Consistent Amortization of Periods for Intangibles

Start-up expenditures and organizational expenditures (including expenditures to organize a partnership) may be amortized over a period of not less than 60 months. In contrast, Sec. 197 requires most acquired intangible assets (e.g., goodwill, trademarks, franchises and patents) held in connection with the conduct of a trade or business or an activity for the production of income, to be amortized over 15 years.

New Law

AJCA Section 902 modifies Secs. 195s and 709s treatment of start-up expenditures and organizational expenditures. A taxpayer can elect to deduct up to $5,000 of start-up and $5,000 of organizational expenditures in the tax year in which the trade or business begins. Each $5,000 amount, however, is reduced (but not below zero) by the amount by which the cumulative start-up or organizational expenditures exceed $50,000, respectively. Start-up and organizational expenditures not deductible in the year in which the trade or business begins would be amortized over a 15-year period consistent with the amortization period for Sec. 197 intangibles.

Effective Date

This provision is effective for start-up and organizational expenditures incurred after Oct. 22, 2004. Start-up and organizational expenditures incurred on or before that date continue to be eligible to be amortized over a period not to exceed 60 months; however, they are still considered in applying the $50,000 deduction phaseout.

From Steven Schneider and Robert Crnkovich, Washington, DC