§248 — Organizational expenditures
31 citing cases
Statute Text — 26 U.S.C. §248
If a corporation elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenditures—
the corporation shall be allowed a deduction for the taxable year in which the corporation begins business in an amount equal to the lesser of—
the amount of organizational expenditures with respect to the taxpayer, or
$5,000, reduced (but not below zero) by the amount by which such organizational expenditures exceed $50,000, and
the remainder of such organizational expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the corporation begins business.
The term “organizational expenditures” means any expenditure which—
is incident to the creation of the corporation;
is chargeable to capital account; and
is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.
The election provided by subsection (a) may be made for any taxable year but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The period so elected shall be adhered to in computing the taxable income of the corporation for the taxable year for which the election is made and all subsequent taxable years.
Treasury Regulations
-
Treas. Reg. §1.248-1Election to amortize organizational expenditures
(a) In general. Under section 248(a), a corporation may elect to amortize organizational expenditures as defined in section 248(b) and § 1.248-1(b). In the taxable year in which a corporation begins business, an electing corporation may deduct an amount equal to the lesser of the amount of the organizational expenditures of the corporation, or $5,000 (reduced (but not below zero) by the amount by which the organizational expenditures exceed $50,000). The remainder of the organizational expenditures is deducted ratably over the 180-month period beginning with the month in which the corporation begins business. All organizational expenditures of the corporation are considered in determining whether the organizational expenditures exceed $50,000, including expenditures incurred on or before October 22, 2004.
(b) Organizational expenditures defined. (1) Section 248(b) defines the term organizational expenditures. Such expenditures, for purposes of section 248 and this section, are those expenditures which are directly incident to the creation of the corporation. An expenditure, in order to qualify as an organizational expenditure, must be (i) incident to the creation of the corporation, (ii) chargeable to the capital account of the corporation, and (iii) of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life. An expenditure which fails to meet each of these three tests may not be considered an organizational expenditure for purposes of section 248 and this section.
(2) The following are examples of organizational expenditures within the meaning of section 248 and this section: legal services incident to the organization of the corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, and the like; necessary accounting services; expenses of temporary directors and of organizational meetings of directors or stockholders; and fees paid to the State of incorporation.
(3) The following expenditures are not organizational expenditures within the meaning of section 248 and this section:
(i) Expenditures connected with issuing or selling shares of stock or other securities, such as commissions, professional fees, and printing costs. This is so even where the particular issue of stock to which the expenditures relate is for a fixed term of years;
(ii) Expenditures connected with the transfer of assets to a corporation.
(4) Expenditures connected with the reorganization of a corporation, unless directly incident to the creation of a corporation, are not organizational expenditures within the meaning of section 248 and this section.
(c) Time and manner of making election. A corporation is deemed to have made an election under section 248(a) to amortize organizational expenditures as defined in section 248(b) and § 1.248-1(b) for the taxable year in which the corporation begins business. A corporation may choose to forgo the deemed election by affirmatively electing to capitalize its organizational expenditures on a timely filed Federal income tax return (including extensions) for the taxable year in which the corporation begins business. The election either to amortize organizational expenditures under section 248(a) or to capitalize organizational expenditures is irrevocable and applies to all organizational expenditures of the corporation. A change in the characterization of an item as an organizational expenditure is a change in method of accounting to which sections 446 and 481(a) apply if the corporation treated the item consistently for two or more taxable years. A change in the determination of the taxable year in which the corporation begins business also is treated as a change in method of accounting if the corporation amortized organizational expenditures for two or more taxable years.
(d) Determination of when corporation begins business. The deduction allowed under section 248 must be spread over a period beginning with the month in which the corporation begins business. The determination of the date the corporation begins business presents a question of fact which must be determined in each case in light of all the circumstances of the particular case. The words “begins business,” however, do not have the same meaning as “in existence.” Ordinarily, a corporation begins business when it starts the business operations for which it was organized; a corporation comes into existence on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business. If the activities of the corporation have advanced to the extent necessary to establish the nature of its business operations, however, it will be deemed to have begun business. For example, the acquisition of operating assets which are necessary to the type of business contemplated may constitute the beginning of business.
