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Tax forms Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. Tax forms It discusses a number of treaty provisions that often apply to U. Tax forms S. Tax forms citizens or residents who may be liable for Canadian tax. Tax forms Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). Tax forms Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. Tax forms This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. Tax forms The United States—Canada income tax treaty was signed on September 26, 1980. Tax forms It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. Tax forms In this publication, the term “article” refers to the particular article of the treaty, as amended. Tax forms Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Hurricane Irene in North Carolina

E-file to Remain Available for Irene Victims through Oct. 31

Updated 10/11/11 to include Bladen, Columbus and Sampson counties.

Updated 9/12/11 to include Pender and Wayne counties.

Updated 9/7/11 to include Bertie, Brunswick, Camden, Chowan, Duplin, Edgecombe, Gates, Greene, Hertford, Johnston, Jones, Martin, Nash, New Hanover, Northampton, Pasquotank, Perquimans, Vance, Warren and Wilson counties.

Updated 9/2/11 to include Halifax and Lenoir counties. Also added Currituck, Onslow, Pitt and Washington counties.

NC-2011-58, Sept. 1, 2011

GREENSBORO — Victims of Hurricane Irene that began on Aug. 25, 2011 in parts of North Carolina may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Beaufort, Bertie, Bladen, Brunswick, Camden, Carteret, Chowan, Columbus, Craven, Currituck, Dare, Duplin, Edgecombe, Gates, Greene, Halifax, Hertford, Hyde, Johnston, Jones, Lenoir, Martin, Nash, New Hanover, Northampton, Onslow, Pamlico, Pasquotank, Pender, Perquimans, Pitt, Sampson, Tyrrell, Vance, Warren, Washington, Wayne and Wilson. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 25, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 25, and on or before Sept. 9, as long as the deposits are made by Sept. 9, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 25 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 25 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 25 and on or before Sept. 9 provided the taxpayer makes these deposits by Sept. 9.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “North Carolina/Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Page Last Reviewed or Updated: 24-Mar-2014

