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Eitc Internal Revenue Bulletin:  2010-9  March 1, 2010  Rev. Eitc Proc. Eitc 2010-18 Table of Contents SECTION 1. Eitc PURPOSE SECTION 2. Eitc BACKGROUND SECTION 3. Eitc SCOPE SECTION 4. Eitc APPLICATION SECTION 5. Eitc EFFECTIVE DATE SECTION 6. Eitc DRAFTING INFORMATION SECTION 1. Eitc PURPOSE This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2010, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2010, including a separate table of inclusion amounts for lessees of trucks and vans. Eitc The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Eitc SECTION 2. Eitc BACKGROUND . Eitc 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year the taxpayer places the passenger automobile in service and for each succeeding year. Eitc Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. Eitc The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Eitc This change reflects the higher rate of price inflation for trucks and vans since 1988. Eitc . Eitc 02 Section 280F(c) requires a reduction in the deduction allowed to the lessee of a leased passenger automobile. Eitc The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Eitc Under § 1. Eitc 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. Eitc One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Eitc Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Eitc SECTION 3. Eitc SCOPE . Eitc 01 The limitations on depreciation deductions in section 4. Eitc 01(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2010, and continue to apply for each taxable year that the passenger automobile remains in service. Eitc . Eitc 02 The tables in section 4. Eitc 02 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2010. Eitc Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Eitc See Rev. Eitc Proc. Eitc 2005-13, 2005-1 C. Eitc B. Eitc 759, for passenger automobiles first leased before calendar year 2006; Rev. Eitc Proc. Eitc 2006-18, 2006-1 C. Eitc B. Eitc 645, for passenger automobiles first leased during calendar year 2006; Rev. Eitc Proc. Eitc 2007-30, 2007-1 C. Eitc B. Eitc 1104, for passenger automobiles first leased during calendar year 2007; Rev. Eitc Proc. Eitc 2008-22, 2008-12 I. Eitc R. Eitc B. Eitc 658, for passenger automobiles first leased during calendar year 2008; and Rev. Eitc Proc. Eitc 2009-24, 2009-17 I. Eitc R. Eitc B. Eitc 885, for passenger automobiles first leased during calendar year 2009. Eitc SECTION 4. Eitc APPLICATION . Eitc 01 Limitations on Depreciation Deductions for Certain Automobiles. Eitc (1) Amount of the inflation adjustment. Eitc (a) Passenger automobiles (other than trucks or vans). Eitc Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Eitc The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Eitc The new car component of the CPI was 115. Eitc 2 for October 1987 and 137. Eitc 851 for October 2009. Eitc The October 2009 index exceeded the October 1987 index by 22. Eitc 651. Eitc Therefore, the automobile price inflation adjustment for 2010 for passenger automobiles (other than trucks and vans) is 19. Eitc 66 percent (22. Eitc 651/115. Eitc 2 x 100%). Eitc The dollar limitations in § 280F(a) are multiplied by a factor of 0. Eitc 1966, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2010. Eitc This adjustment applies to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2010. Eitc (b) Trucks and vans. Eitc To determine the dollar limitations for trucks and vans first placed in service during calendar year 2010, the new truck component of the CPI is used instead of the new car component. Eitc The new truck component of the CPI was 112. Eitc 4 for October 1987 and 140. Eitc 897 for October 2009. Eitc The October 2009 index exceeded the October 1987 index by 28. Eitc 