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Hr Block 2010

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Hr Block 2010

Hr block 2010 13. Hr block 2010   Payment of Taxes Table of Contents How To Make Deposits When To Make Deposits Amount of DepositsSafe Harbor Rule Generally, semimonthly deposits of excise taxes are required. Hr block 2010 A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). Hr block 2010 However, no deposit is required for the situations listed below; the taxes are payable with Form 720. Hr block 2010 The net liability for taxes listed in Part I (Form 720) does not exceed $2,500 for the quarter. Hr block 2010 The gas guzzler tax is being paid on a one-time filing. Hr block 2010 The liability is for taxes listed in Part II (Form 720), except for the floor stocks tax which generally requires a single deposit. Hr block 2010 How To Make Deposits Electronic deposit requirement. Hr block 2010   You must use electronic funds transfer to make excise tax deposits. Hr block 2010 Generally, electronic funds transfers are made using the Electronic Federal Tax Payment System (EFTPS). Hr block 2010 If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf. Hr block 2010 Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. Hr block 2010   EFTPS is a free service provided by the Department of Treasury. Hr block 2010 Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. Hr block 2010 To get more information about EFTPS or to enroll in EFTPS, visit www. Hr block 2010 eftps. Hr block 2010 gov or call 1-800-555-4477. Hr block 2010 Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Hr block 2010    Depositing on time. Hr block 2010 For EFTPS deposits to be on time, you must initiate the transaction at least 1 day before the date the deposit is due (before 8:00 p. Hr block 2010 m. Hr block 2010 Eastern time). Hr block 2010 You will automatically be enrolled in EFTPS when you apply for an EIN. Hr block 2010 You will receive a separate mailing containing instructions for activating your EFTPS enrollment after you receive your EIN. Hr block 2010 When To Make Deposits There are two methods for determining deposits: the regular method and the alternative method. Hr block 2010 The regular method applies to all taxes in Part I of Form 720 except for communications and air transportation taxes if deposits are based on amounts billed or tickets sold, rather than on amounts actually collected. Hr block 2010 See Alternative method below. Hr block 2010 If you are depositing more than one tax under a method, combine all the taxes under the method and make one deposit for the semimonthly period. Hr block 2010 Regular method. Hr block 2010   The deposit of tax for a semimonthly period is due by the 14th day following that period. Hr block 2010 Generally, this is the 29th day of a month for the first semimonthly period and the 14th day of the following month for the second semimonthly period. Hr block 2010 If the 14th or the 29th day falls on a Saturday, Sunday, or legal holiday, you must make the deposit by the immediately preceding day that is not a Saturday, Sunday, or legal holiday. Hr block 2010 Alternative method (IRS Nos. Hr block 2010 22, 26, 27, and 28). Hr block 2010   Deposits of communications and air transportation taxes may be based on taxes included in amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. Hr block 2010 Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second following semimonthly period. Hr block 2010 The deposit of tax is due by the 3rd banking day after the 7th day of that period. Hr block 2010   For an example of the alternative method, see the Instructions for Form 720. Hr block 2010 To use the alternative method, you must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the tax included in amounts billed or tickets sold and not the amount of tax that is actually collected. Hr block 2010 For example, amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the 1st quarter of the calendar year. Hr block 2010 The separate account for each month must reflect: All items of tax included in amounts billed or tickets sold during the month, and Other items of adjustment relating to tax for prior months (within the statute of limitations on credits or refunds). Hr block 2010 The separate account for any month cannot include an adjustment resulting from a refusal to pay or inability to collect unless the refusal has been reported to the IRS. Hr block 2010 See Uncollected Tax Report in chapter 4. Hr block 2010 The net amount of tax that is considered collected during the semimonthly period must be either: The net amount of tax reflected in the separate account for the corresponding semimonthly period of the preceding month, or One-half of the net amount of tax reflected in the separate account for the preceding month. Hr block 2010 Special rule for deposits of taxes in September. Hr block 2010   See the Instructions for Form 720 for a special rule on deposits made in September. Hr block 2010 Amount of Deposits Deposits for a semimonthly period generally must be at least 95% of the net tax liability for that period unless the safe harbor rule (discussed later) applies. Hr block 2010 Generally, you do not have to make a deposit for a period in which you incurred no tax liability. Hr block 2010 Net tax liability. Hr block 2010   Your net tax liability is your tax liability for the period minus any claims on Schedule C (Form 720) for the period. Hr block 2010 You may figure your net tax liability for a semimonthly period by dividing your net liability incurred during the calendar month by two. Hr block 2010 If you use this method, you must use it for all semimonthly periods in the calendar quarter. Hr block 2010 Do not reduce your liability by any amounts from Form 720X. Hr block 2010 Safe Harbor Rule The safe harbor rule applies separately to deposits under the regular method and the alternative method. Hr block 2010 Persons who filed Form 720 for the look-back quarter (the 2nd calendar quarter preceding the current quarter) are considered to meet the semimonthly deposit requirement if the deposit for each semimonthly period in the current quarter is at least 1/6 (16. Hr block 2010 67%) of the net tax liability reported for the look-back quarter. Hr block 2010 For the semimonthly period for which