The Tax Forms

Tax forms 8. Tax forms   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Tax forms Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Tax forms It is similar to the straight line method of depreciation. Tax forms The various amortizable costs covered in this chapter are included in the list below. Tax forms However, this chapter does not discuss amortization of bond premium. Tax forms For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Tax forms Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Tax forms How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Tax forms To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Tax forms For example, in 2012, you began to amortize a lease. Tax forms In 2013, you began to amortize a second lease. Tax forms Report amortization from the new lease on line 42 of your 2013 Form 4562. Tax forms Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Tax forms If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Tax forms Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Tax forms Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Tax forms Generally, you recover costs for particular assets through depreciation deductions. Tax forms However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Tax forms For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Tax forms For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Tax forms The costs that are not deducted currently can be amortized ratably over a 180-month period. Tax forms The amortization period starts with the month you begin operating your active trade or business. Tax forms You are not required to attach a statement to make this election. Tax forms You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Tax forms Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Tax forms See Regulations sections 1. Tax forms 195-1, 1. Tax forms 248-1, and 1. Tax forms 709-1. Tax forms For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Tax forms Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Tax forms If the election is made, you must attach any statement required by Regulations sections 1. Tax forms 195-1(b), 1. Tax forms 248-1(c), and 1. Tax forms 709-1(c), as in effect before September 9, 2008. Tax forms Note. Tax forms You can apply the provisions of Regulations sections 1. Tax forms 195-1, 1. Tax forms 248-1, and 1. Tax forms 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Tax forms Otherwise, the provisions under Regulations sections 1. Tax forms 195-1(b), 1. Tax forms 248-1(c), and 1. Tax forms 709-1(c), as in effect before September 9, 2008, will apply. Tax forms For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Tax forms See How To Make the Election , later. Tax forms The cost must qualify as one of the following. Tax forms A business start-up cost. Tax forms An organizational cost for a corporation. Tax forms An organizational cost for a partnership. Tax forms Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Tax forms Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Tax forms Qualifying costs. Tax forms   A start-up cost is amortizable if it meets both of the following tests. Tax forms It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Tax forms It is a cost you pay or incur before the day your active trade or business begins. Tax forms   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Tax forms Advertisements for the opening of the business. Tax forms Salaries and wages for employees who are being trained and their instructors. Tax forms Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Tax forms Salaries and fees for executives and consultants, or for similar professional services. Tax forms Nonqualifying costs. Tax forms   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Tax forms See Research and Experimental Costs , later. Tax forms Purchasing an active trade or business. Tax forms   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Tax forms These are costs that help you decide whether to purchase a business. Tax forms Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Tax forms Example. Tax forms On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Tax forms They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Tax forms In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Tax forms The letter stated that a binding commitment would result only after a purchase agreement was signed. Tax forms The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Tax forms On October 22nd, you signed a purchase agreement with XYZ, Inc. Tax forms All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Tax forms Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Tax forms Disposition of business. Tax forms   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Tax forms However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Tax forms Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Tax forms Qualifying costs. Tax forms   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Tax forms   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Tax forms   Examples of organizational costs include: The cost of temporary directors. Tax forms The cost of organizational meetings. Tax forms State incorporation fees. Tax forms The cost of legal services. Tax forms Nonqualifying costs. Tax forms   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Tax forms Costs associated with the transfer of assets to the corporation. Tax forms Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Tax forms Qualifying costs. Tax forms   A partnership can amortize an organizational cost only if it meets all the following tests. Tax forms It is for the creation of the partnership and not for starting or operating the partnership trade or business. Tax forms It is chargeable to a capital account (see chapter 1). Tax forms It could be amortized over the life of the partnership if the partnership had a fixed life. Tax forms It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Tax forms However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Tax forms It is for a type of item normally expected to benefit the partnership throughout its entire life. Tax forms   Organizational costs include the following fees. Tax forms Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Tax forms Accounting fees for services incident to the organization of the partnership. Tax forms Filing fees. Tax forms Nonqualifying costs. Tax forms   The following costs cannot be amortized. Tax forms The cost of acquiring assets for the partnership or transferring assets to the partnership. Tax forms The cost of admitting or removing partners, other than at the time the partnership is first organized. Tax forms The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Tax forms The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Tax forms These “syndication fees” are capital expenses that cannot be depreciated or amortized. Tax forms Liquidation of partnership. Tax forms   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Tax forms However, these costs can be deducted only to the extent they qualify as a loss from a business. Tax forms How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Tax forms You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Tax forms Once you choose an amortization period, you cannot change it. Tax forms To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Tax forms The result is the amount you can deduct for each month. Tax forms Cash method partnership. Tax forms   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Tax forms However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Tax forms How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Tax forms You may also be required to attach an accompanying statement (described later) to your return. Tax forms For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Tax forms Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Tax forms 195-1, 1. Tax forms 248-1, and 1. Tax forms 709-1, you must also attach an accompanying statement to elect to amortize the costs. Tax forms If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Tax forms See Starting a Business , earlier, for more information. Tax forms Generally, you must file the return by the due date (including any extensions). Tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax forms For more information, see the instructions for Part VI of Form 4562. Tax