Section 197: Congress and the IRS attempt to settle disputes involving amortization of intangibles.As part of the Omnibus omnibus: see bus. Budget Reconciliation Act of 1993,(1)(*) Congress added section 197 to the Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. , which allows taxpayers to amortize amortize
To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. most intangible assets Intangible Asset
An asset that is not physical in nature.
Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. ratably over a period of 15 years.(2) The enactment of section 197 represents a legislative effort to resolve a wide range of disputes between taxpayers and the Internal Revenue Service on the proper tax treatment of intangibles and to bring some measure of certainty to the area.
Before the enactment of section 197, taxpayers and the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. fought over the legitimacy LEGITIMACY. The state of being born in wedlock; that is, in a lawful manner.
2. Marriage is considered by all civilized nations as the only source of legitimacy; the qualities of husband and wife must be possessed by the parents in order to make the offspring of amortization deductions for intangibles such as customer lists, covenants not to compete, goodwill and going concern value. Taxpayers sought to establish that the intangibles had an ascertainable as·cer·tain
tr.v. as·cer·tained, as·cer·tain·ing, as·cer·tains
1. To discover with certainty, as through examination or experimentation. See Synonyms at discover.
2. cost basis separate and distinct from goodwill and going concern value and that intangibles had a limited useful life, the length of which could be ascertained as·cer·tain
tr.v. as·cer·tained, as·cer·tain·ing, as·cer·tains
1. To discover with certainty, as through examination or experimentation. See Synonyms at discover.
2. with reasonable accuracy. The IRS attempted to refute re·fute
tr.v. re·fut·ed, re·fut·ing, re·futes
1. To prove to be false or erroneous; overthrow by argument or proof: refute testimony.
2. these contentions, by arguing (among other things) that the intangibles were indistinguishable from goodwill and going concern value.
By allowing one standard amortization deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. for an expansive list of intangibles--so-called amortizable am·or·tize
tr.v. am·or·tized, am·or·tiz·ing, am·or·tiz·es
1. To liquidate (a debt, such as a mortgage) by installment payments or payment into a sinking fund.
2. section 197 intangibles(3)--Congress sought to settle a heavily litigated area of tax law. The IRS can no longer deny deductions for assets in the nature of goodwill and going concern value, and taxpayers must accept an amortization period of 15 years for most intangibles, notwithstanding a possibly shorter economic life. Questions remain, however, whether section 197 will operate to eliminate controversies concerning intangibles.
The legislative history of section 197 calls upon the IRS to settle existing intangible amortization controversies (even though the provision itself is generally prospective). Pursuant to this mandate, the IRS has established settlement offer guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. for pre-section 197 cases and, as of April 1, 1994, has started to contact taxpayers offering to settle. Although the settlement guidelines are not unduly generous, they do allow taxpayers to resolve thorny thorn·y
adj. thorn·i·er, thorn·i·est
1. Full of or covered with thorns.
3. Painfully controversial; vexatious: a thorny situation; thorny issues. issues and salvage salvage, in maritime law, the compensation that the owner must pay for having his vessel or cargo saved from peril, such as shipwreck, fire, or capture by an enemy. Salvage is awarded only when the party making the rescue was under no legal obligation to do so. some tax benefits.
Congress was driven to enact section 197 because of the substantial issues--in terms of numbers and dollar value--arising with respect to intangible assets.(4) Treas. Reg REG,
n.pr See random event generator. . [sections] 1.167(a)-3, establishing guidelines for the amortization of intangibles, was at the heart of the controversy. This regulation allows depreciation of an intangible that is used in business or in the production of income for only a limited period, the length of which can be estimated with reasonable accuracy. No depreciation is allowed for an intangible that does not have a limited useful life. In addition, the regulation specifically precludes depreciation of goodwill.
In 1993, the Supreme Court opined on the amortization of intangibles in Newark Newark, cities, United States
1 City (1990 pop. 37,861), Alameda co., W Calif., on the east side of San Francisco Bay; inc. 1955. Morning Ledger The principal book of accounts of a business enterprise in which all the daily transactions are entered under appropriate headings to reflect the debits and credits of each account. Co. v. United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. .(5) In interpreting the language of Treas. Reg. [sections] 1.167(a)-3, the Court concluded that "[t]he entire justification for refusing to permit the depreciation of goodwill evaporates ... when the taxpayer demonstrates that the asset in question wastes over an ascertainable period of time."(6) Thus, while accepting "expectancy A mere hope, based upon no direct provision, promise, or trust. An expectancy is the possibility of receiving a thing, rather than having a vested interest in it.
The term has been applied to situations where an individual hopes and expects to receive something, generally of continued patronage Patronage
See also Philanthropy.
fairy godfather to Italian Cinderella. [Ital. Opera: Rossini, Cinderella, Westerman, 120–121]
supports Bias in return for political favors. [Fr. Lit. " as a useful definition of goodwill, the Court cautioned that the definition only serves to describe an intangible asset that has no useful life and no ascertainable value.(7) If a taxpayer can establish that an intangible asset has a limited useful life and can be valued, then the taxpayer may depreciate depreciate v. in accounting, to reduce the value of an asset each year theoretically on the basis that the assets (such as equipment, vehicles or structures) will eventually become obsolete, worn out and of little value. (See: depreciation) the asset's value over its useful life, regardless of how much the asset appears to reflect the expectancy of continued patronage.(8)
The Supreme Court's decision in Newark Morning Ledger removed the requirement to distinguish an intangible from goodwill, but it also underscored the magnitude of the taxpayer's evidentiary ev·i·den·tia·ry
1. Of evidence; evidential.
2. For the presentation or determination of evidence: an evidentiary hearing.
Adj. 1. burden in establishing an asset's useful life.(9) By allowing amortization ratably over 15 years, Congress has attempted to strike a balance between taxpayers and the IRS--allowing taxpayers to amortize previously nonamortizable intangibles while preventing taxpayers from amortizing "provable" intangibles over periods shorter than 15 years.