497. Eitc Therefore, the automobile price inflation adjustment for 2010 for trucks and vans is 25. Eitc 35 percent (28. Eitc 497/112. Eitc 4 x 100%). Eitc The dollar limitations in § 280F(a) are multiplied by a factor of 0. Eitc 2535, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations for trucks and vans. Eitc This adjustment applies to all trucks and vans that are first placed in service in calendar year 2010. Eitc (2) Amount of the limitation. Eitc Tables 1 and 2 contain the dollar amount of the depreciation limitation for each taxable year for passenger automobiles a taxpayer places in service in calendar year 2010. Eitc Use Table 1 for a passenger automobile (other than a truck or van) and Table 2 for a truck or van placed in service in calendar year 2010. Eitc REV. Eitc PROC. Eitc 2010-18 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Eitc PROC. Eitc 2010-18 TABLE 2 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE IN CALENDAR YEAR 2010 Tax Year Amount 1st Tax Year $3,160 2nd Tax Year $5,100 3rd Tax Year $3,050 Each Succeeding Year $1,875 . Eitc 02 Inclusions in Income of Lessees of Passenger Automobiles. Eitc A taxpayer must follow the procedures in § 1. Eitc 280F-7(a) for determining the inclusion amounts for passenger automobiles first leased in calendar year 2010. Eitc In applying these procedures, lessees of passenger automobiles other than trucks and vans should use Table 3 of this revenue procedure, while lessees of trucks and vans should use Table 4 of this revenue procedure. Eitc REV. Eitc PROC. Eitc 2010-18 TABLE 3 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $16,700 $17,000 3 7 10 11 14 17,000 17,500 4 8 13 15 16 17,500 18,000 5 10 16 19 21 18,000 18,500 6 13 18 23 26 18,500 19,000 7 15 22 26 31 19,000 19,500 8 17 25 30 35 19,500 20,000 9 19 29 34 39 20,000 20,500 10 21 32 38 44 20,500 21,000 11 23 35 42 48 21,000 21,500 12 26 38 45 53 21,500 22,000 13 28 41 50 57 22,000 23,000 14 31 46 56 63 23,000 24,000 16 36 52 63 73 24,000 25,000 18 40 59 71 81 25,000 26,000 20 44 66 78 90 26,000 27,000 22 49 71 86 100 27,000 28,000 24 53 78 94 108 28,000 29,000 26 57 85 101 118 29,000 30,000 28 61 92 109 126 30,000 31,000 30 66 97 117 135 31,000 32,000 32 70 104 125 144 32,000 33,000 34 74 111 132 153 33,000 34,000 36 79 117 140 161 34,000 35,000 38 83 123 148 171 35,000 36,000 40 87 130 156 179 36,000 37,000 42 92 136 163 188 37,000 38,000 44 96 143 170 198 38,000 39,000 46 100 149 179 206 39,000 40,000 48 105 155 186 215 40,000 41,000 50 109 162 194 224 41,000 42,000 52 113 169 201 233 42,000 43,000 54 118 174 210 241 43,000 44,000 56 122 181 217 251 44,000 45,000 58 126 188 225 259 45,000 46,000 60 131 194 232 269 46,000 47,000 61 135 201 240 277 47,000 48,000 63 140 207 248 286 48,000 49,000 65 144 213 256 295 49,000 50,000 67 148 220 263 304 50,000 51,000 69 153 226 271 313 51,000 52,000 71 157 232 279 322 52,000 53,000 73 161 239 287 331 53,000 54,000 75 166 245 294 340 54,000 55,000 77 170 252 302 348 55,000 56,000 79 174 258 310 358 56,000 57,000 81 178 265 318 366 57,000 58,000 83 183 271 325 375 58,000 59,000 85 187 278 333 384 59,000 60,000 87 191 284 341 393 60,000 62,000 90 198 294 352 406 62,000 64,000 94 207 306 368 424 64,000 66,000 98 215 320 382 443 66,000 68,000 102 224 332 398 460 68,000 70,000 106 232 346 413 478 70,000 72,000 110 241 358 429 496 72,000 74,000 114 250 371 444 513 74,000 76,000 118 258 384 460 531 76,000 78,000 122 267 396 476 549 78,000 80,000 126 276 409 491 566 80,000 85,000 132 291 432 518 598 85,000 90,000 142 313 464 556 643 90,000 95,000 152 334 497 594 687 95,000 100,000 162 356 528 634 731 100,000 110,000 177 388 577 691 798 110,000 120,000 196 432 641 768 887 120,000 130,000 216 475 705 846 976 130,000 140,000 236 518 770 922 1,065 