§197 — Amortization of goodwill and certain other intangibles

The court's conclusion on this point, however, does not apply here.

that has a measurable useful life is distinguishable from residual goodwill and may be amortized over its useful life .

argues that the legal fees must be amortized; ratably over .15 years beginning with the mont h of purchase under section 197 . Petitioner counters that section 1060 does not apply to the allocation of the legal fees .

In support of his argument that petitioner is attempting to circumvent the rules for deducting interest and OID, respondent directs our attention to section 197 where Congress specifically expressed its intent that below-market financing be addressed under present law. Section 197, which was enacted after the years in issue and does not apply to the years before us, provides rules for the amortization of certain “amortizable section 197 intangibles”.15 Under section 197(e)(5)(B), the term “secti

Petitioner agrees that section 197 might apply if it had acquired a new trade or business, but it contends that the statute does not apply in the instant case because petitioner continued the operation of its own existing business.

197, which relates to the amortization of certain acquired intangible assets, was added to the Code by the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), and applies to property acquired after Aug. 10, 1993 (the date of enactment). OBRA-93, Pub. L. 103-66, sec. 13261 (a), (g), 107 Stat. 312, 532, 540. Sec. 197 does not apply to the assets in issue in the instant case because they were acquired prior to the date of (continued...) - 42 - The parties agree that the acquired contract rights m

Mylan does not contest in its posttrial briefing the substance of the IRS’ determination that, assuming Mylan’s expenses were capital, section 197 provides the method for amortization of those expenses.

Under section 1.167(a)-3(a), Income Tax Regs., "[n]o deduction for depreciation is allowable with respect to goodwill." However, section 197 provides for the amortization ofthe acquisition cost ofcertain intangibles, including goodwill, over a fixed 15-year period.

Under section 1.167(a)-3(a), Income Tax Regs., "[n]o deduction for depreciation is allowable with respect to goodwill." However, section 197 provides for the amortization ofthe acquisition cost ofcertain intangibles, including goodwill, over a fixed 15-year period.

Under section 1.167(a)-3(a), Income Tax Regs., "[n]o deduction for depreciation is allowable with respect to goodwill." However, section 197 provides for the amortization ofthe acquisition cost ofcertain intangibles, including goodwill, over a fixed 15-year period.

Section 197 provides for the recovery ofthe acquisition cost ofcertain intangibles amortized ratably over a fixed 15-year period.

We must decide for the first time whether section 197 requires that the taxpayer be engaged in a trade or business to claim amortization deductions.

Section 197 provides that software purchased by a taxpayer is amortizable over 15 years.

To qualify as "amortizable section 197 intangibles", most section 197 intangibles have to meet three conditions. First, the taxpayer must have acquired the asset after August 10, 1993 (section 197's date of enactment). Sec. 197(c)(1)(A). Second, the taxpayer has to hold the asset in connection with the conduct of a trade or business or other income-producing activity. Sec. 197(c)(1)(B). And third, subject to enumerated exceptions, the asset cannot have been created by the taxpayer. Sec. 197(c)(2

To qualify as "amortizable section 197 intangibles", most section 197 intangibles have to meet three conditions. First, the taxpayer must have acquired the asset after August 10, 1993 (section 197's date of enactment). Sec. 197(c)(1)(A). Second, the taxpayer has to hold the asset in connection with the conduct of a trade or business or other income-producing activity. Sec. 197(c)(1)(B). And third, subject to enumerated exceptions, the asset cannot have been created by the taxpayer. Sec. 197(c)(2

C-106804 is a section 197 intangible that must be amortized over a 15-yearperiod.5 However, they disagree as to whether petitioners suffered passthrough losses under section 165 in tax year 2009 when the contract lapsed on either June 27 or December 27, 2009, and was not amended until June 8, 2010. We briefly summarize the parties' arguments here. A. Petitioners' Argument Petitioners argue that since the express terms ofAgreement No. C-106804 state that it must terminate on June 27, 2009, the co