Operation of Section 197
Effectively, section 197 allows the amortization of most types of goodwill and other intangibles that are purchased (not created) by the taxpayer. Taxpayers are allowed the deduction for "amortizable section 197 intangibles."(10) The taxpayer determines the amount of the deduction by amortizing an intangible's adjusted basis ratably over the 15-year period beginning with the month that the taxpayer acquired the intangible. Under Newark Morning Ledger and pre-section 197 law, the assets would have been amortized based on their useful lives. Currently, all assets covered by section 197 are amortized on a straight-line straight-line
1. Lying in a straight line.
2. Relating to a device whose linkage produces or copies motion in straight lines.
3. basis over a 15-year period--no flexibility exists.(11) Section 197(b) states that if an asset is defined by section 197, then the amortization rules of section 197 must be followed.
Section 197(c) states that, for an asset to be amortizable under the statute, it must generally (i) be acquired on or after August 10, 1993, (ii) not be created by the taxpayer, and (iii) be used in the taxpayer's trade or business or for the production of income. The provisions of section 197 might otherwise suggest an advantage to the taxpayer to take assets created by the taxpayer or acquired by the taxpayer prior to August 10, 1993, and have them transferred and then reacquired in order to be able to amortize them under section 197. Section 197(f)(9), however, effectively prevents such churning Firing one group of employees and hiring another. As companies move into newer, high-tech ventures, they often eliminate employees with older skills while bringing on new people who have computer programming, networking and Web experience. of the assets.(12)
Businesses that made acquisitions after July July: see month. 25 and before August 10, 1993, may, however, elect to apply the Act retroactively ret·ro·ac·tive
Influencing or applying to a period prior to enactment: a retroactive pay increase.
[French rétroactif, from Latin .(13) If the election is made, section 197 must be applied retroactively to all transactions that occurred after July 25, 1991. Temp. Reg. [sections] 1.197-1T outlines the requirements and consequences of making the election, including the requirement to file amended returns Amended Return
A return filed in order to make corrections to a tax return from a previous year. It can be used to correct errors and claim a more advantageous filing.
An amended return is filed using Form 1040X. .(14)
The certainty afforded by applying the Act retroactively has great merit. When litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. costs and the uncertainty factor are taken into consideration, it is possible that--despite the shorter amortization available prior to the Act--retroactive application would be beneficial.
Section 197 Intangibles
Section 197 intangibles generally include the following:(15)
* Going concern value
* Workforce in place
* Business books and records, operating systems Operating systems can be categorized by technology, ownership, licensing, working state, usage, and by many other characteristics. In practice, many of these groupings may overlap. , or
any other information base
* Patent, copyright, formula, process, design, pattern, knowhow know´how`
n. 1. the knowledge and skill required to do something; practical knowledge for a specific task. , format, or similar item * Customer-based intangible(16) * Supplier-based intangible * "[A]ny other similar item"(17) * Governmental license, grant, permit, or other rights * Covenant not to compete covenant not to compete n. a common provision in a contract for sale of a business in which the seller agrees not to compete in the same business for a period of years or in the geographic area. This covenant is usually allocated (given) a value in the sales price. acquired as part of the acquisition of a business(18) * Franchise, trademark, or tradename
Section 197 also prescribes certain exceptions that remove certain intangibles from the scope of the statute.(19) Section 197 intangibles do not include any of the following:
* Interests in a corporation, partnership, trust or
estate, or futures contracts Futures Contract
An exchange traded agreement to buy or sell a particular type and grade of commodity for delivery at an agreed upon place and time in the future. Futures contracts are transferable between parties. , foreign currency contracts,
notional principal contracts The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. , or other similar
* Interests in land.(21)
* Computer software, if it is not purchased in connection
with the acquisition of a trade or business.(22)
(Software excluded from section 197 amortization
is instead amortized over 36 months.(23)
* Unless acquired in a transaction (or series of related
transactions) involving the acquisition of assets Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling firm's assets.
constituting a trade or business or substantial portion
* an interest in a film, sound recording, video
tape, book, or similar property,(25)
* the right to receive tangible property tangible property n. physical articles (things) as distinguished from "incorporeal" assets such as rights, patents, copyrights, and franchises. Commonly tangible property is called "personalty. or services
under a contract or any right to receive tangible
property or services granted by a government
or government agency,(26)
* any interest in a patent or copyright,(27) and
* to the extent provided in regulations, contract
rights (or rights under governmental grant) that
either have a fixed duration of less than 15
years or are fixed in amount and would otherwise
be recoverable under a method similar to
* An existing lease in tangible property and any existing
indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421.
2. (except for bank deposits).(29)
* Professional sports The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. franchises and any item acquired
in connection with the acquisition of such a
* Rights to service residential mortgages, unless acquired
as part of a trade or business.(31) (The taxpayer
instead must amortize these rights straight line
over 108 months.(32))
* Transaction costs Transaction Costs
Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). incurred in nonrecognition transactions
under part III of Subchapter C.(33) (Hence,
the Act leaves intact the principles of INDOPCO,
Inc. v. Commissioner.(34))
Basis of Intangibles and Interplay in·ter·play
Reciprocal action and reaction; interaction.
intr.v. in·ter·played, in·ter·play·ing, in·ter·plays
To act or react on each other; interact. of Sections 197, 338 and 1060
While section 197 allows a taxpayer to amortize a wide variety of intangibles over 15 years, the Years, The
the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109]
See : Time section provides scant scant
adj. scant·er, scant·est
1. Barely sufficient: paid scant attention to the lecture.
2. Falling short of a specific measure: a scant cup of sugar. guidance on determining the basis of intangibles. The determination of basis is important because the taxpayer cannot amortize an intangible unless the taxpayer carries its burden of proof on the basis of the intangible. Section 197 does not change this. The determination of basis would typically be straightforward in the acquisition of an isolated intangible: basis would equal the amount paid.(35) If the cost of acquisition includes contingent amounts, the taxpayer generally increases basis as of the beginning of the month that the contingent amount is paid or incurred, with the additional amount amortized ratably over the months remaining in the original 15-year period.(36)
When a taxpayer acquires a trade or business, the taxpayer must allocate To reserve a resource such as memory or disk. See memory allocation. purchase price among all the assets acquired, including intangibles. The legislative history of section 197 provides helpful guidance on allocating purchase price.
