Summary
Separating intangibles from goodwill assets
The deductibility of intangible asset costs is an unclear area within the IRC and taxpayers must seek guidance from case law that often discounts some if not all intangible assets as nondeductible goodwill. Taxpayers must demonstrate that intangible assets are not goodwill, have a determinable useful life, have a measurable cost and do not fall under the mass asset theory. This is most difficult for those assets relating to the customer market because these are usually declared goodwill assets.See the full content of this document
Extract
Deducting the cost of intangibles.
Distinguishing the intangible asset from goodwill is only one hurdle a taxpayer must overcome to obtain a deduction.
The tax treatments of tangible and intangible assets differ. Tangible assets are presumed to waste away, so only the length of the asset's life is a tax issue. Expenditures relating to certain intangibles must be permanently capitalized and are deductible only on disposing of the asset. To obtain a tax deduction for amortizing an intangible, a taxpayer must prove the asset is not goodwill, which is nondeductible. This creates a heavy burden of proof. To avoid the nondeductible category, taxpayers also must prove the asset has a limited and determinable useful life. The facts and circumstances of the acquisition and the nature of the intangible asset govern this determination. The tax treatment of certain intangibles (such as research and development expenditures) is specifically prescribed by statute. For most intangibles, however, taxpayers must rely on case law and administrative rulings to determine the tax treatment. Acquisition of multiple assets, such as purchase of a business enterprise, is particularly troublesome. Case law supports the ...See the full content of this document
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