C-106804 is a section 197 intangible that must be amortized over a 15-yearperiod.5 However, they disagree as to whether petitioners suffered passthrough losses under section 165 in tax year 2009 when the contract lapsed on either June 27 or December 27, 2009, and was not amended until June 8, 2010. We briefly summarize the parties' arguments here. A. Petitioners' Argument Petitioners argue that since the express terms ofAgreement No. C-106804 state that it must terminate on June 27, 2009, the co

197 generally does not apply to property acquired before Aug. 11, 1993. Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(g), 107 Stat. 540. 7 the Chevron gas station in 1995.3 We conclude that petitioner had a basis of $5,000 when he sold the gas station in 1995. 3. Whether Petitioner Paid $99,000 for Improvements Petitio

In support of his argument that petitioner is attempting to circumvent the rules for deducting interest and OID, respondent directs our attention to section 197 where Congress specifically expressed its intent that below-market financing be addressed under present law.

ncies in petitioner’s Federal income taxes as follows: Year Amount 1994 . $28,996 1995 . 135,880 1996 . 110,320 After concessions, the issue for decision is whether petitioner must amortize noncompetition agreement payments over 15 years pursuant to section 197. Background, The parties submitted this case fully stipulated. The stipulation of facts, the stipulation of settled issues, and the attached exhibits are incorporated herein by this reference. Petitioner is a corporation that had its prin

197, which relates to the amortization of certain acquired intangible assets, was added to the Code by the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), and applies to property acquired after Aug. 10, 1993 (the date of enactment). OBRA-93, Pub. L. 103-66, sec. 13261 (a), (g), 107 Stat. 312, 532, 540. Sec. 197 does not apply to the asset

197, which provides for the amortization of certain acquired assets, such as purchased goodwill, was added to the Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), Pub.L. 103-66, sec. 13261(a), (g), 107 Stat. 532, 540, and applies to property acquired after Aug. 10, 1993 (the date of enactment). Prior to the 199

197, which relates to the amortization of certain acquired intangible assets, was added to the Code by the Omnibus Budget Reconciliation Act of 1993 (0BRA-93), and applies to property acquired after Aug. 10, 1993 (the date of enactment). OBRA-93, Pub. L. 103-66, sec. 13261 (a), (g), 107 Stat. 312, 532, 540. Sec. 197 does not apply to the asset

f expense (i.e., the amounts incurred for previously approved and launched copies), all of the foregoing legal expenses were nondeductible capital expenditures required to be capitalized under - 18 - section 263(a) and subject to amortization under section 197. It consequently disallowed Mylan’s claimed deductions, save for the $1,771,790 claimed for 2014. The IRS thereafter issued notices of deficiency for each of Mylan’s 2012, 2013, and 2014 taxable years determining deficiencies of $16,430,94

f expense (i.e., the amounts incurred for previously approved and launched copies), all of the foregoing legal expenses were nondeductible capital expenditures required to be capitalized under - 18 - section 263(a) and subject to amortization under section 197. It consequently disallowed Mylan’s claimed deductions, save for the $1,771,790 claimed for 2014. The IRS thereafter issued notices of deficiency for each of Mylan’s 2012, 2013, and 2014 taxable years determining deficiencies of $16,430,94

Respondent contends, however, that under section 197 the cost ofthis intangible asset must be - 26 - [*26] amortized ratably over 15 years.