If a taxpayer acquires an interest in a partnership, the taxpayer is not treated as acquiring a new section 197 intangible unless the taxpayer obtains an increased basis in the intangible.(37) The new partner will step into the shoes of the selling partner to the extent of any existing basis in section 197 intangibles. If a section 754 election is in effect, the new partner could be treated as having an increased basis in the section 197 intangibles of the partnership. The new partner would in effect determine income or loss from the partnership as if the partnership had two intangibles. To the extent of existing partnership basis in section 197 intangibles, the new partner would step into the shoes of the selling partner, and to the extent of any increased basis in partnership section 197 intangibles, the partner's income would reflect amortization of the increased basis over the 15 years starting with the month the new partner acquires the partnership interest.
Sections 338 and 1060 pertain to pertain to
verb relate to, concern, refer to, regard, be part of, belong to, apply to, bear on, befit, be relevant to, be appropriate to, appertain to determining the basis of assets acquired as part of the acquisition of a trade or business.(38) Section 1060 applies to an outright acquisition of a trade or business, and section 338 applies to an acquisition of a target company's stock treated as an asset acquisition for tax purposes. In both cases, the rules of section 338(b)(5) govern the allocation The apportionment or designation of an item for a specific purpose or to a particular place.
In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of overall basis(39) to the individual assets acquired.(40) The regulations under section 338(b)(5) require allocation of overall basis to four classes of assets (cash, marketable securities Marketable Securities
Very liquid securities that can be converted into cash quickly at a reasonable price.
Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has , other assets other assets
Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. and, historically, goodwill/going concern value).(41)
Section 197 does not specifically address the interplay of sections 197, 338, and 1060.(42) The legislative history does.(43) After explaining the current mechanics of the residual method Residual method
A method of allocating the purchase price for the acquisition of another firm among the acquired assets. of section 338(b)(5), the Conference Report on the 1993 Act states:
It is expected that the present Treasury regulations
which provide for the allocation of purchase
price in the case of certain asset acquisitions will
be amended a·mend
v. a·mend·ed, a·mend·ing, a·mends
1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive.
2. to reflect the fact that the bill allows
an amortization deduction with respect to intangible
assets in the nature of goodwill and going concern
value. It is anticipated that the residual method
specified in the regulations will be modified to
treat all amortizable section 197 intangibles as
Class IV assets and that this modification will
apply to any acquisition of property to which the
bill applies.(44) Thus, acquirers should, in theory, allocate to amortizable section 197 intangibles any residual of purchase price not allocated to other assets.
For a variety of reasons, it is unclear whether the express congressional intent that the enactment of section 197 minimize, if not eliminate, conflicts between the IRS and taxpayers will materialize ma·te·ri·al·ize
v. ma·te·ri·al·ized, ma·te·ri·al·iz·ing, ma·te·ri·al·iz·es
1. To cause to become real or actual: By building the house, we materialized a dream. . First, section 197 does not alter the burden of proof on the basis of any asset, including intangibles; that burden remains with the taxpayer. Second, while section 197 has broad application to intangibles, the statute allows 15-year amortization only for enumerated This term is often used in law as equivalent to mentioned specifically, designated, or expressly named or granted; as in speaking of enumerated governmental powers, items of property, or articles in a tariff schedule. intangibles, and expressly excludes some intangibles from its application.
Several issues linger lin·ger
v. lin·gered, lin·ger·ing, lin·gers
1. To be slow in leaving, especially out of reluctance; tarry. See Synonyms at stay1.
2. . Could an argument be made that the congressional desire to modify the existing residual method by treating all amortizable section 197 intangibles as Class IV assets implies a rejection of the residual method in favor of upon the side of; favorable to; for the advantage of.
See also: favor a system that attaches a value to each asset to be proven by the taxpayer? Will the courts tolerate tol·er·ate
1. To allow without prohibiting or opposing; permit.
2. To put up with; endure.
3. To have tolerance for a substance or pathogen. a taxpayer that fails to adequately establish the values of assets because the taxpayer views 15-year amortization as a fallback position fallback position n → posición f de repliegue or because the taxpayer prefers 15-year amortization over what might otherwise result? Might the courts in those situations simply disallow To exclude; reject; deny the force or validity of.
The term disallow is applied to such things as an insurance company's refusal to pay a claim. amortization deductions, citing the taxpayer's failure to carry its burden? Or, might the IRS prevail in allocating basis to assets other than intangibles that have a recovery period in excess of 15 years because the taxpayer fails to carry its burden?
Perhaps most troubling, to what extent will the Supreme Court's INDOPCO decision factor into the allocation of basis to amortizable section 197 intangibles?(45) The Court held in INDOPCO that expenses incurred as part of a friendly takeover Friendly takeover
Merger when the target firm's management and board of directors is in favor of the takeover. Antithesis of hostile takeover.
friendly takeover were not deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). under section 162 as ordinary and necessary business expenses. The exact principles to be gleamed from the case and, therefore, the effect on the future, remains uncertain. But the Court's decision did provide some guidance. An expenditure's giving future benefit to a taxpayer, for example, is "undeniably important in determining whether the appropriate tax treatment is immediate deduction or capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. ."(46) Moreover, the Court confirmed that certain expenses incurred to change the corporate structure for the benefit of future operations are not ordinary and necessary business expenses and are therefore nondeductible non·de·duct·i·ble
Not deductible, especially for income-tax purposes.
Adj. 1. nondeductible - not allowable as a deduction
deductible - acceptable as a deduction (especially as a tax deduction) .(47) And, "[t]he fact that the expenditures do not create or enhance a separate and distinct additional asset is not controlling; the acquisition-related expenses bear the indicia Signs; indications. Circumstances that point to the existence of a given fact as probable, but not certain. For example, indicia of partnership are any circumstances which would induce the belief that a given person was in reality, though not technically, a member of a given of capital expenditures and are to be treated as such."(48)
There are at least two possible ways in which INDOPCO could be invoked to defeat deductions for intangibles under section 197. First, if the taxpayer fails to establish values for assets (including amortizable section 197 intangibles) equal to the purchase price, the IRS might argue that the excess is not deductible because the expenditure creates a future benefit even though not attributable to a separate and distinct asset. Second, the IRS could argue that, while the cost of acquiring an intangible might be amortizable, future expenses that enhance that intangible give rise to a long-term Long-term
Three or more years. In the context of accounting, more than 1 year.