(e) Examples. The following examples illustrate the application of this section:
(f) Effective/applicability date. This section applies to organizational expenditures paid or incurred after August 16, 2011. However, taxpayers may apply all the provisions of this section to organizational expenditures paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax for the year the election under paragraph (c) of this section is deemed made has not expired. For organizational expenditures paid or incurred on or before September 8, 2008, taxpayers may instead apply § 1.248-1, as in effect prior to that date (§ 1.248-1 as contained in 26 CFR part 1 edition revised as of April 1, 2008).
-
Treas. Reg. §1.248-1(a)In general.
In general. Under section 248(a), a corporation may elect to amortize organizational expenditures as defined in section 248(b) and § 1.248-1(b). In the taxable year in which a corporation begins business, an electing corporation may deduct an amount equal to the lesser of the amount of the organizational expenditures of the corporation, or $5,000 (reduced (but not below zero) by the amount by which the organizational expenditures exceed $50,000). The remainder of the organizational expenditures is deducted ratably over the 180-month period beginning with the month in which the corporation begins business. All organizational expenditures of the corporation are considered in determining whether the organizational expenditures exceed $50,000, including expenditures incurred on or before October 22, 2004.
-
Treas. Reg. §1.248-1(b)Organizational expenditures defined.
Organizational expenditures defined. (1) Section 248(b) defines the term organizational expenditures. Such expenditures, for purposes of section 248 and this section, are those expenditures which are directly incident to the creation of the corporation. An expenditure, in order to qualify as an organizational expenditure, must be (i) incident to the creation of the corporation, (ii) chargeable to the capital account of the corporation, and (iii) of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life. An expenditure which fails to meet each of these three tests may not be considered an organizational expenditure for purposes of section 248 and this section.
(2) The following are examples of organizational expenditures within the meaning of section 248 and this section: legal services incident to the organization of the corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, and the like; necessary accounting services; expenses of temporary directors and of organizational meetings of directors or stockholders; and fees paid to the State of incorporation.
(3) The following expenditures are not organizational expenditures within the meaning of section 248 and this section:
-
Treas. Reg. §1.248-1(c)Time and manner of making election.
Time and manner of making election. A corporation is deemed to have made an election under section 248(a) to amortize organizational expenditures as defined in section 248(b) and § 1.248-1(b) for the taxable year in which the corporation begins business. A corporation may choose to forgo the deemed election by affirmatively electing to capitalize its organizational expenditures on a timely filed Federal income tax return (including extensions) for the taxable year in which the corporation begins business. The election either to amortize organizational expenditures under section 248(a) or to capitalize organizational expenditures is irrevocable and applies to all organizational expenditures of the corporation. A change in the characterization of an item as an organizational expenditure is a change in method of accounting to which sections 446 and 481(a) apply if the corporation treated the item consistently for two or more taxable years. A change in the determination of the taxable year in which the corporation begins business also is treated as a change in method of accounting if the corporation amortized organizational expenditures for two or more taxable years.
-
Treas. Reg. §1.248-1(d)Determination of when corporation begins business.
Determination of when corporation begins business. The deduction allowed under section 248 must be spread over a period beginning with the month in which the corporation begins business. The determination of the date the corporation begins business presents a question of fact which must be determined in each case in light of all the circumstances of the particular case. The words “begins business,” however, do not have the same meaning as “in existence.” Ordinarily, a corporation begins business when it starts the business operations for which it was organized; a corporation comes into existence on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business. If the activities of the corporation have advanced to the extent necessary to establish the nature of its business operations, however, it will be deemed to have begun business. For example, the acquisition of operating assets which are necessary to the type of business contemplated may constitute the beginning of business.
-
Treas. Reg. §1.248-1(e)Examples.