forms You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Tax forms Note. Tax forms The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Tax forms If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Tax forms A shareholder or partner cannot make this election. Tax forms You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Tax forms Only the corporation or partnership can amortize these costs. Tax forms However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Tax forms These costs qualify as business start-up costs if you acquire the partnership interest. Tax forms Start-up costs election statement. Tax forms   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Tax forms A description of the business to which the start-up costs relate. Tax forms A description of each start-up cost incurred. Tax forms The month your active business began (or was acquired). Tax forms The number of months in your amortization period (which is generally 180 months). Tax forms Filing the statement early. Tax forms   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Tax forms If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Tax forms Revised statement. Tax forms   You can file a revised statement to include any start-up costs not included in your original statement. Tax forms However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Tax forms You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Tax forms Organizational costs election statement. Tax forms   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Tax forms A description of each cost. Tax forms The amount of each cost. Tax forms The date each cost was incurred. Tax forms The month your corporation or partnership began active business (or acquired the business). Tax forms The number of months in your amortization period (which is generally 180 months). Tax forms Partnerships. Tax forms   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Tax forms   You do not need to separately list any partnership organizational cost that is less than $10. Tax forms Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Tax forms   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Tax forms Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Tax forms The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Tax forms However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Tax forms For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Tax forms How to amortize. Tax forms   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Tax forms Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Tax forms You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Tax forms You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Tax forms See Anti-Churning Rules, later. Tax forms Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Tax forms The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Tax forms You cannot deduct amortization for the month you dispose of the intangible. Tax forms If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Tax forms You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Tax forms Tax-exempt use property subject to a lease. Tax forms   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Tax forms Cost attributable to other property. Tax forms   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Tax forms For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Tax forms Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Tax forms Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Tax forms You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Tax forms Goodwill. Tax forms   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Tax forms Going concern value. Tax forms   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Tax forms It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Tax forms It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Tax forms Workforce in place, etc. Tax forms   This includes the composition of a workforce (for example, its experience, education, or training). Tax forms It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Tax forms   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Tax forms Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Tax forms Business books and records, etc. Tax forms   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Tax forms It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Tax forms Patents, copyrights, etc. Tax forms   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Tax forms Customer-based intangible. Tax forms   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Tax forms For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Tax forms A customer base. Tax forms A circulation base. Tax forms An undeveloped market or market growth. Tax forms Insurance in force. Tax forms A mortgage servicing contract. Tax forms An investment management contract. Tax forms Any other relationship with customers involving the future provision of goods or services. Tax forms   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Tax forms Supplier-based intangible. Tax forms   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Tax forms The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Tax forms Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Tax forms Also, see Assets That Are Not Section 197 Intangibles below. Tax forms Government-granted license, permit, etc. Tax forms   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Tax forms For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Tax forms Covenant not to compete. Tax forms   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Tax forms An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Tax forms   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Tax forms Franchise, trademark, or trade name. Tax forms   A franchise, trademark, or trade name is a section 197 intangible. Tax forms You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Tax forms For information on currently deductible contingent payments, see chapter 11. Tax forms Professional sports franchise. Tax forms   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Tax forms Contract for the use of, or a term interest in, a section 197 intangible. Tax forms   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Tax forms It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Tax forms Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Tax forms Any interest in a corporation, partnership, trust, or estate. Tax forms Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Tax forms Any interest in land. Tax forms Most computer software. Tax forms (See Computer software , later. Tax forms ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Tax forms An interest in a film, sound recording, video tape, book, or similar property. Tax forms A right to receive tangible property or services under a contract or from a governmental agency. Tax forms An interest in a patent or copyright. Tax forms Certain rights that have a fixed duration or amount. Tax forms (See Rights of fixed duration or amount , later. Tax forms ) An interest under either of the following. Tax forms An existing lease or sublease of tangible property. Tax forms A debt that was in existence when the interest was acquired. Tax forms A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Tax forms Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Tax forms Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Tax forms You generally must use the straight line method over its useful life. Tax forms For certain intangibles, the depreciation period is specified in the law and regulations. Tax forms For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Tax forms For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Tax forms Computer software. Tax forms   Section 197 intangibles do not include the following types of computer software. Tax forms Software that meets all the following requirements. Tax forms It is, or has been, readily available for purchase by the general public. Tax forms It is subject to a nonexclusive license. Tax forms It has not been substantially modified. Tax forms This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Tax forms Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Tax forms Computer software defined. Tax forms   Computer software includes all programs designed to cause a computer to perform a desired function. Tax forms