1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. benefit that must be capitalized Capitalized
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. rather than deducted de·duct
v. de·duct·ed, de·duct·ing, de·ducts
1. To take away (a quantity) from another; subtract.
2. To derive by deduction; deduce.
Except perhaps where the taxpayer abandons or all but abandons its burden of proof on the values of assets and except in respect of post-acquisition expenditures primarily intended for future benefit, neither of the foregoing arguments should succeed. Congress was clearly concerned about the backlog Backlog
The total value of sales orders waiting to be fulfilled.
This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. of audits and litigation produced by the amortization-of-intangibles issue and just as clearly intended that section 197 simplify the law and reduce confrontation.(49) In addition, Congress provided ample language calling for the treatment of any residual purchase price as an asset amortizable over 15 years, a period intended to strike a balance between the IRS's and taxpayers' positions. Accordingly, the law should be construed to minimize the possibility of nonamortizable nondeductible expenditures.
Settlement of Existing Intangible Amortization Disputes
Congress did not limit its focus to amortization of intangibles acquired after the passage of the 1993 Act. It also expressly called upon the IRS to resolve existing controversies.(50) The IRS has responded with global settlement guidelines.(51) As of April 1, 1994, the IRS is contacting taxpayers offering to settle consistent with these guidelines. These guidelines apply in respect of acquisitions made before July 26, 1991, if intangibles issues from the acquisitions are under audit by April 1, 1994.(52) The offer will be available to most, but not all, taxpayers.(53) Once the IRS and taxpayer agree on a computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of the settlement, the parties will execute a specific item closing agreement.
Subject to a possible exception, the essence of the proposed guidelines is to allow a taxpayer to amortize some but not all of what the taxpayer claims as amortizable intangibles. The guidelines generally require taxpayers to reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species"
class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you from amortizable intangibles to nonamortizable goodwill/going concern value the greater of two computed amounts:
* 15 percent of claimed amortizable intangibles,
* an amount based on a present value analysis of
intangibles cost recovery. The guidelines thus offer tax benefits somewhere between what the taxpayer claimed on its tax return and no deduction at all. The guidelines are less favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. than section 197 itself.
The IRS settlement offer guidelines provide a four-step process to determine the reclassification Reclassification
The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. from amortizable intangibles to nonamortizable intangibles. This process must be applied separately to each acquisition.
Step 1. Multiply mul·ti·ply
1. To increase the amount, number, or degree of.
2. To breed or propagate. the claimed basis of amortized intangibles
shown on the tax return by 15%.(54)
Step 2. Compute To perform mathematical operations or general computer processing. For an explanation of "The 3 C's," or how the computer processes data, see computer. the 50% cost recovery adjustment:
(a) Compute the weighted average useful life for
amortized intangibles. This is accomplished by multiplying mul·ti·ply 1
v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies
1. To increase the amount, number, or degree of.
2. Mathematics To perform multiplication on.
the claimed basis of each amortized intangible
by its claimed useful life, adding the results for each
intangible, and then dividing that total by the total
basis claimed for all amortized intangibles.(55)
(b) Determine the nonamortizable intangible basis
necessary to achieve an overall cost recovery of 50%.
This step is accomplished by multiplying the aggregate
value of all intangibles (amortizable and nonamortizable)
by the nonamortizable percentage of total intangible
value, a percentage derived from a table provided
by the IRS in its settlement guidelines. The table provides
percentages that differ based on the weighted
average useful lives of amortized intangibles (from Step
1). The purpose of the table is to limit the present
value of a taxpayer's amortization deductions. Hence,
as the weighted average useful life increases, the basis
that can be amortized increases.(56)
(c) Subtract A relational DBMS operation that generates a third file from all the records in one file that are not in a second file. the goodwill/going concern value (i.e.,
the nonamortizable intangibles) claimed on the tax
return from the amount computed in Step 2(b). This
remainder is called the "50% cost recovery adjustment."
Step 3. Determine the larger of amounts derived in
Steps 1 and 2(c) and reclassify that amount from amortizable
intangibles to nonamortizable intangible
Step 4. Recompute the basis of each intangible acquired
in the transaction. The basis of goodwill/going
concern value increases by the Step 3 amount. The
basis of amortizable intangible assets is decreased by a
pro rata [Latin, Proportionately.] A phrase that describes a division made according to a certain rate, percentage, or share.
In a Bankruptcy case, when the debtor is insolvent, creditors generally agree to accept a pro rata share of what is owed to them. portion of the Step 3 amount, with the proration Proration
A situation during a corporate action in which the available cash or shares are not sufficient to satisfy the offers tendered by shareholders. Therefore, a proportion of both cash and shares is granted for each offer tendered.
based on the assets' respective values claimed on
the tax return. The taxpayer then recomputes amortization
deductions based on these revised bases, and
based on the lives and methods used in the tax return.
If the recomputation of amortization deductions includes
closed years, the taxpayer must make further
adjustments the essence of which requires the taxpayer
to forgo amortization deductions in the earliest open
years to the extent of excessive deductions in closed
years.(57) (The operation of these guidelines is illustrated in Example 2.
Although the IRS settlement guidelines generally require taxpayers to reclassify basis from amortizable intangibles to nonamortizable intangibles, the IRS will allow taxpayers to extend the lives of amortizable intangible assets rather than lose amortizable basis. The IRS has established an eight-step process determining the extended lives such that the present value of increased tax benefits over an extended period equals the present value of tax benefits under the general approach outlined above. (This process is illustrated in Example 3.
The decision to settle based on the guidelines may not be an easy one. The starting point Noun 1. starting point - earliest limiting point
terminus a quo
commencement, get-go, offset, outset, showtime, starting time, beginning, start, kickoff, first - the time at which something is supposed to begin; "they got an early start"; "she knew from the in the analysis should be a numerical numerical
expressed in numbers, i.e. Arabic numerals of 0 to 9 inclusive.
a numerical code is used to indicate the words, or other alphabetical signals, intended. comparison--the present value of tax savings based on deductions as claimed on the return with the present value of tax savings based on accepting a settlement. The legal, accounting, and time costs of pursuing a defense should also be factored in. Consideration should also be given to the following observations.