Practice A taxpayer is entitled to an amortiz tion deduction with respect to any amortizable section 197 intangible, the amount ofwhich is determined by amortizing the adjusted basis ofthe intan ible ratably over a 15-yearperiod beginning with the month in whichit wa acquired.

poration is excluded from the at-risk amount because it was property used in the business. We must also focus on when a cellular phone entity begins business for purposes of deducting beginning expenses and for amortization of the FCC license under section 197. Specifically, we must decide whether a cellular phone business begins upon the grant of the license from the FCC or when contracts for wireless services are sold. We address these substantive issues in turn. I. The Settlement Offer We mus

Johnston over 15 years pursuant to section 197; (2) whether Burien Nissan’s operating loss carryforward for 1994 2Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Johnston over 15 years pursuant to section 197; (2) whether Burien Nissan’s operating loss carryforward for 1994 2Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

197.363 (West 1989 & Supp. 1998). In order to be validly collected in the same manner as ad valorem property taxes, special assessments must be subjected to all collection provisions of chapter 197, including, among others, the issuance of tax certificates and tax deeds for nonpayment. Consequently, an unpaid tax bill subject to sale of a tax

e issues for decision are (1) whether petitioner’s failure to secure consent under section 446(e) precludes petitioner from implementing an accounting method change with respect to base acres rented to tenant farmers for taxable years 2009 through 2014 and (2) whether petitioner must include in income for 2013 a positive section 481 adjustment for section 197 amortization deductions claimed for base acres for 2009 through 2012.

546, 570 (1993) (holding that a corporation proved that a customer list of “‘paid 47 The Code and the Treasury Regulations also anticipate that partnerships will own intangible assets by providing an amortization deduction for the capitalized costs of intangibles owned by the partnership (for federal income tax purposes), see generally § 197, and requiring the inclusion of intangible assets in the valuation of a transferred business interest (for federal gift tax purposes), see generally Treas.

Class VI assets are section 197 intangibles, except for goodwill and going- concern value, which are separately classified as class VII assets.

Class VI assets are section 197 intangibles, except for goodwill and going- concern value, which are separately classified as class VII assets.

Class VI assets are section 197 intangibles, except for goodwill and going- concern value, which are separately classified as class VII assets.

On the basis ofthese - 12 - facts, the parties can compute the amortization allowable under section 197 for 2009, 2010, and 2011 in order to ultimately compute the loss from the abandonment ofthe franchise fee under Rule 155.

Practice A taxpayer is entitled to an amortiz tion deduction with respect to any amortizable section 197 intangible, the amount ofwhich is determined by amortizing the adjusted basis ofthe intan ible ratably over a 15-yearperiod beginning with the month in whichit wa acquired.

540, RSI elected r troactive application of section 197, entitled.

197 as contended by regulations may have the effect of characterizing certain intangibles used in a trade or business as sec. 1231 assets. Sec. 197(f) (7); sec. 1.197- 2(g) (8), Income Tax Regs. "All "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion" are income. Commissioner v. Glenshaw Glass Co., 348

adual reduction in the value of tangible property, as opposed to intangible property, see Black's Law Dictionary 93, 473 (8th ed. 1999). With respect to intangible assets, the Internal Revenue Code generally uses the word "amortization". See, e.g., sec. 197, I.R.C. Petitioner claimed depreciation and amortization expenses in two categories on his 2003 Schedule C: (1) The depreciation and sec. 179, I.R.C., expense deduction category, and (2) the amortization expense deduction category. Only the l

540, RSI elected r troactive application of section 197, entitled.

197 as contended by regulations may have the effect of characterizing certain intangibles used in a trade or business as sec. 1231 assets. Sec. 197(f)(7); sec. 1.197 — 2(g)(8), Income Tax Regs. All “accessions to wealth, clearly realized, and over which the taxpayers have complete dominion” are income. Commissioner v. Glenshaw Glass Co., 348 U

Section 1.263(a)-4(f) (3), Income Tax Regs., provides that the 12-month rule does not apply to amounts paid to create a section 197 intangible or amounts paid to create an intangible described in section 1.263(a)-4(d) (2), Income Tax Regs.