the additional deposit is required, the additional deposit must be at least 11/90 12. Hr block 2010 23%), 10/90 (11. Hr block 2010 12%) for non-EFTPS, of the net tax liability reported for the look-back quarter. Hr block 2010 Also, the total deposit for that semimonthly period must be at least 1/6 (16. Hr block 2010 67%) of the net tax liability reported for the look-back quarter. Hr block 2010 Exceptions. Hr block 2010   The safe harbor rule does not apply to: The 1st and 2nd quarters beginning on or after the effective date of an increase in the rate of tax unless the deposit of taxes for each semimonthly period in the calendar quarter is at least 1/6 (16. Hr block 2010 67%) of the tax liability you would have had for the look-back quarter if the increased rate of tax had been in effect for that look-back quarter, Any quarter if liability includes any tax not in effect throughout the look-back quarter, or For deposits under the alternative method, any quarter if liability includes any tax not in effect throughout the look-back quarter and the month preceding the look-back quarter. Hr block 2010 Requirements to be met. Hr block 2010   For the safe harbor rule to apply, you must: Make each deposit timely at an authorized financial institution, and Pay any underpayment for the current quarter by the due date of the return. Hr block 2010    The IRS may withdraw the right to make deposits of tax using the safe harbor rule from any person not complying with these rules. Hr block 2010 Tax rate increases. Hr block 2010   You must modify the safe harbor rule if there has been an increase in the rate of tax. Hr block 2010 You must figure your tax liability in the look-back quarter as if the increased rate had been in effect. Hr block 2010 To qualify for the safe harbor rule, your deposits cannot be less than 1/6 of the refigured tax liability. Hr block 2010 Prev  Up  Next   Home   More Online Publications
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The Hr Block 2010

Hr block 2010 8. Hr block 2010   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. Hr block 2010 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. Hr block 2010 It is similar to the straight line method of depreciation. Hr block 2010 The various amortizable costs covered in this chapter are included in the list below. Hr block 2010 However, this chapter does not discuss amortization of bond premium. Hr block 2010 For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Hr block 2010 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. Hr block 2010 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. Hr block 2010 To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Hr block 2010 For example, in 2012, you began to amortize a lease. Hr block 2010 In 2013, you began to amortize a second lease. Hr block 2010 Report amortization from the new lease on line 42 of your 2013 Form 4562. Hr block 2010 Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Hr block 2010 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). Hr block 2010 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. Hr block 2010 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. Hr block 2010 Generally, you recover costs for particular assets through depreciation deductions. Hr block 2010 However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Hr block 2010 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. Hr block 2010 For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Hr block 2010 The costs that are not deducted currently can be amortized ratably over a 180-month period. Hr block 2010 The amortization period starts with the month you begin operating your active trade or business. Hr block 2010 You are not required to attach a statement to make this election. Hr block 2010 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. Hr block 2010 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. Hr block 2010 See Regulations sections 1. Hr block 2010 195-1, 1. Hr block 2010 248-1, and 1. Hr block 2010 709-1. Hr block 2010 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. Hr block 2010 Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Hr block 2010 If the election is made, you must attach any statement required by Regulations sections 1. Hr block 2010 195-1(b), 1. Hr block 2010 248-1(c), and 1. Hr block 2010 709-1(c), as in effect before September 9, 2008. Hr block 2010 Note. Hr block 2010 You can apply the provisions of Regulations sections 1. Hr block 2010 195-1, 1. Hr block 2010 248-1, and 1. Hr block 2010 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. Hr block 2010 Otherwise, the provisions under Regulations sections 1. Hr block 2010 195-1(b), 1. Hr block 2010 248-1(c), and 1. Hr block 2010 709-1(c), as in effect before September 9, 2008, will apply. Hr block 2010 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. Hr block 2010 See How To Make the Election , later. Hr block 2010 The cost must qualify as one of the following. Hr block 2010 A business start-up cost. Hr block 2010 An organizational cost for a corporation. Hr block 2010 An organizational cost for a partnership. Hr block 2010 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. Hr block 2010 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. Hr block 2010 Qualifying costs. Hr block 2010   A start-up cost is amortizable if it meets both of the following tests. Hr block 2010 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). Hr block 2010 It is a cost you pay or incur before the day your active trade or business begins. Hr block 2010   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Hr block 2010 Advertisements for the opening of the business. Hr block 2010 Salaries and wages for employees who are being trained and their instructors. Hr block 2010 Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Hr block 2010 Salaries and fees for executives and consultants, or for similar professional services. Hr block 2010 Nonqualifying costs. Hr block 2010   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Hr block 2010 See Research and Experimental Costs , later. Hr block 2010 Purchasing an active trade or business. Hr block 2010   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. Hr block 2010 These are costs that help you decide whether to purchase a business. Hr block 