The guidelines do not distinguish between industries; service companies would receive the same treatment as manufacturers even though service companies have a greater proportion of their assets in intangibles and therefore stand to lose a great deal more. If the guidelines are unattractive to this segment of businesses, the congressional intent to encourage settlement would be undermined. The IRS has responded that a distinction based on industry would be improper
A decision to settle must be considered in light of the alternative--fighting the issue through the IRS's administrative process and the courts. Ultimate disposition should depend on the nature of the intangibles, not the nature of the industry. Nonetheless, several factors might make service companies less attracted to the settlement offer. Service companies have a greater proportion of intangible assets and therefore have more to lose by settling, and the cost of litigation would be relatively less expensive. Service companies would more likely have intangibles that would withstand a court challenge--customer lists, core deposits, etc. On the whole, taxpayers should not place too much emphasis on their industry in determining whether to accept the settlement offer. Rather, taxpayers should look primarily to the merits of their particular circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or .
The settlement guidelines are the same for all taxpayers regardless of a taxpayer's likelihood of ultimate success. The guidelines require the taxpayer to give up amortization based on uniform formulae that are ultimately a function of the proportion of intangibles that are amortized and the useful lives claimed. The offer does not vary based on the type of intangibles a taxpayer has claimed or based on the aggressiveness of the taxpayer or based on the taxpayer's diligence in documenting the amortization deduction. In a sense, then, the settlement guidelines may actually reward taxpayer aggressiveness because the more aggressive the taxpayer has been in claiming amortizable intangibles, the more amortizable intangibles the taxpayer will have following acceptance of the settlement offer. Taxpayers should make their decision with these considerations in mind. The more aggressive a taxpayer has been in claiming amortizable intangibles out of what would otherwise be nonamortizable, the less evidence the taxpayer has to support the intangibles, and the more questionable the nature of the intangibles claimed, the more willing the taxpayer should be to accept the offer.
The settlement guidelines assume an interest rate that may now be unrealistically low. The interest rate is 5.5 percent (approximately 8.5 percent pre-tax, assuming a 35 percent tax rate), applied to essentially long-term computations. If the interest rate used in discounting computations is too low, the present value of future amounts is too high, and given the 50-percent present value standard of the guidelines, the percentage of intangibles that may be amortized will be too low and the amount that must be reclassified to nonamortizable assets too high. While a long-term interest rate of 5.5 percent may have been realistic when the IRS issued the guidelines on February 10, market forces have since increased interest rates substantially, making the settlement offer less attractive.
A taxpayer should consider both the tax and financial accounting consequences of settling. The financial accounting aspects of the decision are especially important in light of the possibility of amortizing 100 percent of the amortizable intangible basis claimed on the return by agreeing to extend the period for amortization. The general approach would presumably pre·sum·a·ble
That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. create differences between tax basis and financial accounting carrying amounts for amortizable intangible assets. The alternative would not. Moreover, whereas the general approach requires a discounting of future tax consequences, Statement of Financial Accounting Standards No. 109, which addresses accounting for deferred taxes, does not now require discounting. Hence, while the alternative would theoretically produce a comparable present value (assuming market rates of interest), the deferred taxes could be substantially less.
Section 197 allows taxpayers to amortize most intangibles ratably over 15 years. Taxpayers should identify and value all assets, including amortizable section 197 assets, acquired as part of the acquisition of a trade or business or as part of the acquisition of stock of a company treated as an acquisition of assets. If the overall purchase price exceeds the fair market value of identified assets, the taxpayer should allocate that excess to amortizable section 197 intangibles, together with amounts already allocated to those intangibles. The taxpayer should then amortize the entire amount over 15 years.
Although the provisions of section 197 are available for acquisitions after July 25, 1991, IRS settlement guidelines offer most taxpayers an opportunity to settle outstanding cases. The offer is clearly not as generous as section 197, but the taxpayer should nonetheless compare the settlement offer with the expected outcome of continued litigation together with the associated time, expense,y and other hazards of litigation. The taxpayer should also consider whether financial accounting results or some other rationale rationale (rash´nal´),
n the fundamental reasons used as the basis for a decision or action. justifies extending the tax lives of assets acquired in transactions before July 25, 1991, rather than reclassifying basis from amortizable assets to nonamortizable assets. Example 1: X Corp. acquires 100% of the stock of Y Corp. for cash of $1 million, X elects section 33 acquisition of Y. Y has no liabilities before or as a result of the transaction. Under two alternati establish assets with the following apprised values:
Alternative 1 Alternative 2 Cash $50,000 $50,000 I.B.M. stock 100,000 100,000 Equipment 650,000 350,000 Customer list 100,000 100,000 Goodwill 200,000 200,000 Going concern value 100,000 100,000 $1,200,000 $900,000
Y is able to establish that the customer list has a value of $100,000 and a useful life of 7 years. basis of $1 million. That allocation with and without application of section 197 should be, as follo
Alternative 1 Alternative Before [sections]197 After [sections]197 Befor e [sections]197 Af Class I (cash) $50,000 $50,000 $5 0,000 Class II (I.B.M. stock) 100,000 100,000 10 0,000
Equipment 650,000 650,000 35 0,000 Customer list 100,000 0 10 0,000 Class IV 100,000 200,000 40 0,000 $1,000,000 $1,000,000 $1,00 0,000 $1
Both alternatives represent circumstances where the amount paid ($1 million) does not equal the aggr values of acquired assets. The taxpayer would still allocate total basis of $1 million, and any resi allocations to Classes I, II, and III-should go to Class IV, both before and after section 197. Example 2:(58) P Corp. acquires the assets of Target for $2 million. The assets have
Tangible assets Tangible Asset
An asset that has a physical form such as machinery, buildings and land.