140,000 150,000 256 561 834 1,000 1,154 150,000 160,000 275 605 898 1,077 1,243 160,000 170,000 295 648 963 1,153 1,333 170,000 180,000 315 691 1,027 1,231 1,421 180,000 190,000 334 735 1,091 1,308 1,510 190,000 200,000 354 778 1,155 1,386 1,599 200,000 210,000 374 821 1,220 1,462 1,688 210,000 220,000 393 865 1,284 1,539 1,777 220,000 230,000 413 908 1,348 1,617 1,866 230,000 240,000 433 951 1,413 1,693 1,956 240,000 and up 453 995 1,476 1,771 2,044 REV. Eitc PROC. Eitc 2010-18 TABLE 4 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2010 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later 17,000 17,500 3 6 9 10 11 17,500 18,000 4 8 12 14 16 18,000 18,500 5 10 15 18 21 18,500 19,000 6 12 19 22 24 19,000 19,500 7 15 21 26 29 19,500 20,000 8 17 25 29 34 20,000 20,500 9 19 28 33 38 20,500 21,000 10 21 31 37 43 21,000 21,500 11 23 35 41 47 21,500 22,000 12 25 38 45 51 22,000 23,000 13 29 42 51 58 23,000 24,000 15 33 49 58 67 24,000 25,000 17 37 56 66 76 25,000 26,000 19 42 62 73 85 26,000 27,000 21 46 68 82 93 27,000 28,000 23 50 75 89 103 28,000 29,000 25 55 81 97 111 29,000 30,000 27 59 88 104 121 30,000 31,000 29 63 94 113 129 31,000 32,000 31 68 100 120 138 32,000 33,000 33 72 107 127 148 33,000 34,000 35 76 114 135 156 34,000 35,000 37 81 119 143 165 35,000 36,000 39 85 126 151 174 36,000 37,000 41 89 133 158 183 37,000 38,000 43 94 139 166 191 38,000 39,000 45 98 145 174 201 39,000 40,000 47 102 152 182 209 40,000 41,000 49 106 159 189 218 41,000 42,000 51 111 164 198 227 42,000 43,000 53 115 171 205 236 43,000 44,000 55 119 178 213 245 44,000 45,000 57 124 184 220 254 45,000 46,000 59 128 190 228 263 46,000 47,000 60 133 197 235 272 47,000 48,000 62 137 203 244 280 48,000 49,000 64 142 209 251 290 49,000 50,000 66 146 216 259 298 50,000 51,000 68 150 223 266 308 51,000 52,000 70 154 229 275 316 52,000 53,000 72 159 235 282 325 53,000 54,000 74 163 242 290 334 54,000 55,000 76 167 249 297 343 55,000 56,000 78 172 254 305 352 56,000 57,000 80 176 261 313 361 57,000 58,000 82 180 268 320 370 58,000 59,000 84 185 274 328 378 59,000 60,000 86 189 280 336 388 60,000 62,000 89 195 291 347 401 62,000 64,000 93 204 303 363 418 64,000 66,000 97 213 315 379 436 66,000 68,000 101 221 329 394 454 68,000 70,000 105 230 341 410 472 70,000 72,000 109 239 354 424 490 72,000 74,000 113 247 367 440 508 74,000 76,000 117 256 380 455 526 76,000 78,000 121 264 393 471 543 78,000 80,000 125 273 406 486 561 80,000 85,000 131 289 428 513 592 85,000 90,000 141 310 461 552 636 90,000 95,000 151 332 492 591 681 95,000 100,000 161 353 525 629 726 100,000 110,000 176 386 573 686 793 110,000 120,000 195 430 637 763 882 120,000 130,000 215 473 701 841 971 130,000 140,000 235 516 766 918 1,059 140,000 150,000 255 559 830 995 1,149 150,000 160,000 274 603 894 1,072 1,238 160,000 170,000 294 646 958 1,150 1,326 170,000 180,000 314 689 1,023 1,226 1,416 180,000 190,000 333 733 1,087 1,303 1,505 190,000 200,000 353 776 1,151 1,381 1,594 200,000 210,000 373 819 1,216 1,457 1,683 210,000 220,000 392 863 1,280 1,534 1,772 220,000 230,000 412 906 1,344 1,612 1,861 230,000 240,000 432 949 1,409 1,689 1,949 240,000 and up 452 992 1,473 1,766 2,039 SECTION 5. Eitc EFFECTIVE DATE This revenue procedure applies to passenger automobiles that a taxpayer first places in service or first leases during calendar year 2010. Eitc SECTION 6. Eitc DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Eitc Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Eitc For further information regarding this revenue procedure, contact Mr. Eitc Harvey at (202) 622-4930 (not a toll-free call). Eitc Prev  Up  Next   Home   More Internal Revenue Bulletins
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City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