It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Tax forms Rights of fixed duration or amount. Tax forms   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Tax forms However, this does not apply to the following intangibles. Tax forms Goodwill. Tax forms Going concern value. Tax forms A covenant not to compete. Tax forms A franchise, trademark, or trade name. Tax forms A customer-related information base, customer-based intangible, or similar item. Tax forms Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Tax forms You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Tax forms If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Tax forms Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Tax forms Amortize these costs using the rules of Revenue Procedure 2004-36. Tax forms For more information, see Revenue Procedure 2004-36, 2004-24 I. Tax forms R. Tax forms B. Tax forms 1063, available at  www. Tax forms irs. Tax forms gov/irb/2004-24_IRB/ar16. Tax forms html. Tax forms A change in the treatment of creative property costs is a change in method of accounting. Tax forms Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Tax forms These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Tax forms Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Tax forms You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Tax forms You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Tax forms You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Tax forms This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Tax forms See Related person , later, for more information. Tax forms Exceptions. Tax forms   The anti-churning rules do not apply in the following situations. Tax forms You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Tax forms The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Tax forms This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Tax forms The gain-recognition exception, discussed later, applies. Tax forms Related person. Tax forms   For purposes of the anti-churning rules, the following are related persons. Tax forms An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Tax forms ), and lineal descendants (children, grandchildren, etc. Tax forms ). Tax forms A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Tax forms Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Tax forms (For an exception, see section 1. Tax forms 197-2(h)(6)(iv) of the regulations. Tax forms ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Tax forms The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Tax forms The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Tax forms The executor and beneficiary of an estate. Tax forms A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Tax forms A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Tax forms Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Tax forms Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Tax forms A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Tax forms Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Tax forms When to determine relationship. Tax forms   Persons are treated as related if the relationship existed at the following time. Tax forms In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Tax forms In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Tax forms Ownership of stock. Tax forms   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Tax forms Rule 1. Tax forms   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Tax forms Rule 2. Tax forms   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Tax forms Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Tax forms Rule 3. Tax forms   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Tax forms Rule 4. Tax forms   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Tax forms Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Tax forms Gain-recognition exception. Tax forms   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Tax forms That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Tax forms That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Tax forms See chapter 2 in Publication 544 for information on making this choice. Tax forms   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Tax forms Notification. Tax forms   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Tax forms Anti-abuse rule. Tax forms   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Tax forms To avoid the requirement that the intangible be acquired after August 10, 1993. Tax forms To avoid any of the anti-churning rules. Tax forms More information. Tax forms   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Tax forms 197-2(h). Tax forms Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Tax forms See Amended Return , next. Tax forms If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Tax forms See Changing Your Accounting Method , later. Tax forms Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Tax forms A mathematical error made in any year. Tax forms A posting error made in any year. Tax forms An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Tax forms When to file. Tax forms   If an amended return is allowed, you must file it by the later of the following dates. Tax forms 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Tax forms (A return filed early is considered filed on the due date. Tax forms ) 2 years from the time you paid your tax for that year. Tax forms Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Tax forms File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Tax forms The following are examples of a change in method of accounting for amortization. Tax forms A change in the amortization method, period of recovery, or convention of an amortizable asset. Tax forms A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Tax forms A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Tax forms Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Tax forms An adjustment in the useful life of an amortizable asset. Tax forms Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Tax forms Any change in the placed-in-service date of an amortizable asset. Tax forms See Regulations section 1. Tax forms 446-1(e)(2)(ii)(a) for more information and examples. Tax forms Automatic approval. Tax forms   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Tax forms For a list of automatic accounting method changes, see the Instructions for Form 3115. Tax forms Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Tax forms For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Tax forms See Revenue Procedure 2006-12, 2006-3 I. Tax forms R. Tax forms B. Tax forms 310, available at  www. Tax forms irs. Tax forms gov/irb/2006-03_IRB/ar14. Tax forms html. Tax forms  See Revenue Procedure 2006-37, 2006-38 I. Tax forms R. Tax forms B. Tax forms 499, available at  www. Tax forms irs. Tax forms gov/irb/2006-38_IRB/ar10. Tax forms html. Tax forms  See Revenue Procedure 2008-52, 2008-36 I. Tax forms R. Tax forms B. Tax forms 587, available at www. Tax forms irs. Tax forms gov/irb/2008-36_IRB/ar09. Tax forms html. Tax forms  See Revenue Procedure 2009-39, 2009-38 I. Tax forms R. Tax forms B. Tax forms 371, available at  www. Tax forms irs. Tax forms gov/irb/2009-38_IRB/ar08. Tax forms html. Tax forms  See Revenue Procedure 2011-14, 2011-4 I. Tax forms R. Tax forms B. Tax forms 330, available at  www. Tax forms irs. Tax forms gov/irb/2011-04_IRB/ar08. Tax forms html. Tax forms  See Revenue Procedure 2011-22, 2011-18 I. Tax forms R. Tax forms B. Tax forms 737, available at  www. Tax forms irs. Tax forms gov/irb/2011-18_IRB/ar08. Tax forms html. Tax forms Also, see Revenue Procedure 2012-39, 2012-41 I. Tax forms R. Tax forms B. Tax forms 470 available at www. Tax forms irs. Tax forms gov/irb/2012-41_IRB/index. Tax forms html. Tax forms Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Tax forms If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Tax forms If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Tax forms Any remaining gain, or any loss, is a section 1231 gain or loss. Tax forms If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Tax forms For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Tax forms Nondeductible loss. Tax forms   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Tax forms Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Tax forms Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Tax