This is the opposite of an intangible asset such as a patent or trademark. Whether an asset is tangible or intangible isn't inherently good or bad. :
Inventory $200,000 Machinery and equipment 400,000 Accounts receivable 100,000 Land and building 300,000 $1,000,000
Goodwill/going concern value $200,000 Customer list 700,000 Trade name and trademark 100,000 $1,000,000
P amortizes the customer list straight line over 4 years, the tradename/trademark over 10 years. Step 1. The minimum concession amount equals $120,000, computed as 15 percent of $800,000, the amoun amortized intangibles (i.e., the customer list and trade name/trademark). Step 2(a). The weighted average useful life for amortized intangibles equals 4.75 years, computed as
Intangible Value Life Total Customer list: $700,000 4 $2,800,000 Trademark/tradename 100,000 10 1,000,000 Total $800,000 14 $3,800,000
3,800,000/800,000 = 4.75 years Step 2(b). The nonamortizable intangible basis necessary to achieve an overall cost recovery of 50 p $418,300:
$1,000,000 values of all intangibles x 41.83% the nonamortizable percentage (derived from the IRS table)
$418,300 Step 2(c). The 50-percent cost recovery adjustment is $218,300:
$418,300 Step 2(b) amount (200,000) less goodwill/going concern value
$218,300 Step 3. The larger of Steps 1 and 2 is Step 2, $218,300. Step 4. Adjust the bases of the intangibles:
Intangible Basis of Return Adjustment Revised Basis Goodwill/GCV $200,000 +218,300 $418,300 Customer list 700,000 -191,012 (7/8) 508,988 Trademark/tradename 100,000 -27,288 (1/8) 72,712 $1,000,000 0 $1,000,000
P would amortize the revised bases of the customer list and trademark/tradename, $508,988 and $72,71 over their useful lives, 4 years and 10 years. Example 3:(59) Assume the same facts as in Example 2 above. Step 1. Compute the weighted average useful life of amortized intangibles on the return:
Customer list $700,000 x 4 years = $2,800,000 Trademark/tradename 100,000 x 10 years = $1.000.000 Total $800,000 $3,800,000
3,800,000/800,000 = 4.75 years Step 2. Determine the "recovery timing percentage." This is done by finding the weighted average use on an IRS provided Straight Line Conversion Table. In the case of 4.75 years, the recovery timing pe 86%. Step 3. Compute the 15% minimum recovery timing percentage by multiplying the recovery timing percen 2) by 85%:
86% x 85% = 73.1
Step 4. Compute the "recovery amount percentage" claimed on the return by dividing the amount of amo intangible assets on the return by the total intangibles from the acquisition:
800,000/1,000,000 = 80%
Step 5. Determine the "required recovery timing" percentage by dividing 50% by the recovery amount p (Step 4):
50%/80% = 62.5%
Step 6. Determine the extended recovery timing percentage by determining the lower of Steps 3 and 5. 62.5% of Step 5 is lower than the 73.1% of Step 3. Step 7.(60) Determine the extended useful life for each specific asset by applying the following 4 s
a. For each amortized intangible, find the asset's useful life on the Straight Line Conversion
the corresponding cost recovery percentage:
Customer list (4 years) = 87.6% Tradename (10 years) = 75.4%
b. Compute the recovery timing percentage reduction factor for the whole acquisition by dividi
extended recovery timing percentage (Step 6) by the recovery timing percentage (Step 2):
62.5%/86% = 72.7%
c. Multiply the recovery timing percentage reduction factor (Substep 7b) by the Substep 7a per
Customer list 87.6% x 72.7% = 63.7% Tradename 75.4% x 72.7% = 54.8%
d. Determine the extended useful life for each asset by finding the corresponding Substep 7c p
the Straight Line Conversion Table:
Customer list = 17.25 years Tradename = 24 years
Step 8. Recompute the amortization deductions by dividing each asset's basis claimed on the return b extended useful life (Substep 7d):
Customer list $700,000/17.25 years = $40,580/year Tradename $100,000/24 years = $4,167/year
(*) Footnotes are printed on page 288.
(1) Pub. L. No. 103-66 (1993). (2) I.R.C. [sections] 197(a). (3) I.R.C. [sections] 197(c). (4) See H.R. Rep (programming) REP - A directive used in IBM object code card decks (and later PTF Tapes) to REPlace fragments of already assembled or compiled object code prior to link edit. . No. 103-213, 103d Cong., 1st Sess. 696 (1993) (OBRA Conference Report). (5) 61 U.S.L.W. 4313 (U.S. April 20, 1993). For a further analysis of Newark Morning Ledger, see Persellin, Depreciation of Customer-Based Intangibles Confirmed by Supreme Court in Newark Morning Ledger, 45 Tax Executive 211 (May-June 1993). (6) 61 U.S.L.W. at 4318. (7) Id. at 4316 n.9. (8) Id. at 4319. The Court did not minimize the taxpayer's burden of proof. The taxpayer must establish the value of the distinct intangible, the fact that the asset has a limited useful life, and a determination of that useful life. The Court acknowledged that the taxpayer's burden would often prove too great to bear. Id. (9) Some courts have considered the amortization of intangibles in light of Newark Morning Ledger. For example, in Ithaca Industries Inc. v. Commissioner, 17 F.3d 684 (4th Cir. 1994), the court disallowed amortization for an assembled as·sem·ble
v. as·sem·bled, as·sem·bling, as·sem·bles
1. To bring or call together into a group or whole: assembled the jury.
2. workforce acquired in a merger. In Meredith Corp. v. Commissioner, 102 T.C. 15 (1994), the acquirer of a magazine was not allowed to amortize the editor-in-chief's employment contract or additional amounts allocated to non-competition agreements but was allowed to amortize the subscriber relationships based on agreed useful lives and determined basis. In Trustmark Corp. v. Commissioner, T.C. Memo 1994-184 (1994), a bank was allowed to amortize core deposits purchased. (10) I.R.C. [sections] 197(a). See also I.R.C. [sections] 197(f)(7) (treating amortizable section 197 intangibles as property of a character subject to the allowance for depreciation under section 167). (11) I.R.C. [sections] 197(b). (12) I.R.C. [subsections] 197(c)(3) & (f)(9). Churning generally occurs when the intangible was held or used at any time on or before the date of enactment by the taxpayer or a related person, the intangible was acquired from a person who held such intangible at any time on or before such date of enactment and, as part of the transaction, the user of such intangible does not change or the taxpayer grants the right to use such intangible to a person (or a person related to such person) who held or used such intangible at any time on or before such date of enactment. I.R.C. [sections] 197(f)(9)(A). (13) Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, [sections] 13261(g)(2); Temp. Reg. [sections] 1.197-1T. (14) Temp. Reg. [sections] 1.197-1T(c)(4). The temporary regulation also addresses the requirement that all taxpayers under common control elect, the effect of the election on former consolidated group members, the effect of the election on taxpayers involved in certain nonrecognition transactions, the interplay of the election with sections 734(b) and 743(b), and the binding contract election. (15) I.R.C. [sections] 197(d)(1). (16) This category includes many of those intangibles that have been so heavily litigated in the past, including the intangibles at issue in the landmark Newark Morning Ledger and Houston Chronicle chronicle, official record of events, set down in order of occurrence, important to the people of a nation, state, or city. Almanacs, The Congressional Record in the United States, and the Annual Register in England are chronicles. cases. See Newark Morning Ledger v. United States, 61 U.S.L.W. 4313 (U.S. April 20, 1993), and Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240, (5th Cir. 1973), cert (Computer Emergency Response Team) A group of people in an organization who coordinate their response to breaches of security or other computer emergencies such as breakdowns and disasters. . denied, 414 U.S. 1129. Clearly, a core of customers represents one of the primary assets included in the acquisition of most trades or businesses. (17) I.R.C. [sections] 197(d)(1)(C)(vi). (18) The purchase of the stock of a corporation does not result in the purchase of its assets for tax purposes unless the acquirer so elects pursuant to section 338. Based upon this, there would be no new amortization of any assets of the acquired corporation in a simple stock purchase transaction. If a covenant not to compete is negotiated as part of the stock purchase, however, the covenant not to compete is an amortizable section 197 intangible, even if section 338 is not elected. See I.R.C. [subsections] 197(d)(1)(E) & (f)(3); OBRA Conference Report at 677.