Louisiana Office of the Attorney General

Website: Louisiana Office of the Attorney General

Address: Louisiana Office of the Attorney General
Consumer Protection Section
1885 N. 3rd St.
Baton Rouge, LA 70802

Phone Number: 225-326-6465

Toll-free: 1-800-351-4889

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Jefferson Parish District Attorney's Office

Website: Jefferson Parish District Attorney's Office

Address: Jefferson Parish District Attorney's Office
Economic Crime Unit
200 Derbigny St.
Gretna, LA 70053

Phone Number: 504-361-2920

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Office of Financial Institutions

Website: Office of Financial Institutions

Address: Office of Financial Institutions
PO Box 94095
Baton Rouge, LA 70804-9095

Phone Number: 225-925-4660

Toll-free: 1-888-525-9414

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
PO Box 94214
Baton Rouge, LA 70804-9214

Phone Number: 225-342-5900

Toll-free: 1-800-259-5300

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of Financial Institutions

Website: Office of Financial Institutions

Address: Office of Financial Institutions
Securities Division
PO Box 94095
Baton Rouge, LA 70804-9095

Phone Number: 225-925-4660

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Public Service Commission

Website: Public Service Commission

Address: Public Service Commission
PO Box 91154
Baton Rouge, LA 70821-9154

Phone Number: 225-342-4404

Toll-free: 1-800-256-2397 (LA)

