[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.167(a)-14]

[Page 951-954]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
COMPUTATION OF TAXABLE INCOME--Table of Contents
 
Sec. 1.167(a)-14  Treatment of certain intangible property excluded from section 197.

    (a) Overview. This section provides rules for the amortization of 
certain

[[Page 952]]

intangibles that are excluded from section 197 (relating to the 
amortization of goodwill and certain other intangibles). These excluded 
intangibles are specifically described in Sec. 1.197-2(c) (4), (6), (7), 
(11), and (13) and include certain computer software and certain other 
separately acquired rights, such as rights to receive tangible property 
or services, patents and copyrights, certain mortgage servicing rights, 
and rights of fixed duration or amount. Intangibles for which an 
amortization amount is determined under section 167(f) and intangibles 
otherwise excluded from section 197 are amortizable only if they qualify 
as property subject to the allowance for depreciation under section 
167(a).
    (b) Computer software--(1) In general. The amount of the deduction 
for computer software described in section 167(f)(1) and Sec. 1.197-
2(c)(4) is determined by amortizing the cost or other basis of the 
computer software using the straight line method described in 
Sec. 1.167(b)-1 (except that its salvage value is treated as zero) and 
an amortization period of 36 months beginning on the first day of the 
month that the computer software is placed in service. If costs for 
developing computer software that the taxpayer properly elects to defer 
under section 174(b) result in the development of property subject to 
the allowance for depreciation under section 167, the rules of this 
paragraph (b) will apply to the unrecovered costs. In addition, this 
paragraph (b) applies to the cost of separately acquired computer 
software where these costs are separately stated and the costs are 
required to be capitalized under section 263(a).
    (2) Exceptions. Paragraph (b)(1) of this section does not apply to 
the cost of computer software properly and consistently taken into 
account under Sec. 1.162-11. The cost of acquiring an interest in 
computer software that is included, without being separately stated, in 
the cost of the hardware or other tangible property is treated as part 
of the cost of the hardware or other tangible property that is 
capitalized and depreciated under other applicable sections of the 
Internal Revenue Code.
    (3) Additional rules. Rules similar to those in Sec. 1.197-2 
(f)(1)(iii), (f)(1)(iv), and (f)(2) (relating to the computation of 
amortization deductions and the treatment of contingent amounts) apply 
for purposes of this paragraph (b).
    (c) Certain interests or rights not acquired as part of a purchase 
of a trade or business--(1) Certain rights to receive tangible property 
or services. The amount of the deduction for a right (other than a right 
acquired as part of a purchase of a trade or business) to receive 
tangible property or services under a contract or from a governmental 
unit (as specified in section 167(f)(2) and Sec. 1.197-2(c)(6)) is 
determined as follows:
    (i) Amortization of fixed amounts. The basis of a right to receive a 
fixed amount of tangible property or services is amortized for each 
taxable year by multiplying the basis of the right by a fraction, the 
numerator of which is the amount of tangible property or services 
received during the taxable year and the denominator of which is the 
total amount of tangible property or services received or to be received 
under the terms of the contract or governmental grant. For example, if a 
taxpayer acquires a favorable contract right to receive a fixed amount 
of raw materials during an unspecified period, the taxpayer must 
amortize the cost of acquiring the contract right by multiplying the 
total cost by a fraction, the numerator of which is the amount of raw 
materials received under the contract during the taxable year and the 
denominator of which is the total amount of raw materials received or to 
be received under the contract.
    (ii) Amortization of unspecified amount over fixed period. The cost 
or other basis of a right to receive an unspecified amount of tangible 
property or services over a fixed period is amortized ratably over the 
period of the right. (See paragraph (c)(3) of this section regarding 
renewals).
    (iii) Amortization in other cases. [Reserved]
    (2) Rights of fixed duration or amount. The amount of the deduction 
for a right (other than a right acquired as part of a purchase of a 
trade or business) of fixed duration or amount received under a contract 
or granted by a governmental unit (specified in section

[[Page 953]]