Fifteen-year amortization for covenants not to compete presents significant problems. Courts are hostile to covenants not to compete even when they have been freely negotiated with both sides represented by counsel. It is almost certain that a covenant not to compete in excess of five years will be struck down. Most covenants not to compete are for a maximum of three years.
Since most covenants not to compete are for a maximum of three years and they will be amortized under the Act over a period of fifteen years, a purchaser will want to allocate as little cost as possible to the asset. This will obviously create tensions with the Internal Revenue Service over the amount of cost allocated to the covenant not to compete. For example, the acquirer of the target company may prefer to enter into a contract for the performance of consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.)
service - work done by one person or group that benefits another; "budget separately for goods and services" by the former owner. The government can recast re·cast
tr.v. re·cast, re·cast·ing, re·casts
1. To mold again: recast a bell.
2. an amount paid under this contract into a section 197 intangible required to be amortized over 15 years, to the extent the amount paid exceeds reasonable compensation. See OBRA Conference Report at 677. (19) I.R.C. [sections] 197(e). (20) I.R.C. [sections] 197(e)(1). As discussed more fully in the text that follows, a partnership can have section 197 intangibles and can pass the amortization of those intangibles through to the partners. In addition, although a partnership interest may not be a section 197 intangible, that acquisition could give rise to an increase in basis in section 197 intangibles for measuring that partner's income or loss from the partnership. (21) I.R.C. [sections] 197(e)(2). Airport landing rights, however, are section 197 intangibles. OBRA Conference Report at 679. (22) I.R.C. [sections] 197(e)(3). Moreover, even if computer software is acquired in connection with the acquisition of a trade or business, it is excluded from 15-year amortization if it is readily available for purchase by the general public, is subject to a non-exclusive license, and has not been substantially modified. For example, the Wordperfect software used to write this article would be excluded from section 197 amortization. (23) I.R.C. [sections] 167(f)(1). (24) I.R.C. [sections] 197(e)(4). (25) I.R.C. [sections] 197(e)(4)(A). (26) I.R.C. [sections] 197(e)(4)(B). See also OBRA Conference Report at 680. Taxpayers will instead determine the depreciation deduction pursuant to regulations to be written. I.R.C. [sections] 167(f)(2). (27) I.R.C. [sections] 197(e)(4)(C). If depreciation is allowable, but not under section 197, regulations will provide the manner of depreciation. I.R.C. [sections] 167(f)(2). The regulations should provide that if the purchase price is payable on an annual basis as a fixed percentage of revenue derived from a patent, the depreciation deduction equals the royalty paid or incurred. OBRA Conference Report at 681. (28) I.R.C. [sections] 197(e)(4)(D). Taxpayers would instead amortize these intangibles pursuant to regulations to be written. I.R.C. [sections] 167(f)(2). Regulations should address the extent to which renewal rights or opportunities will impact the determination of a contract's fixed duration or amount. (29) I.R.C. [sections] 197(e)(5). See also I.R.C. [sections] 197(f)(6) (treating a sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. in the same manner as a lease). (30) I.R.C. [sections] 197(e)(6). (31) I.R.C. [sections] 197(e)(7). (32) I.R.C. [sections] 167(f)(3). (33) I.R.C. [sections] 197(e)(8). (34) 112 S. Ct. 1039 (1992). (35) See OBRA Conference Report at 685, indicating that the adjusted basis of an intangible acquired from another taxpayer is generally determined under existing principles of tax law applicable to acquisitions of tangible property. (36) Id. Congress expects some limited regulatory exceptions to this general proposition. For example, certain amounts paid for a franchise, trademark, or tradename that is contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress"
contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent productivity, use, or disposition would be deductible. Id. at 678. (37) OBRA Conference Report at 686-87. (38) I.R.C. [subsections] 338(b)(5) & 1060(a). Section 197 provides many distinct rules for assets that are acquired as part of an acquisition of assets that constitute "a trade or business or substantial portion thereof." See, e.g., I.R.C. [subsections] 197(c)(2) & (d)(1)(E). This concept for purposes of section 197 is intended to include, but not be limited to, an asset acquisition defined in section 1060. Hence, the acquisition of a trade or business (or substantial portion thereof) for purposes of section 197 can occur even if such an acquisition does not occur for purposes of section 1060. See OBRA Conference Report at 678. (39) Sections 338 and 1060 and the applicable regulations provide rules to determine the overall basis to allocate. The overall basis is primarily a function of the purchase price of the trade or business or stock of the target. See I.R.C. [subsections] 338(b) & 1060(a). (40) See I.R.C. [sections] 1060(a), referring to I.R.C. [sections] 338(b)(5). (41) Temp. Reg. [subsections] 1.338(b)-2T & 1.1060-1T(d) & (e). Taxpayers must identify assets acquired and place the assets within one of the four classes:
Class I, cash and cash equivalents,
Class II, CD's, Treasury securities, foreign currency, and marketable Marketable are securities that can be easily converted into cash. Such securities will generally have highly liquid markets allowing the security to be sold at a reasonable price very quickly.