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The Eitc

Eitc 8. Eitc   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Eitc Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Eitc It is similar to the straight line method of depreciation. Eitc The various amortizable costs covered in this chapter are included in the list below. Eitc However, this chapter does not discuss amortization of bond premium. Eitc For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Eitc Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Eitc How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Eitc To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Eitc For example, in 2012, you began to amortize a lease. Eitc In 2013, you began to amortize a second lease. Eitc Report amortization from the new lease on line 42 of your 2013 Form 4562. Eitc Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Eitc If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Eitc Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Eitc Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Eitc Generally, you recover costs for particular assets through depreciation deductions. Eitc However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Eitc For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Eitc For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Eitc The costs that are not deducted currently can be amortized ratably over a 180-month period. Eitc The amortization period starts with the month you begin operating your active trade or business. Eitc You are not required to attach a statement to make this election. Eitc You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Eitc Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Eitc See Regulations sections 1. Eitc 195-1, 1. Eitc 248-1, and 1. Eitc 709-1. Eitc For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Eitc Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Eitc If the election is made, you must attach any statement required by Regulations sections 1. Eitc 195-1(b), 1. Eitc 248-1(c), and 1. Eitc 709-1(c), as in effect before September 9, 2008. Eitc Note. Eitc You can apply the provisions of Regulations sections 1. Eitc 195-1, 1. Eitc 248-1, and 1. Eitc 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Eitc Otherwise, the provisions under Regulations sections 1. Eitc 195-1(b), 1. Eitc 248-1(c), and 1. Eitc 709-1(c), as in effect before September 9, 2008, will apply. Eitc For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Eitc See How To Make the Election , later. Eitc The cost must qualify as one of the following. Eitc A business start-up cost. Eitc An organizational cost for a corporation. Eitc An organizational cost for a partnership. Eitc Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Eitc Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Eitc Qualifying costs. Eitc   A start-up cost is amortizable if it meets both of the following tests. Eitc It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Eitc It is a cost you pay or incur before the day your active trade or business begins. Eitc   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Eitc Advertisements for the opening of the business. Eitc Salaries and wages for employees who are being trained and their instructors. Eitc Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Eitc Salaries and fees for executives and consultants, or for similar professional services. Eitc Nonqualifying costs. Eitc   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Eitc See Research and Experimental Costs , later. Eitc Purchasing an active trade or business. Eitc   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Eitc These are costs that help you decide whether to purchase a business. Eitc Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Eitc Example. Eitc On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Eitc They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Eitc In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Eitc The letter stated that a binding commitment would result only after a purchase agreement was signed. Eitc The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Eitc On October 22nd, you signed a purchase agreement with XYZ, Inc. Eitc All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Eitc Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Eitc Disposition of business. Eitc   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Eitc However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Eitc Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Eitc Qualifying costs. Eitc   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Eitc   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Eitc   Examples of organizational costs include: The cost of temporary directors. Eitc The cost of organizational meetings. Eitc State incorporation fees. Eitc The cost of legal services. Eitc Nonqualifying costs. Eitc   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Eitc Costs associated with the transfer of assets to the corporation. Eitc Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Eitc Qualifying costs. Eitc   A partnership can amortize an organizational cost only if it meets all the following tests. Eitc It is for the creation of the partnership and not for starting or operating the partnership trade or business. Eitc It is chargeable to a capital account (see chapter 1). Eitc It could be amortized over the life of the partnership if the partnership had a fixed life. Eitc It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Eitc However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Eitc It is for a type of item normally expected to benefit the partnership throughout its entire life. Eitc   Organizational costs include the following fees. Eitc Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Eitc Accounting fees for services incident to the organization of the partnership. Eitc Filing fees. Eitc Nonqualifying costs. Eitc   The following costs cannot be amortized. Eitc The cost of acquiring assets for the partnership or transferring assets to the partnership. Eitc The cost of admitting or removing partners, other than at the time the partnership is first organized. Eitc The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Eitc The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Eitc These “syndication fees” are capital expenses that cannot be depreciated or amortized. Eitc Liquidation of partnership. Eitc   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Eitc However, these costs can be deducted only to the extent they qualify as a loss from a business. Eitc How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Eitc You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Eitc Once you choose an amortization period, you cannot change it. Eitc To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Eitc The result is the amount you can deduct for each month. Eitc Cash method partnership. Eitc   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Eitc However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Eitc How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Eitc You may also be required to attach an accompanying statement (described later) to your return. Eitc For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Eitc Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Eitc 195-1, 1. Eitc 248-1, and 1. Eitc 709-1, you must also attach an accompanying statement to elect to amortize the costs. Eitc If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Eitc See Starting a Business , earlier, for more information. Eitc Generally, you must file the return by the due date (including any extensions). Eitc However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Eitc For more