forms The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Tax forms The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Tax forms Covenant not to compete. Tax forms   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Tax forms Nonrecognition transfers. Tax forms   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Tax forms You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Tax forms Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Tax forms   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Tax forms Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Tax forms Example. Tax forms You own a section 197 intangible you have amortized for 4 full years. Tax forms It has a remaining unamortized basis of $30,000. Tax forms You exchange the asset plus $10,000 for a like-kind section 197 intangible. Tax forms The nonrecognition provisions of like-kind exchanges apply. Tax forms You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Tax forms You amortize the other $10,000 of adjusted basis over a new 15-year period. Tax forms For more information, see Regulations section 1. Tax forms 197-2(g). Tax forms Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Tax forms See Reforestation Costs in chapter 7. Tax forms You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Tax forms There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Tax forms The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Tax forms A partner, shareholder, or beneficiary cannot make that election. Tax forms A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Tax forms , of a partnership or S corporation. Tax forms The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Tax forms Qualifying costs. Tax forms   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Tax forms Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Tax forms They include costs for the following items. Tax forms Site preparation. Tax forms Seeds or seedlings. Tax forms Labor. Tax forms Tools. Tax forms Depreciation on equipment used in planting and seeding. Tax forms Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Tax forms Qualified timber property. Tax forms   Qualified timber property is property that contains trees in significant commercial quantities. Tax forms It can be a woodlot or other site that you own or lease. Tax forms The property qualifies only if it meets all of the following requirements. Tax forms It is located in the United States. Tax forms It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Tax forms It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Tax forms Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Tax forms Amortization period. Tax forms   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Tax forms You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Tax forms Life tenant and remainderman. Tax forms   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Tax forms Any remainder interest in the property is ignored for amortization purposes. Tax forms Recapture. Tax forms   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Tax forms See chapter 3 of Publication 544 for more information. Tax forms How to make the election. Tax forms   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Tax forms A description of the costs and the dates you incurred them. Tax forms A description of the type of timber being grown and the purpose for which it is grown. Tax forms Attach a separate statement for each property for which you amortize reforestation costs. Tax forms   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax forms Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Tax forms 9100-2” on Form 4562. Tax forms File the amended return at the same address you filed the original return. Tax forms Revoking the election. Tax forms   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Tax forms Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Tax forms Please provide your daytime telephone number (optional), in case we need to contact you. Tax forms You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Tax forms    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Tax forms NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Tax forms These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Tax forms For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Tax forms If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Tax forms Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Tax forms However, see Atmospheric pollution control facilities for an exception. Tax forms The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Tax forms Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Tax forms You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Tax forms See chapter 3 of Publication 946. Tax forms A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Tax forms The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Tax forms The facility must be certified by state and federal certifying authorities. Tax forms The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Tax forms Also, it must not significantly change the nature of the manufacturing or production process or facility. Tax forms The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Tax forms The federal certifying authority will describe the nature of the potential cost recovery. Tax forms You must then reduce the amortizable basis of the facility by this potential recovery. Tax forms New identifiable treatment facility. Tax forms   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Tax forms It does not include a building and its structural components unless the building is exclusively a treatment facility. Tax forms Atmospheric pollution control facilities. Tax forms   Certain atmospheric pollution control facilities can be amortized over 84 months. Tax forms To qualify, the following must apply. Tax forms The facility must be acquired and placed in service after April 11, 2005. Tax forms If acquired, the original use must begin with you after April 11, 2005. Tax forms The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Tax forms If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Tax forms Basis reduction for corporations. Tax forms   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Tax forms More information. Tax forms   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Tax forms Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Tax forms If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Tax forms The amortization period begins the month you first receive an economic benefit from the costs. Tax forms For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Tax forms Optional write-off method. Tax forms   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Tax forms For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Tax forms Costs you can amortize. Tax forms   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Tax forms You paid or incurred the costs in your trade or business. Tax forms You are not deducting the costs currently. Tax forms How to make the election. Tax forms   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Tax forms Generally, you must file the return by the due date (including extensions). Tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax forms Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Tax forms 9100-2” on Form 4562. Tax forms File the amended return at the same address you filed the original return. Tax forms   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Tax forms Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Tax forms If you make this election, there is no AMT adjustment. Tax forms The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Tax forms How to make the election. Tax forms   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Tax forms   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Tax forms Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Tax forms 9100-2” on Form 4562. Tax forms File the amended return at the same address you filed the original return. Tax forms Revoking the election. Tax forms   You must obtain consent from the IRS to revoke your election. Tax forms Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Tax forms The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Tax forms If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Tax forms Prev  Up  Next   Home   More Online Publications