stock or securities,
Class III, all assets not in the other three categories,
Class IV, goodwill/going concern value. Having identified the class for each asset, the acquirer allocates overall basis first to Class I, then to Class II, then to Class III, up to the fair market value of each class. The acquirer allocates remaining overall basis (i.e., overall basis in excess of the aggregate fair market value of classes I, II, and III) to Class IV, not limited to the fair market value of Class IV Thus, while Class III is the catchall catch·all
1. A receptacle or storage area for odds and ends.
2. Something that encompasses a wide variety of items or situations: in terms of placing assets in categories, any residual of purchase price goes to Class IV. (42) The 1993 Act did, however, make two changes to section 1060. Section 1060(b)(1) granted regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest
administrative body, administrative unit - a unit with administrative responsibilities to require the buyer and seller of a business to provide to the IRS information on the amount of consideration received (and paid) for goodwill and going concern value. Section 1060(d)(1) applied the rules of section 1060(a) in the case of a distribution of partnership property or a transfer of a partnership interest but only for purposes of determining the value of goodwill or going concern value for purposes of applying section 755, which provides rules for allocation of basis. Both provisions have been modified by substituting section 197 intangibles for goodwill and going concern value. (43) OBRA Conference Report at 688-89. (44) Id. at 689. (45) INDOPCO v. Commissioner, 112 S. Ct. 1039 (1992). (46) Id. at 1044-45. (47) Id. at 1045. (48) Id. at 1046. (49) See OBRA Conference Report at 696. A similar purpose underlay the enactment of section 1060 which imposed the residual method of allocating basis. See S. Rep. No. 99-313, 99th Cong., 2d Sess. 253 (1986), H.R. Rep. No. 99-841, 99th Cong., 2d Sess. 208 (1986) (Conference Report on Tax Reform Act of 1986) and Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (the Blue Book), 99th Cong., 2d Sess. 355-360 (1987). The abundance Abundance
See also Fertility.
horn horn of Zeus’s nurse-goat which became a cornucopia. [Gk. Myth.: Walsh Classical, 19]
conical receptacle which symbolizes abundance. [Rom. Myth. of litigation targeted by the 1993 law apparently occurred notwithstanding congressional intent in earlier legislation to minimize confrontation. (50) See OBRA Conference Report at 696. The Conference Report indicates, "[i]n considering settlements and establishing procedures for handling existing controversies in an expedited and balanced manner, the conferees strongly encourage the Internal Revenue Service to take into account the principles of the bill so as to produce consistent results for similarly situated similarly situated adj. with the same problems and circumstances, referring to the people represented by a plaintiff in a "class action," brought for the benefit of the party filing the suit as well as all those "similarly situated. taxpayers. However, no inference (logic) inference - The logical process by which new facts are derived from known facts by the application of inference rules.
See also symbolic inference, type inference. is intended that any deduction should be allowed in these cases for assets that are not amortizable under present law." Id. (51) The settlement offer guidelines were released as press briefing materials. They are reprinted in the Bureau of National Affairs' Daily Tax Report (1994-27), at L-7 (February 10, 1994). (52) See IRS Press Release IR- ir- 1
Variant of in-1.
Variant of in-2. 94-29 (March 29, 1994). As discussed earlier, taxpayers may elect section 197 for acquisitions made between July 26, 1991, and August 9, 1993 (inclusive), hence making settlement offers unnecessary for these later acquisitions. (53) The offer is not available for cases approved by a National IRS cross-functional committee consisting of representatives from Appeals, Counsel, and Examination. Also, the offer is not available for refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid.
2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies claims based on increased deductions (relative to the original return filed) from the amortization of intangibles. (54) If the taxpayer has claimed a second-tier allocation, the taxpayer must first reallocate Verb 1. reallocate - allocate, distribute, or apportion anew; "Congressional seats are reapportioned on the basis of census data"
allocate, apportion - distribute according to a plan or set apart for a special purpose; "I am allocating a loaf of the second-tier adjustment made to tangible assets over to goodwill. (55) If the taxpayer claims accelerated amortization on an intangible, a further adjustment must be made. The settlement offer guidelines provide a table for making this adjustment. (56) For example, if the taxpayer determines that the amortizable intangible assets from an acquisition have a weighted average useful life of 4.75 years, the table provides that 58.17 percent of total intangible value is allowed to be amortized and 41.83 percent of the total value is nonamortizable. If, alternatively, the amortizable intangibles have a weighted average useful life of 6.25 years, 60.43 percent of total intangible value can be amortized and 39.57 percent is nonamortizable. (57) The IRS has provided the procedures for making the adjustment together with an example in a document issued March 29, 1994. See BNA BNA Bureau of National Affairs, Inc.
BNA Birds of North America
BNA block numbering area (US Census)
BNA British North America
BNA Banco Nacional de Angola (National Bank of Angola) Daily Tax Report (1994-60), at L-9 (March 30, 1994). (58) Adopted from an example provided in the settlement offer guidelines. (59) Adopted from an example issued by the IRS on March 29, 1994. See BNA Daily Tax Report (1994-60), at L-15 (March 30, 1994). (60) Step 7 would differ if Step 3 were less than Step 5. The first and last substeps would remain the same but Substeps 7b and 7c would be replaced with the following substep: Multiply the recovery timing percentage for each asset (Substep 7a) by 85 percent.
WALTER G. ANTOGNINI is an Associate Professor of Taxation and MITCHELL Mitchell, city (1990 pop. 13,798), seat of Davison co., SE S.Dak.; inc. 1881. Mitchell is a trade, distribution, and shipping center for a dairy and livestock area. K. KASSOFF is an Assistant Professor of Taxation of the Lubin School of Business The Joseph I. Lubin School of Business is the business school of Pace University. It was named after Joseph I. Lubin, an alumnus and benefactor of the school. The school was established in 1906 as the Pace School of Accountancy to prepare men and women for the CPA exam. , Pace University, New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . Both authors are attorneys in New York, and Mr. Antognini is also a certified public accountant Certified Public Accountant (CPA)
An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. . The authors thank Joan M/ Stout stout, alcoholic beverage: see beer. , an associate with the law firm of Debevoise & Plimpton, New York, for her assistance in the preparation of this article.