And the Daouds' equipment and other section 1245 property that they sold would likely be recov- erable over 5 and 15 years. See sec. 168. Thus, we can't consi- der the $38,848 amount merely wearing- the wrong label to be a reasonable estimate of the section 1245 gain. 1 - 32 - Neither party litigated the issue of section 1245 gain. Neith

Amortization Deductio n Section 197(a) generally provides that a taxpayer is entitled to an amortization deduction with respect to any amortizable section.

Section 1.263(a) — 4(f)(3), Income Tax Regs., provides that the 12-month rule does not apply to amounts paid to create a section 197 intangible or amounts paid to create an intangible described in section 1.263(a)-4(d)(2), Income Tax Regs.

197, requiring amortization of a covenant not to compete ratably over the 15-year period beginning with the month in which the intangible was acquired is applicable, if an appropriate election is made, for acquisitions after July 25, 1991. See Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(g)(2) and (3), 107 Stat. 540, a

.8. “[M]ost of the cases purporting to apply the ‘mass asset’ rule involve evidentiary failures on the part of the taxpayer”. Id. at 689 n.11 (quoting Houston Chronicle Publg. Co. v. United States, 481 F.2d at 1249). 9 We note generally that in 1993 sec. 197 was added to the Code to allow for amortization of goodwill and other intangible assets (including customer-based intangibles) purchased after Aug. 10, 1993. Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(g), 107 Stat.

0-01-002 (Jan. 7, 2000), respondent reiterated the same legal interpretation of TRA 1986 sec. 1012(c)(3)(A)(ii) and concluded generally that the basis step-up provision was not limited to sale or exchange transactions. We note generally that in 1993 sec. 197 was added to the Code to allow for amortization of goodwill and other intangible assets (including customer-based intangibles) purchased after Aug. 10, 1993. Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(g), 107 Stat.

imited useful life. Newark Morning Ledger Co. v. United States, 507 U.S. 546, 556 n.9 (1993). Because a covenant not to compete is an intangible asset with a limited useful life it may be amortized over the course of its life. Warsaw Photographic 2 Sec. 197, Amortization of Goodwill and Certain other Intangibles, generally applies with respect to property acquired after Aug. 10, 1993. See Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(g), 107 Stat. 540; see also Spencer v.

197.432 (West 1989 & Supp. 1997). Pasco County and other counties in Florida sell the certificates for amounts equal to delinquent property taxes, interest accrued thereon, and other costs and charges owed by property owners to the county. See Hernandez I. The certificates provide a means for Florida counties to fund current government expendi

197.432 (West 1999 & Supp. 2001). Potential purchasers bid in terms of the rate of interest they will accept on the certificate’s face value from the real property owner in the event of a redemption. Fla. Stat. Ann. sec. 197.432(5) (West 1999 & Supp. 2001). The face value of a certificate equals the unpaid real property taxes, plus interest or

It was part of a larger package of provisions aimed at the treatment of intangibles that was enacted in section 197.9 Under the regimen of section 197, various intangibles are identified, categorized, and subjected to uniform tax treatment.

197.432 (West 1989 & Supp. 1997). Pasco County and other counties in Florida sold certificates for amounts equal to delinquent property taxes, interest accrued thereon, and other costs and charges owed by property owners to the county. The certificates serve as a means by which the counties fund current government expenditures by transferring

(The underlying transaction occurred prior to the effective date of section 197, as enacted by Omnibus Budget Reconciliation Act of 1993, Pub.

In passing, we note that for intangibles acquired after August 10, 1993, section 197 allows a taxpayer to amortize the adjusted basis of the intangibles ratably over a 15- - 15 - year period.

the other hand, amounts paid by a corporation for services, including consulting fees, are includable as ordinary income by the service provider and deductible by the corporation. Secs. 162(a)(1), 61; Ruge v. Commissioner, 26 T.C. 138, 143 3 Compare sec. 197, enacted as part of the Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-66, sec. 13261(a), 107 Stat. 312, 553, which allows for 15-year amortization of acquired intangible assets, including, inter alia, goodwill and going-concern valu