). 2... fe 420

(c) Unused investment credit at time of disposition.—On
December 1, 1974, E, an individual on a calendar year basis,
placed in service $50, 000 of qualified property with a useful
life of 10 years. Although the tentative investment credit was
$3,500 ($50,000 x 100 percent x 7 percent) the investment
credit was limited to E's tax liability of $1,000. The excess of
$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,

‘x US, GOVERNMENT PRINTING OFFICE : 1978-0-263-381

and $400 in 1973. In 1975, E sold the property. Because E held
the property less than 3 years, no investment credit is allowable.
E had taken a total credit through 1974 of $2,100. Accordingly,
$2,100 must be added to E’s 1975 tax liability (the difference
between the $2,100 credit taken and the refigured credit of
zero). E would attach a sheet to the tax return showing this
computation and enter the recapture tax of $2,100 on the line
provided on the return.

263-381-2