corm 4255 Tax from Recomputing a Prior Year Investment Credit

(Rev. Oct. 1975) (Computation of Recapture Tax)
Department of the Treasury > Attach to your income tax return.
For the calendar year 19 ........ , or other taxable year beginning .... . 19 ........, and ending ...

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 inal Investment Credit Recomputed Investment Credit Recapture Tax
qd) @ @) (4) () (6) (7) (8) (9) | (10) (11) (12) (13)
Description of . Esti- | Appli- ‘Qualified __ Original Date item Appli- Qualified Recomputed
proper Date placed in Cost mated cable investment investment credit ceased tobe | Actual] cable investment investment credit Column 7 less
{also state whether service or useful per- (column 3 x (column 6 x investment useful per- (column 3 x (column 11 x column 12
new or used) basis life centage ‘column 5) applicable rate) credit property | life | centage column 10) applicable rate)
A)
(8)
(cy
0)
(e)
()
(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 .

Note: The recapture tax is an addition to your income tax for the year in which you dispose of investment credit property. Do Tot use @ the recapture Tax to Offset the currant year's invest-
ment credit on Form 3468.

36-82083-1 Form 4255 (Rev. 10-75)


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

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 juired before August 16, | Property acquired after August 15, lie
1971 unless ordered after 2971 or ordered and acquired ee

March 31, 1971 after March 31, 1971

At least | But less than At least But less than
(a) 4 years 6 years 3 years 5 years 331%
(b) 6 years B years Syears | 7 years 66%
(©) 8 years or more 7 years or more 100

Column 7.—If the limitation did not apply (or if the limita-
tion did apply but the full credit was taken by means of carry-
backs and carryovers) 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 before
January 1, 1977, the rate is 10%. Corporate taxpayers (including
public utilities) may have qualified for an 11% rate after Jan-
uary 21, 1975 and before January 1, 1977. (See section
46(a)(1)(B).)

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 least But less than |

— Byears | 0
3 years 5 years 334%
Syears | 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 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 allowable. Accordingly, $630 must be
added to D’s 1974 tax liability (the difference between the $630 credit allowed and the recomputed 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:

Original Investment Credit

Col.

3 Cost or basis $9,000
4 Estimated life... .. . Byears
5 Applicable percentage . . . 2. 1 eee 100
6 Qualified investment (col. 3x col. 5) . . . . $9,000
7 Original investment credit allowed (col. 6 x 7%) . $630

TAX from recomputing a prior year investment credit (col. 7 less col. 12) . . . . -

Recomputed Investment Credit

Col.

3 Cost or basis . $9,000

9 Actuallife. . . . 2. e Syears

10 Applicable percentage. . . . . . 3314

11 Qualified investment (col. 3 x col. 10) . . . $3,000

12 Recomputed investment credit (col. 11 x 7%) . $210
we 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, $80,000 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.

“Yr US, GOVERNMENT PRINTING OFFICE : 1975—O-591-431

16—82683-1