FROM THE OFFICE OF PUBLIC AFFAIRS

To view or print the PDF content on this page, download the free Adobe® Acrobat® Reader®.

Today, the Treasury Department issued final regulations on capitalizing costs incurred in acquiring or creating intangible assets. The regulations generally follow the rules that were proposed in December of 2002 and in an advance notice of proposed rulemaking released in January of 2002.

The IRS also released today a notice informing taxpayers that the Treasury Department and the IRS intend to propose regulations that clarify the treatment of expenditures to repair, improve or rehabilitate tangible property. The notice identifies issues that the Treasury Department and the IRS may address in the proposed regulations and requests comments on the specific rules and principles that should be provided.

"In recent years, controversy regarding the capitalization of costs associated with tangible and intangible assets has consumed substantial IRS and taxpayer resources," stated Treasury Assistant Secretary for Tax Policy Pam Olson. "The final regulations issued today provide clear and administrable rules that will provide certainty to taxpayers regarding the treatment of costs associated with intangible assets and will enable the IRS to fairly and efficiently administer the law. The notice begins the process of providing similar certainty regarding the treatment of costs associated with tangible assets."

To clarify the application of section 263(a) of the Internal Revenue Code, the final regulations describe specific categories of expenditures incurred in acquiring or creating intangible assets that taxpayers are required to capitalize. The final regulations also describe certain types of enhancements to intangible assets that are required to be capitalized. Expenditures incurred in acquiring, creating, or enhancing intangible assets that are not described in the final regulations are not required to be capitalized under section 263(a); however, another provision of the Code may require that the capitalization of these expenditures.

The final regulations provide safe harbors and simplifying assumptions that permit the current deduction of certain costs and reduce taxpayers' record-keeping burden including a “12 month” rule for costs of certain intangible assets with relatively short useful lives, “de minimis” rules for costs less than a specified dollar amount, an employee compensation rule, and an overhead rule. In addition, the final regulations permit a 15-year safe harbor amortization period for certain created intangible assets that do not have a readily ascertainable useful life.

The Treasury Department and IRS plan to address in future guidance the treatment of costs related to the development and implementation of computer software and costs required to be capitalized in certain transactions including tax-free acquisitive transactions and stock issuance transactions.

The text of the Final Regulations and the Advance Notice of Proposed Rulemaking are attached. They will be published in the Federal Register in the next few days and are subject to minor technical changes.

-30-

Related Documents:

• Final Regs
• Notice