2010 Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Hr block 2010 Example. Hr block 2010 On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Hr block 2010 They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Hr block 2010 In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Hr block 2010 The letter stated that a binding commitment would result only after a purchase agreement was signed. Hr block 2010 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. Hr block 2010 On October 22nd, you signed a purchase agreement with XYZ, Inc. Hr block 2010 All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Hr block 2010 Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Hr block 2010 Disposition of business. Hr block 2010   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Hr block 2010 However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Hr block 2010 Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Hr block 2010 Qualifying costs. Hr block 2010   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. Hr block 2010   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. Hr block 2010   Examples of organizational costs include: The cost of temporary directors. Hr block 2010 The cost of organizational meetings. Hr block 2010 State incorporation fees. Hr block 2010 The cost of legal services. Hr block 2010 Nonqualifying costs. Hr block 2010   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. Hr block 2010 Costs associated with the transfer of assets to the corporation. Hr block 2010 Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Hr block 2010 Qualifying costs. Hr block 2010   A partnership can amortize an organizational cost only if it meets all the following tests. Hr block 2010 It is for the creation of the partnership and not for starting or operating the partnership trade or business. Hr block 2010 It is chargeable to a capital account (see chapter 1). Hr block 2010 It could be amortized over the life of the partnership if the partnership had a fixed life. Hr block 2010 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. Hr block 2010 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. Hr block 2010 It is for a type of item normally expected to benefit the partnership throughout its entire life. Hr block 2010   Organizational costs include the following fees. Hr block 2010 Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Hr block 2010 Accounting fees for services incident to the organization of the partnership. Hr block 2010 Filing fees. Hr block 2010 Nonqualifying costs. Hr block 2010   The following costs cannot be amortized. Hr block 2010 The cost of acquiring assets for the partnership or transferring assets to the partnership. Hr block 2010 The cost of admitting or removing partners, other than at the time the partnership is first organized. Hr block 2010 The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Hr block 2010 The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Hr block 2010 These “syndication fees” are capital expenses that cannot be depreciated or amortized. Hr block 2010 Liquidation of partnership. Hr block 2010   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. Hr block 2010 However, these costs can be deducted only to the extent they qualify as a loss from a business. Hr block 2010 How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Hr block 2010 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. Hr block 2010 Once you choose an amortization period, you cannot change it. Hr block 2010 To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Hr block 2010 The result is the amount you can deduct for each month. Hr block 2010 Cash method partnership. Hr block 2010   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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 You may also be required to attach an accompanying statement (described later) to your return. Hr block 2010 For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Hr block 2010 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. Hr block 2010 195-1, 1. Hr block 2010 248-1, and 1. Hr block 2010 709-1, you must also attach an accompanying statement to elect to amortize the costs. Hr block 2010 If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Hr block 2010 See Starting a Business , earlier, for more information. Hr block 2010 Generally, you must file the return by the due date (including any extensions). Hr block 2010 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). Hr block 2010 For more information, see the instructions for Part VI of Form 4562. Hr block 2010 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. Hr block 2010 Note. Hr block 2010 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. Hr block 2010 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. Hr block 2010 A shareholder or partner cannot make this election. Hr block 2010 You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Hr block 2010 Only the corporation or partnership can amortize these costs. Hr block 2010 However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Hr block 2010 These costs qualify as business start-up costs if you acquire the partnership interest. Hr block 2010 Start-up costs election statement. Hr block 2010   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Hr block 2010 A description of the business to which the start-up costs relate. Hr block 2010 A description of each start-up cost incurred. Hr block 2010 The month your active business began (or was acquired). Hr block 2010 The number of months in your amortization period (which is generally 180 months). Hr block 2010 Filing the statement early. Hr block 2010   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. Hr block 2010 If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Hr block 2010 Revised statement. Hr block 2010   You can file a revised statement to include any start-up costs not included in your original statement. Hr block 2010 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. Hr block 2010 You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Hr block 2010 Organizational costs election statement. Hr block 2010   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Hr block 2010 A description of each cost. Hr block 2010 The amount of each cost. Hr block 2010 The date each cost was incurred. Hr block 2010 The month your corporation or partnership began active business (or acquired the business). Hr block 2010 The number of months in your amortization period (which is generally 180 months). Hr block 2010 Partnerships. Hr block 2010   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Hr block 2010   You do not need to separately list any partnership organizational cost that is less than $10. Hr block 2010 Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Hr block 2010   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. Hr block 2010 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. Hr block 2010 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). Hr block 2010 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). Hr block 2010 For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Hr block 2010 How to amortize. Hr block 2010   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. Hr block 2010 Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Hr block 2010 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. Hr block 2010 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. Hr block 2010 See Anti-Churning Rules, later. Hr block 2010 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). Hr block 2010 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. Hr block 2010 You cannot deduct amortization for the month you dispose of the intangible. Hr block 2010 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. Hr block 2010 You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Hr block 2010 Tax-exempt use property subject to a lease. Hr block 2010   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. Hr block 2010 Cost attributable to other property. Hr block 2010   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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 Goodwill. Hr block 2010   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Hr block 2010 Going concern value. Hr block 2010   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. Hr block 2010 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). Hr block 2010 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. Hr block 2010 Workforce in place, etc. Hr block 2010   This includes the composition of a workforce (for example, its experience, education, or training). Hr block 2010 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. Hr block 2010   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Hr block 2010 Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Hr block 2010 Business books and records, etc. Hr block 2010   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Hr block 2010 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. Hr block 2010 Patents, copyrights, etc. Hr block 2010   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 . Hr block 2010 Customer-based intangible. Hr block 2010   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. Hr block 2010 For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Hr block 2010 A customer base. Hr block 2010 A circulation base. Hr block 2010 An undeveloped market or market growth. Hr block 2010 Insurance in force. Hr block 2010 A mortgage servicing contract. Hr block 2010 An investment management contract. Hr block 2010 Any other relationship with customers involving the future provision of goods or services. Hr block 2010   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. Hr block 2010 Supplier-based intangible. Hr block 2010   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. Hr block 2010 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. Hr block 2010 Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Hr block 2010 Also, see Assets That Are Not Section 197 Intangibles below. Hr block 2010 Government-granted license, permit, etc. Hr block 2010   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Hr block 2010 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. Hr block 2010 Covenant not to compete. Hr block 2010   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. Hr block 2010 An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Hr block 2010   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. Hr block 2010 Franchise, trademark, or trade name. Hr block 2010   A franchise, trademark, or trade name is a section 197 intangible. Hr block 2010 You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Hr block 2010 For information on currently deductible contingent payments, see chapter 11. Hr block 2010 Professional sports franchise. Hr block 2010   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. Hr block 2010 Contract for the use of, or a term interest in, a section 197 intangible. Hr block 2010   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Hr block 2010 It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Hr block 2010 Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Hr block 2010 Any interest in a corporation, partnership, trust, or estate. Hr block 2010 Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Hr block 2010 Any interest in land. Hr block 2010 Most computer software. Hr block 2010 (See Computer software , later. Hr block 2010 ) 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. Hr block 2010 An interest in a film, sound recording, video tape, book, or similar property. Hr block 2010 A right to receive tangible property or services under a contract or from a governmental agency. Hr block 2010 An interest in a patent or copyright. Hr block 2010 Certain rights that have a fixed duration or amount. Hr block 2010 (See Rights of fixed duration or amount , later. Hr block 2010 ) An interest under either of the following. Hr block 2010 An existing lease or sublease of tangible property. Hr block 2010 A debt that was in existence when the interest was acquired. Hr block 2010 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. Hr block 2010 Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Hr block 2010 Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Hr block 2010 You generally must use the straight line method over its useful life. Hr block 2010 For certain intangibles, the depreciation period is specified in the law and regulations. Hr block 2010 For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Hr block 2010 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. Hr block 2010 Computer software. Hr block 2010   Section 197 intangibles do not include the following types of computer software. Hr block 2010 Software that meets all the following requirements. Hr block 2010 It is, or has been, readily available for purchase by the general public. Hr block 2010 It is subject to a nonexclusive license. Hr block 2010 It has not been substantially modified. Hr block 2010 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. Hr block 2010 Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Hr block 2010 Computer software defined. Hr block 2010   Computer software includes all programs designed to cause a computer to perform a desired function. Hr block 2010 It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Hr block 2010 Rights of fixed duration or amount. Hr block 2010   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. Hr block 2010 However, this does not apply to the following intangibles. Hr block 2010 Goodwill. Hr block 2010 Going concern value. Hr block 2010 A covenant not to compete. Hr block 2010 A franchise, trademark, or trade name. Hr block 2010 A customer-related information base, customer-based intangible, or similar item. Hr block 2010 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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 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. Hr block 2010 Amortize these costs using the rules of Revenue Procedure 2004-36. Hr block 2010 For more information, see Revenue Procedure 2004-36, 2004-24 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 1063, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2004-24_IRB/ar16. Hr block 2010 html. Hr block 2010 A change in the treatment of creative property costs is a change in method of accounting. Hr block 2010 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. Hr block 2010 These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Hr block 2010 Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Hr block 2010 You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Hr block 2010 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. Hr block 2010 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). Hr block 2010 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. Hr block 2010 See Related person , later, for more information. Hr block 2010 Exceptions. Hr block 2010   The anti-churning rules do not apply in the following situations. Hr block 2010 You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Hr block 2010 The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Hr block 2010 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. Hr block 2010 The gain-recognition exception, discussed later, applies. Hr block 2010 Related person. Hr block 2010   For purposes of the anti-churning rules, the following are related persons. Hr block 2010 An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Hr block 2010 ), and lineal descendants (children, grandchildren, etc. Hr block 2010 ). Hr block 2010 A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Hr block 2010 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. Hr block 2010 (For an exception, see section 1. Hr block 2010 197-2(h)(6)(iv) of the regulations. Hr block 2010 ) 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. Hr block 2010 The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Hr block 2010 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. Hr block 2010 The executor and beneficiary of an estate. Hr block 2010 A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Hr block 2010 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. Hr block 2010 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. Hr block 2010 Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Hr block 2010 A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Hr block 2010 Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Hr block 2010 When to determine relationship. Hr block 2010   Persons are treated as related if the relationship existed at the following time. Hr block 2010 In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Hr block 2010 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. Hr block 2010 Ownership of stock. Hr block 2010   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Hr block 2010 Rule 1. Hr block 2010   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. Hr block 2010 Rule 2. Hr block 2010   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Hr block 2010 Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Hr block 2010 Rule 3. Hr block 2010   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. Hr block 2010 Rule 4. Hr block 2010   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. Hr block 2010 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. Hr block 2010 Gain-recognition exception. Hr block 2010   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Hr block 2010 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. Hr block 2010 That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Hr block 2010 See chapter 2 in Publication 544 for information on making this choice. Hr block 2010   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. Hr block 2010 Notification. Hr block 2010   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. Hr block 2010 Anti-abuse rule. Hr block 2010   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Hr block 2010 To avoid the requirement that the intangible be acquired after August 10, 1993. Hr block 2010 To avoid any of the anti-churning rules. Hr block 2010 More information. Hr block 2010   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Hr block 2010 197-2(h). Hr block 2010 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. Hr block 2010 See Amended Return , next. Hr block 2010 If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Hr block 2010 See Changing Your Accounting Method , later. Hr block 2010 Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Hr block 2010 A mathematical error made in any year. Hr block 2010 A posting error made in any year. Hr block 2010 An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Hr block 2010 When to file. Hr block 2010   If an amended return is allowed, you must file it by the later of the following dates. Hr block 2010 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Hr block 2010 (A return filed early is considered filed on the due date. Hr block 2010 ) 2 years from the time you paid your tax for that year. Hr block 2010 Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Hr block 2010 File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Hr block 2010 The following are examples of a change in method of accounting for amortization. Hr block 2010 A change in the amortization method, period of recovery, or convention of an amortizable asset. Hr block 2010 A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Hr block 2010 A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Hr block 2010 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. Hr block 2010 An adjustment in the useful life of an amortizable asset. Hr block 2010 Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Hr block 2010 Any change in the placed-in-service date of an amortizable asset. Hr block 2010 See Regulations section 1. Hr block 2010 446-1(e)(2)(ii)(a) for more information and examples. Hr block 2010 Automatic approval. Hr block 2010   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Hr block 2010 For a list of automatic accounting method changes, see the Instructions for Form 3115. Hr block 2010 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. Hr block 2010 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. Hr block 2010 See Revenue Procedure 2006-12, 2006-3 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 310, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2006-03_IRB/ar14. Hr block 2010 html. Hr block 2010  See Revenue Procedure 2006-37, 2006-38 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 499, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2006-38_IRB/ar10. Hr block 2010 html. Hr block 2010  See Revenue Procedure 2008-52, 2008-36 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 587, available at www. Hr block 2010 irs. Hr block 2010 gov/irb/2008-36_IRB/ar09. Hr block 2010 html. Hr block 2010  See Revenue Procedure 2009-39, 2009-38 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 371, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2009-38_IRB/ar08. Hr block 2010 html. Hr block 2010  See Revenue Procedure 2011-14, 2011-4 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 330, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2011-04_IRB/ar08. Hr block 2010 html. Hr block 2010  See Revenue Procedure 2011-22, 2011-18 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 737, available at  www. Hr block 2010 irs. Hr block 2010 gov/irb/2011-18_IRB/ar08. Hr block 2010 html. Hr block 2010 Also, see Revenue Procedure 2012-39, 2012-41 I. Hr block 2010 R. Hr block 2010 B. Hr block 2010 470 available at www. Hr block 2010 irs. Hr block 2010 gov/irb/2012-41_IRB/index. Hr block 2010 html. Hr block 2010 Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Hr block 2010 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). Hr block 2010 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. Hr block 2010 Any remaining gain, or any loss, is a section 1231 gain or loss. Hr block 2010 If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Hr block 2010 For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Hr block 2010 Nondeductible loss. Hr block 2010   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. Hr block 2010 Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Hr block 2010 Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Hr block 2010 The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Hr block 2010 The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Hr block 2010 Covenant not to compete. Hr block 2010   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. Hr block 2010 Nonrecognition transfers. Hr block 2010   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. Hr block 2010 You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Hr block 2010 Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Hr block 2010   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. Hr block 2010 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. Hr block 2010 Example. Hr block 2010 You own a section 197 intangible you have amortized for 4 full years. Hr block 2010 It has a remaining unamortized basis of $30,000. Hr block 2010 You exchange the asset plus $10,000 for a like-kind section 197 intangible. Hr block 2010 The nonrecognition provisions of like-kind exchanges apply. Hr block 2010 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. Hr block 2010 You amortize the other $10,000 of adjusted basis over a new 15-year period. Hr block 2010 For more information, see Regulations section 1. Hr block 2010 197-2(g). Hr block 2010 Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Hr block 2010 See Reforestation Costs in chapter 7. Hr block 2010 You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Hr block 2010 There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Hr block 2010 The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Hr block 2010 A partner, shareholder, or beneficiary cannot make that election. Hr block 2010 A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Hr block 2010 , of a partnership or S corporation. Hr block 2010 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. Hr block 2010 Qualifying costs. Hr block 2010   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Hr block 2010 Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Hr block 2010 They include costs for the following items. Hr block 2010 Site preparation. Hr block 2010 Seeds or seedlings. Hr block 2010 Labor. Hr block 2010 Tools. Hr block 2010 Depreciation on equipment used in planting and seeding. Hr block 2010 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. Hr block 2010 Qualified timber property. Hr block 2010   Qualified timber property is property that contains trees in significant commercial quantities. Hr block 2010 It can be a woodlot or other site that you own or lease. Hr block 2010 The property qualifies only if it meets all of the following requirements. Hr block 2010 It is located in the United States. Hr block 2010 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. Hr block 2010 It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Hr block 2010 Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Hr