Examples. The following examples illustrate the application of this section:
-
Treas. Reg. §1.248-1(f)Effective/applicability date.
Effective/applicability date. This section applies to organizational expenditures paid or incurred after August 16, 2011. However, taxpayers may apply all the provisions of this section to organizational expenditures paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax for the year the election under paragraph (c) of this section is deemed made has not expired. For organizational expenditures paid or incurred on or before September 8, 2008, taxpayers may instead apply § 1.248-1, as in effect prior to that date (§ 1.248-1 as contained in 26 CFR part 1 edition revised as of April 1, 2008).
-
Treas. Reg. §1.248-1(i)Expenditures connected with issuing or selling shares of stock or other securities, such as commissions, professional fees, and printing costs.
Expenditures connected with issuing or selling shares of stock or other securities, such as commissions, professional fees, and printing costs. This is so even where the particular issue of stock to which the expenditures relate is for a fixed term of years;
(ii) Expenditures connected with the transfer of assets to a corporation.
(4) Expenditures connected with the reorganization of a corporation, unless directly incident to the creation of a corporation, are not organizational expenditures within the meaning of section 248 and this section.
31 Citing Cases
Vlock's offer to purchase stock of Vlock and Hammond and issued to her a certificate representing the number of shares that she purchased, (6) made an election under section 248 with respect to Vlock and Hammond's organizational expenses , (7) authorized Ms .
Sundrup's offer to purchase stock of Consulting and resolved to issue to him a certificate representing the number of shares that he pur- chasèd, (6) made an electior under section 248 with respect to Consulting's organizational expenses, (7/) authorized Mr.
which requires military installations to purchase cigarettes in Hawaii in a manner'similar to that required of alcoholic beverages under 10 United States Code, section 248.8 (nonappropriated fund instrumentalities, purchase of alcoholic beverages) ; and (2) Excise .tax equal to forty per cent of the wholesale price of each article or item of tobacco products sold by the wholesaler or dealer, whether or not sold at wholesale,..
1)(A) and $392,109 ($456,791 minus $64,682) representing earnings invested in United States property taxable under secs. 951(a)(1)(B) and 956. This result is consistent with sec. 312(n)(3), which denies 5-year amortization of such expenditures under sec. 248 for purposes of determining a corporation’s earnings and profits. Not permitting capital expenditures to reduce earnings and profits is justified on the ground that “capital expenditures accomplish a mere change in the form of assets, and ‘e
20 Although petitioner contends that the expenditures were incurred in 1989, she claims deductions for them in 1990. - 58 - agreement to sell the property, and, further, that she spent substantial sums in preparing the property for sale, she has failed to demonstrate that she is entitled to deduct any of the claimed expenditures in eithe
Section 248 permits a corporation to elect to amortize on its corporation income tax return its organizational expenditures over a period of 60 months or more from the month in which the corporation began business. The term “organizational expenditures” is defined to mean any expenditure that is (1) incident to the creation of the corporation; (2)
el the conclusion that petitioners would have us draw. A mortgagor may sell the mortgaged property on terms whereby the purchaser takes subject to the mortgage debt but has no personal obligation to pay it. Osborne, Handbook on the Law of Mortgages, sec. 248 (2d ed. 1970). As stated in Stonecrest Corp. v. Commissioner, 24 T.C. 659, 666 (1955): 5 Petitioners introduced into evidence a notice to foreclose, dated June 24, 1994, and a trustee’s deed of sale dated Nov. 2, 1994. Neither document, howe
* * * (d) Determination of Taxable Income.--For purposes of this section, taxable income of the corporation shall be determined under section 63(a) without regard to-- (1) the deduction allowed by section 172 (relating to net operating loss deduction), and (2) the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures).
— For purposes of this section, taxable income of the corporation shall be determined under section 63(a) without regard to— (1) the deduction allowed by section 172 (relating to net operating loss deduction), and (2) the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures).