Deducting a portion of the costs of sec. 197 intangible assets over a shorter period.

• Author: Mackles, Glenn
• Position: Brief Article

New Sec. 197 requires that the costs of certain purchased intangible assets be amortized ratably over 15 years. However, if the purchaser pays for the intangible assets over a period of years and those payments contain unstated interest, a portion of the purchase price will be treated as interest under Sec. 483 and 1272 and deducted over the period the payments are made.

Example: As part of the acquisition of a trade or business P gets a a five-year covenant not to compete from the prior owner at a cost of $1,000,000. If P pays the whole $1,000,000 at closing, the cost will be ratably amortizable over 15 years. However, if P pays that $1,000,000 to the seller in five annual payments of $200,000 each, a portion of the last four payments will be treated as unstated...