information, see the instructions for Part VI of Form 4562. Eitc You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Eitc Note. Eitc The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Eitc If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Eitc A shareholder or partner cannot make this election. Eitc You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Eitc Only the corporation or partnership can amortize these costs. Eitc However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Eitc These costs qualify as business start-up costs if you acquire the partnership interest. Eitc Start-up costs election statement. Eitc   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Eitc A description of the business to which the start-up costs relate. Eitc A description of each start-up cost incurred. Eitc The month your active business began (or was acquired). Eitc The number of months in your amortization period (which is generally 180 months). Eitc Filing the statement early. Eitc   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Eitc If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Eitc Revised statement. Eitc   You can file a revised statement to include any start-up costs not included in your original statement. Eitc However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Eitc You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Eitc Organizational costs election statement. Eitc   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Eitc A description of each cost. Eitc The amount of each cost. Eitc The date each cost was incurred. Eitc The month your corporation or partnership began active business (or acquired the business). Eitc The number of months in your amortization period (which is generally 180 months). Eitc Partnerships. Eitc   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Eitc   You do not need to separately list any partnership organizational cost that is less than $10. Eitc Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Eitc   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Eitc Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Eitc The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Eitc However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Eitc For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Eitc How to amortize. Eitc   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Eitc Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Eitc You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Eitc You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Eitc See Anti-Churning Rules, later. Eitc Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Eitc The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Eitc You cannot deduct amortization for the month you dispose of the intangible. Eitc If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Eitc You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Eitc Tax-exempt use property subject to a lease. Eitc   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Eitc Cost attributable to other property. Eitc   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Eitc For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Eitc Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Eitc Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Eitc You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Eitc Goodwill. Eitc   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Eitc Going concern value. Eitc   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Eitc It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Eitc It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Eitc Workforce in place, etc. Eitc   This includes the composition of a workforce (for example, its experience, education, or training). Eitc It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Eitc   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Eitc Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Eitc Business books and records, etc. Eitc   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Eitc It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Eitc Patents, copyrights, etc. Eitc   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Eitc Customer-based intangible. Eitc   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Eitc For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Eitc A customer base. Eitc A circulation base. Eitc An undeveloped market or market growth. Eitc Insurance in force. Eitc A mortgage servicing contract. Eitc An investment management contract. Eitc Any other relationship with customers involving the future provision of goods or services. Eitc   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Eitc Supplier-based intangible. Eitc   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Eitc The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Eitc Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Eitc Also, see Assets That Are Not Section 197 Intangibles below. Eitc Government-granted license, permit, etc. Eitc   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Eitc For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Eitc Covenant not to compete. Eitc   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Eitc An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Eitc   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Eitc Franchise, trademark, or trade name. Eitc   A franchise, trademark, or trade name is a section 197 intangible. Eitc You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Eitc For information on currently deductible contingent payments, see chapter 11. Eitc Professional sports franchise. Eitc   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Eitc Contract for the use of, or a term interest in, a section 197 intangible. Eitc   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Eitc It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Eitc Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Eitc Any interest in a corporation, partnership, trust, or estate. Eitc Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Eitc Any interest in land. Eitc Most computer software. Eitc (See Computer software , later. Eitc ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Eitc An interest in a film, sound recording, video tape, book, or similar property. Eitc A right to receive tangible property or services under a contract or from a governmental agency. Eitc An interest in a patent or copyright. Eitc Certain rights that have a fixed duration or amount. Eitc (See Rights of fixed duration or amount , later. Eitc ) An interest under either of the following. Eitc An existing lease or sublease of tangible property. Eitc A debt that was in existence when the interest was acquired. Eitc A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Eitc Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Eitc Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Eitc You generally must use the straight line method over its useful life. Eitc For certain intangibles, the depreciation period is specified in the law and regulations. Eitc For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Eitc For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Eitc Computer software. Eitc   Section 197 intangibles do not include the following types of computer software. Eitc Software that meets all the following requirements. Eitc It is, or has been, readily available for purchase by the general public. Eitc It is subject to a nonexclusive license. Eitc It has not been substantially modified. Eitc This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Eitc Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Eitc Computer software defined. Eitc   Computer software includes all programs designed to cause a computer