Sec. 197 anti-churning rules don't apply to assets amortizable under prior law.

• Author: Mackles, Glenn
• Position: Brief Article

Before the Revenue Reconciliation Act of 1993 (RRA) was enacted, goodwill was always treated as a nonamortizable asset. However, for asset acquisitions after Aug. 10, 1993, new Sec. 197 treats goodwill an an asset amortizable over 15 years. In enacting this change of law, Congress was concerned that taxpayers could change previously nonamortizable goodwill into an amortizable asset by transferring businesses to related parties. Therefore, Sec. 197(f)(9) provides anti-churning rules to prevent such situations.

Despite Sec. 197(f)(9), it may still be possible to amortize some of the value allocated to intangible assets. These new anti-churning rules apply only to intangible assets not amortizable under pre-RRA law, such as goodwill and going concern value. These rules would not apply to intangible assets amortizable under prior law. Therefore, allocating some of the value allocated to intangible assets to intangible assets amortizable under prior law will generally allow those assets to be amortized over 15 years in a new entity, even if the new entity would be considered a related party.

Many types of intangible assets were amortizable under prior law. For these assets to be considered amortizable, the taxpayer must be able to show that (1) these assets have an ascertainable value and (2)...