167(f)(2) and Sec. 1.197-2(c)(13)) and not covered by paragraph (c)(1) 
of this section is determined as follows:
    (i) Rights to a fixed amount. The basis of a right to a fixed amount 
is amortized for each taxable year by multiplying the basis by a 
fraction, the numerator of which is the amount received during the 
taxable year and the denominator of which is the total amount received 
or to be received under the terms of the contract or governmental grant.
    (ii) Rights to an unspecified amount over fixed duration of less 
than 15 years. The basis of a right to an unspecified amount over a 
fixed duration of less than 15 years is amortized ratably over the 
period of the right.
    (3) Application of renewals. (i) For purposes of paragraphs (c) (1) 
and (2) of this section, the duration of a right under a contract (or 
granted by a governmental unit) includes any renewal period if, based on 
all of the facts and circumstances in existence at any time during the 
taxable year in which the right is acquired, the facts clearly indicate 
a reasonable expectancy of renewal.
    (ii) The mere fact that a taxpayer will have the opportunity to 
renew a contract right or other right on the same terms as are available 
to others, in a competitive auction or similar process that is designed 
to reflect fair market value and in which the taxpayer is not 
contractually advantaged, will generally not be taken into account in 
determining the duration of such right provided that the bidding 
produces a fair market value price comparable to the price that would be 
obtained if the rights were purchased immediately after renewal from a 
person (other than the person granting the renewal) in an arm's-length 
transaction.
    (iii) The cost of a renewal not included in the terms of the 
contract or governmental grant is treated as the acquisition of a 
separate intangible asset.
    (4) Patents and copyrights. If the purchase price of a interest 
(other than an interest acquired as part of a purchase of a trade or 
business) in a patent or copyright described in section 167(f)(2) and 
Sec. 1.197-2(c)(7) is payable on at least an annual basis as either a 
fixed amount per use or a fixed percentage of the revenue derived from 
the use of the patent or copyright, the depreciation deduction for a 
taxable year is equal to the amount of the purchase price paid or 
incurred during the year. Otherwise, the basis of such patent or 
copyright (or an interest therein) is depreciated either ratably over 
its remaining useful life or under section 167(g) (income forecast 
method). If a patent or copyright becomes valueless in any year before 
its legal expiration, the adjusted basis may be deducted in that year.
    (5) Additional rules. The period of amortization under paragraphs 
(c) (1) through (4) of this section begins when the intangible is placed 
in service, and rules similar to those in Sec. 1.197-2(f)(2) apply for 
purposes of this paragraph (c).
    (d) Mortgage servicing rights--(1) In general. The amount of the 
deduction for mortgage servicing rights described in section 167(f)(3) 
and Sec. 1.197-2(c)(11) is determined by using the straight line method 
described in Sec. 1.167(b)-1 (except that the salvage value is treated 
as zero) and an amortization period of 108 months beginning on the first 
day of the month that the rights are placed in service. Mortgage 
servicing rights are not depreciable to the extent the rights are 
stripped coupons under section 1286.
    (2) Treatment of rights acquired as a pool--(i) In general. Except 
as provided in paragraph (d)(2)(ii) of this section, all mortgage 
servicing rights acquired in the same transaction or in a series of 
related transactions are treated as a single asset (the pool) for 
purposes of determining the depreciation deduction under this paragraph 
(d) and any gain or loss from the sale, exchange, or other disposition 
of the rights. Thus, if some (but not all) of the rights in a pool 
become worthless as a result of prepayments, no loss is recognized by 
reason of the prepayment and the adjusted basis of the pool is not 
affected by the unrecognized loss. Similarly, any amount realized from 
the sale or exchange of some (but not all) of the mortgage servicing 
rights is included in income and the adjusted basis of the pool is not 
affected by the realization.

[[Page 954]]

    (ii) Multiple accounts. If the taxpayer establishes multiple 
accounts within a pool at the time of its acquisition, gain or loss is 
recognized on the sale or exchange of all mortgage servicing rights 
within any such account.
    (3) Additional rules. Rules similar to those in Sec. 1.197-
2(f)(1)(iii), (f)(1)(iv), and (f)(2) (relating to the computation of 
amortization deductions and the treatment of contingent amounts) apply 
for purposes of this paragraph (d).
    (e) Effective date--(1) In general. This section applies to property 
acquired after January 25, 2000, except that Sec. 1.167(a)-14(c)(2) 
(depreciation of the cost of certain separately acquired rights) and so 
much of Sec. 1.167(a)-14(c)(3) as relates to Sec. 1.167(a)-14(c)(2) 
apply to property acquired after August 10, 1993 (or July 25, 1991, if a 
valid retroactive election has been made under Sec. 1.197-1T).
    (2) Change in method of accounting. See Sec. 1.197-2(l)(4) for rules 
relating to changes in method of accounting for property to which 
Sec. 1.167(a)-14 applies.

[T.D. 8867, 65 FR 3825, Jan. 25, 2000]