to perform a desired function. Eitc It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Eitc Rights of fixed duration or amount. Eitc   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Eitc However, this does not apply to the following intangibles. Eitc Goodwill. Eitc Going concern value. Eitc A covenant not to compete. Eitc A franchise, trademark, or trade name. Eitc A customer-related information base, customer-based intangible, or similar item. Eitc Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Eitc You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Eitc If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Eitc Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Eitc Amortize these costs using the rules of Revenue Procedure 2004-36. Eitc For more information, see Revenue Procedure 2004-36, 2004-24 I. Eitc R. Eitc B. Eitc 1063, available at  www. Eitc irs. Eitc gov/irb/2004-24_IRB/ar16. Eitc html. Eitc A change in the treatment of creative property costs is a change in method of accounting. Eitc Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Eitc These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Eitc Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Eitc You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Eitc You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Eitc You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Eitc This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Eitc See Related person , later, for more information. Eitc Exceptions. Eitc   The anti-churning rules do not apply in the following situations. Eitc You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Eitc The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Eitc This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Eitc The gain-recognition exception, discussed later, applies. Eitc Related person. Eitc   For purposes of the anti-churning rules, the following are related persons. Eitc An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Eitc ), and lineal descendants (children, grandchildren, etc. Eitc ). Eitc A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Eitc Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Eitc (For an exception, see section 1. Eitc 197-2(h)(6)(iv) of the regulations. Eitc ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Eitc The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Eitc The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Eitc The executor and beneficiary of an estate. Eitc A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Eitc A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Eitc Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Eitc Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Eitc A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Eitc Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Eitc When to determine relationship. Eitc   Persons are treated as related if the relationship existed at the following time. Eitc In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Eitc In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Eitc Ownership of stock. Eitc   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Eitc Rule 1. Eitc   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Eitc Rule 2. Eitc   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Eitc Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Eitc Rule 3. Eitc   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Eitc Rule 4. Eitc   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Eitc Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Eitc Gain-recognition exception. Eitc   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Eitc That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Eitc That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Eitc See chapter 2 in Publication 544 for information on making this choice. Eitc   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Eitc Notification. Eitc   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Eitc Anti-abuse rule. Eitc   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Eitc To avoid the requirement that the intangible be acquired after August 10, 1993. Eitc To avoid any of the anti-churning rules. Eitc More information. Eitc   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Eitc 197-2(h). Eitc Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Eitc See Amended Return , next. Eitc If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Eitc See Changing Your Accounting Method , later. Eitc Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Eitc A mathematical error made in any year. Eitc A posting error made in any year. Eitc An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Eitc When to file. Eitc   If an amended return is allowed, you must file it by the later of the following dates. Eitc 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Eitc (A return filed early is considered filed on the due date. Eitc ) 2 years from the time you paid your tax for that year. Eitc Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Eitc File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Eitc The following are examples of a change in method of accounting for amortization. Eitc A change in the amortization method, period of recovery, or convention of an amortizable asset. Eitc A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Eitc A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Eitc Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Eitc An adjustment in the useful life of an amortizable asset. Eitc Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Eitc Any change in the placed-in-service date of an amortizable asset. Eitc See Regulations section 1. Eitc 446-1(e)(2)(ii)(a) for more information and examples. Eitc Automatic approval. Eitc   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Eitc For a list of automatic accounting method changes, see the Instructions for Form 3115. Eitc Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Eitc For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Eitc See Revenue Procedure 2006-12, 2006-3 I. Eitc R. Eitc B. Eitc 310, available at  www. Eitc irs. Eitc gov/irb/2006-03_IRB/ar14. Eitc html. Eitc  See Revenue Procedure 2006-37, 2006-38 I. Eitc R. Eitc B. Eitc 499, available at  www. Eitc irs. Eitc gov/irb/2006-38_IRB/ar10. Eitc html. Eitc  See Revenue Procedure 2008-52, 2008-36 I. Eitc R. Eitc B. Eitc 587, available at www. Eitc irs. Eitc gov/irb/2008-36_IRB/ar09. Eitc html. Eitc  See Revenue Procedure 2009-39, 2009-38 I. Eitc R. Eitc B. Eitc 371, available at  www. Eitc irs. Eitc gov/irb/2009-38_IRB/ar08. Eitc html. Eitc  See Revenue Procedure 2011-14, 2011-4 I. Eitc R. Eitc B. Eitc 330, available at  www. Eitc irs. Eitc gov/irb/2011-04_IRB/ar08. Eitc html. Eitc  See Revenue Procedure 2011-22, 2011-18 I. Eitc R. Eitc B. Eitc 737, available at  www. Eitc irs. Eitc gov/irb/2011-18_IRB/ar08. Eitc html. Eitc Also, see Revenue Procedure 2012-39, 2012-41 I. Eitc R. Eitc B. Eitc 470 available at www. Eitc irs. Eitc gov/irb/2012-41_IRB/index. Eitc html. Eitc Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Eitc If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Eitc If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Eitc Any remaining gain, or any loss, is a section 1231 gain or loss. Eitc If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Eitc For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Eitc Nondeductible loss. Eitc   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Eitc Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Eitc Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Eitc The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Eitc The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Eitc Covenant