block 2010 Amortization period. Hr block 2010   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. Hr block 2010 You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Hr block 2010 Life tenant and remainderman. Hr block 2010   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. Hr block 2010 Any remainder interest in the property is ignored for amortization purposes. Hr block 2010 Recapture. Hr block 2010   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. Hr block 2010 See chapter 3 of Publication 544 for more information. Hr block 2010 How to make the election. Hr block 2010   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Hr block 2010 A description of the costs and the dates you incurred them. Hr block 2010 A description of the type of timber being grown and the purpose for which it is grown. Hr block 2010 Attach a separate statement for each property for which you amortize reforestation costs. Hr block 2010   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Hr block 2010 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). Hr block 2010 Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Hr block 2010 9100-2” on Form 4562. Hr block 2010 File the amended return at the same address you filed the original return. Hr block 2010 Revoking the election. Hr block 2010   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Hr block 2010 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. Hr block 2010 Please provide your daytime telephone number (optional), in case we need to contact you. Hr block 2010 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. Hr block 2010    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Hr block 2010 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. Hr block 2010 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. Hr block 2010 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). Hr block 2010 If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Hr block 2010 Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Hr block 2010 However, see Atmospheric pollution control facilities for an exception. Hr block 2010 The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Hr block 2010 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. Hr block 2010 You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Hr block 2010 See chapter 3 of Publication 946. Hr block 2010 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. Hr block 2010 The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Hr block 2010 The facility must be certified by state and federal certifying authorities. Hr block 2010 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. Hr block 2010 Also, it must not significantly change the nature of the manufacturing or production process or facility. Hr block 2010 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). Hr block 2010 The federal certifying authority will describe the nature of the potential cost recovery. Hr block 2010 You must then reduce the amortizable basis of the facility by this potential recovery. Hr block 2010 New identifiable treatment facility. Hr block 2010   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Hr block 2010 It does not include a building and its structural components unless the building is exclusively a treatment facility. Hr block 2010 Atmospheric pollution control facilities. Hr block 2010   Certain atmospheric pollution control facilities can be amortized over 84 months. Hr block 2010 To qualify, the following must apply. Hr block 2010 The facility must be acquired and placed in service after April 11, 2005. Hr block 2010 If acquired, the original use must begin with you after April 11, 2005. Hr block 2010 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. Hr block 2010 If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Hr block 2010 Basis reduction for corporations. Hr block 2010   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Hr block 2010 More information. Hr block 2010   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Hr block 2010 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). Hr block 2010 If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Hr block 2010 The amortization period begins the month you first receive an economic benefit from the costs. Hr block 2010 For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Hr block 2010 Optional write-off method. Hr block 2010   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. Hr block 2010 For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Hr block 2010 Costs you can amortize. Hr block 2010   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Hr block 2010 You paid or incurred the costs in your trade or business. Hr block 2010 You are not deducting the costs currently. Hr block 2010 How to make the election. Hr block 2010   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Hr block 2010 Generally, you must file the return by the due date (including extensions). Hr block 2010 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). Hr block 2010 Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Hr block 2010 9100-2” on Form 4562. Hr block 2010 File the amended return at the same address you filed the original return. Hr block 2010   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. Hr block 2010 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. Hr block 2010 If you make this election, there is no AMT adjustment. Hr block 2010 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. Hr block 2010 How to make the election. Hr block 2010   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. Hr block 2010   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Hr block 2010 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). Hr block 2010 Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Hr block 2010 9100-2” on Form 4562. Hr block 2010 File the amended return at the same address you filed the original return. Hr block 2010 Revoking the election. Hr block 2010   You must obtain consent from the IRS to revoke your election. Hr block 2010 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. Hr block 2010 The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Hr block 2010 If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Hr block 2010 Prev  Up  Next   Home   More Online Publications