Oklahoma Bonus Depreciation Adjustment generated OTC Notice

[jwilliamscpaesq]

ProConnect makes an adjustment (subtraction) on form 511-A for the bonus depreciation adjustment related to Oklahoma allowing 100% bonus depreciation.  This subtraction was placed on line 15 of 511-A with code "99" and also says "See Statement 1".  Statement 1 indicates "Bonus Depreciation Adjustment" and the amount required to take 100% depreciation for the 2023 tax year.  

This presentation from ProConnect generated a notice from the Oklahoma Tax Commission requesting 1) a "detailed explanation citing the Oklahoma Statute validating the miscellaneous subtraction on 511 schedule A"; and 2) "documentation supporting the amount claimed on the 511-A miscellaneous subtraction".

I am concerned about receiving hundreds of notices this year if the program presentation remains the same.  Some coordination with OTC about how they want it presented to avoid these notices is needed.\

Any other comments or ideas are welcome.

Thank you,

Jason Williams, CPA

[randee10]

My client just received a notice as well. I have the same question. It won't let me do a cross-reference on the bonus depreciation line. Please advise. 

[tom19]

Same here we are up to 5 notices

[jwilliamscpaesq]

I spoke with Mr. Saunders at OTC.  Seems all they want is a specific reference to the Oklahoma Statute when the code "99" is used as well as how the amount was determined.  I explained the tax program had generated a statement that said "Bonus Depreciation Adjustment" and the amount.  He looked at the return in question and said no statement was received in the e-file they received.  So that may have helped had they gotten it.  He suggested attaching a .pdf file with the explanation.  The statute is Okla Stat Title 68 Section 2358.6A.  They want the reference to the statute and an explanation that federal depreciation was "x" dollars, and Ok depreciation is "y" dollars, with the difference being the amount on schedule A.  Not liking the idea of having to generate a .pdf for every client with this issue, I then asked him if it was mandatory to take the 100% depreciation and he said no.  I further asked him if we could take 80% same as on the federal so there is no federal to state difference and he stated that was perfectly acceptable.  This is my plan on all returns going forward to avoid not only this issue, but to also avoid any federal to state difference on any potential recapture if an asset is sold before it is fully depreciated on the Federal return.  Hope this is helpful.

[jwilliamscpaesq]

Spoiler

I spoke with Mr. Saunders at OTC.  Seems all they want is a specific reference to the Oklahoma Statute when the code "99" is used as well as how the amount was determined.  I explained the tax program had generated a statement that said "Bonus Depreciation Adjustment" and the amount.  He looked at the return in question and said no statement was received in the e-file they received.  So that may have helped had they gotten it.  He suggested attaching a .pdf file with the explanation.  The statute is Okla Stat Title 68 Section 2358.6A.  They want the reference to the statute and an explanation that federal depreciation was "x" dollars, and Ok depreciation is "y" dollars, with the difference being the amount on schedule A.  Not liking the idea of having to generate a .pdf for every client with this issue, I then asked him if it was mandatory to take the 100% depreciation and he said no.  I further asked him if we could take 80% same as on the federal so there is no federal to state difference and he stated that was perfectly acceptable.  This is my plan on all returns going forward to avoid not only this issue, but to also avoid any federal to state difference on any potential recapture if an asset is sold before it is fully depreciated on the Federal return.  Hope this is helpful.

[Fisher1]

We have come to the same conclusion regarding taking the additional bonus depreciation allowed by Oklahoma.  My question is where in Pro Series do we elect out of taking the additional depreciation?

[Amy S]

I just had the same thing happen to a client. I'm using Lacerte. My problem is I cannot reproduce the number now? And there's no worksheet! I can't explain how the amount was determined. My total federal depreciation was $20,169 (80% bonus depreciation on $24,989 total cost plus $178 current depreciation) and the subtraction on the OK return is $4,820. I'm sitting here beating my head against the desk. I read that you have to add back 80% of the federal Depreciation and then you are allowed a subtraction for 1/4 of that for the next 4 years. 

[Amy S]

Just in case it helps anyone, I thought I would put the calculation in terms that are far easier to understand than anything else I've read today. The OK Subtraction is calculated as follows: 

Total cost of assets placed in Service - amount of federal bonus depreciation = the remaining basis for depreciation to be taken in subsequent years. That amount less the amount of current year depreciation expense equals the Ok depreciation adjustment. 

For example: 

Total cost of Items placed in service: $24,989

Total Federal 2023 bonus Depreciation: $19,991 (80% of $24,989)

Basis for Depreciation to be taken in subsequent years: $4,998 ($24,989 – $19,991)

Less 2023 current depreciation deduction: $(178)

Total Oklahoma Bonus Depreciation Adjustment: $4,820

An OK worksheet sure would be nice!!

[taxmo]

The only way I've found to opt out of the OK difference would be to preview the return and look at the OK adjustment amount in the statement at the end of the return, and then enter that same amount as a negative amount on OK Part-Year/Nonresident Info -> Other Subtractions -> "Oklahoma" column. 

[lscpa]

Bless you!!!

[Critchiecpa]

FYI - This is still an issue.  Tax return was filed before the 10/15/2024 deadline.  I just received another OTC notice regarding the depreciation adjustment.  Proconnect - fix this please!!!!!

[CartmellCPA]

I am using Lacerte and just got my first notice on this topic.  In this case, the client is not an Oklahoma resident but had some OK source Oil & Gas income.   The depreciation adjustment being claimed on the OK non-resident return is related to non-Oklahoma assets.   The assets are not sourced to Oklahoma so I am at a loss as to why they carried to the OK return.    Has anyone seen this happen?