not to compete. Eitc   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Eitc Nonrecognition transfers. Eitc   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Eitc You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Eitc Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Eitc   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Eitc Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Eitc Example. Eitc You own a section 197 intangible you have amortized for 4 full years. Eitc It has a remaining unamortized basis of $30,000. Eitc You exchange the asset plus $10,000 for a like-kind section 197 intangible. Eitc The nonrecognition provisions of like-kind exchanges apply. Eitc You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Eitc You amortize the other $10,000 of adjusted basis over a new 15-year period. Eitc For more information, see Regulations section 1. Eitc 197-2(g). Eitc Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Eitc See Reforestation Costs in chapter 7. Eitc You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Eitc There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Eitc The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Eitc A partner, shareholder, or beneficiary cannot make that election. Eitc A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Eitc , of a partnership or S corporation. Eitc The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Eitc Qualifying costs. Eitc   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Eitc Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Eitc They include costs for the following items. Eitc Site preparation. Eitc Seeds or seedlings. Eitc Labor. Eitc Tools. Eitc Depreciation on equipment used in planting and seeding. Eitc Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Eitc Qualified timber property. Eitc   Qualified timber property is property that contains trees in significant commercial quantities. Eitc It can be a woodlot or other site that you own or lease. Eitc The property qualifies only if it meets all of the following requirements. Eitc It is located in the United States. Eitc It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Eitc It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Eitc Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Eitc Amortization period. Eitc   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Eitc You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Eitc Life tenant and remainderman. Eitc   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Eitc Any remainder interest in the property is ignored for amortization purposes. Eitc Recapture. Eitc   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Eitc See chapter 3 of Publication 544 for more information. Eitc How to make the election. Eitc   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Eitc A description of the costs and the dates you incurred them. Eitc A description of the type of timber being grown and the purpose for which it is grown. Eitc Attach a separate statement for each property for which you amortize reforestation costs. Eitc   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Eitc However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Eitc Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Eitc 9100-2” on Form 4562. Eitc File the amended return at the same address you filed the original return. Eitc Revoking the election. Eitc   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Eitc Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Eitc Please provide your daytime telephone number (optional), in case we need to contact you. Eitc You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Eitc    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Eitc NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Eitc These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Eitc For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Eitc If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Eitc Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Eitc However, see Atmospheric pollution control facilities for an exception. Eitc The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Eitc Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Eitc You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Eitc See chapter 3 of Publication 946. Eitc A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Eitc The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Eitc The facility must be certified by state and federal certifying authorities. Eitc The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Eitc Also, it must not significantly change the nature of the manufacturing or production process or facility. Eitc The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Eitc The federal certifying authority will describe the nature of the potential cost recovery. Eitc You must then reduce the amortizable basis of the facility by this potential recovery. Eitc New identifiable treatment facility. Eitc   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Eitc It does not include a building and its structural components unless the building is exclusively a treatment facility. Eitc Atmospheric pollution control facilities. Eitc   Certain atmospheric pollution control facilities can be amortized over 84 months. Eitc To qualify, the following must apply. Eitc The facility must be acquired and placed in service after April 11, 2005. Eitc If acquired, the original use must begin with you after April 11, 2005. Eitc The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Eitc If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Eitc Basis reduction for corporations. Eitc   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Eitc More information. Eitc   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Eitc Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Eitc If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Eitc The amortization period begins the month you first receive an economic benefit from the costs. Eitc For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Eitc Optional write-off method. Eitc   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Eitc For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Eitc Costs you can amortize. Eitc   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Eitc You paid or incurred the costs in your trade or business. Eitc You are not deducting the costs currently. Eitc How to make the election. Eitc   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Eitc Generally, you must file the return by the due date (including extensions). Eitc However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Eitc Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Eitc 9100-2” on Form 4562. Eitc File the amended return at the same address you filed the original return. Eitc   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Eitc Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Eitc If you make this election, there is no AMT adjustment. Eitc The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Eitc How to make the election. Eitc   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Eitc   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Eitc However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Eitc Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Eitc 9100-2” on Form 4562. Eitc File the amended return at the same address you filed the original return. Eitc Revoking the election. Eitc   You must obtain consent from the IRS to revoke your election. Eitc Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Eitc The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Eitc If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Eitc Prev  Up  Next   Home   More Online Publications