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E File 2011 Tax Return In 2013

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E File 2011 Tax Return In 2013

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

E file 2011 tax return in 2013 Index A Administrative adjustment requests, Amended Returns and Administrative Adjustment Requests (AARs) Allocations Built-in gain or loss, Allocations to account for built-in gain or loss. E file 2011 tax return in 2013 Installment sale, Installment reporting for sale of partnership interest. E file 2011 tax return in 2013 Amended returns, Amended Returns and Administrative Adjustment Requests (AARs) Assistance (see Tax help) B Built-in gain or loss, Allocations to account for built-in gain or loss. E file 2011 tax return in 2013 C C corporation, TEFRA, Small Partnerships and the Small Partnership Exception Capital interest, Capital interest. E file 2011 tax return in 2013 , Capital interest. E file 2011 tax return in 2013 Comments on publication, Comments and suggestions. E file 2011 tax return in 2013 Contribution Basis of property, Basis of contributed property. E file 2011 tax return in 2013 Built-in gain or loss, Allocations to account for built-in gain or loss. E file 2011 tax return in 2013 Distribution of property, Distribution of contributed property to another partner. E file 2011 tax return in 2013 Net precontribution gain, Net precontribution gain. E file 2011 tax return in 2013 Property, Contribution of Property Services, Contribution of Services D Definition, partnership, Forming a Partnership Determining ownership, More than 50% ownership. E file 2011 tax return in 2013 Distributions Gain or loss, Partner's Gain or Loss Partner's debt, Distribution of partner's debt. E file 2011 tax return in 2013 Partnership, Partnership Distributions Distributive share Adjusted basis, Adjusted Basis Guaranteed payments, Guaranteed Payments E e-file, IRS e-file (Electronic Filing) Electronic filing, IRS e-file (Electronic Filing) F Family partnership, Family Partnership Form 8275, Form 8275 required. E file 2011 tax return in 2013 8308, Information return required of partnership. E file 2011 tax return in 2013 8832, Organizations formed after 1996. E file 2011 tax return in 2013 8865, Contribution to foreign partnership. E file 2011 tax return in 2013 G Guaranteed payments, Guaranteed Payments I Insurance, self-employed health, Self-employed health insurance premiums. E file 2011 tax return in 2013 Inventory items, substantially appreciated, Substantially appreciated inventory items. E file 2011 tax return in 2013 L Liability Assumption of, Assumption of liability. E file 2011 tax return in 2013 Partner's assumed by partnership, Partner's liabilities assumed by partnership. E file 2011 tax return in 2013 Partnership's, Effect of Partnership Liabilities Limited liability company, Limited liability company. E file 2011 tax return in 2013 Liquidation Constructive, Constructive liquidation. E file 2011 tax return in 2013 Partner's interest, Complete liquidation of partner's interest. E file 2011 tax return in 2013 Partner's retirement or death, Liquidation at Partner's Retirement or Death Losses Sales or exchanges, Losses. E file 2011 tax return in 2013 M Marketable securities, Marketable securities treated as money. E file 2011 tax return in 2013 N Notice group, TEFRA, Notice group. E file 2011 tax return in 2013 Notice partner, TEFRA, Notice partner. E file 2011 tax return in 2013 P Partner's Basis Distributed property, Partner's Basis for Distributed Property Partnership interest, Basis of Partner's Interest Interest Acquired by gift, Interest acquired by gift, etc. E file 2011 tax return in 2013 Alternative rule, adjusted basis, Alternative rule for figuring adjusted basis. E file 2011 tax return in 2013 Basis, Basis of Partner's Interest Basis adjustments, Adjusted Basis Book value, Book value of partner's interest. E file 2011 tax return in 2013 Liquidation of, Complete liquidation of partner's interest. E file 2011 tax return in 2013 , Liquidation at Partner's Retirement or Death Mandatory basis adjustment, Mandatory adjustment. E file 2011 tax return in 2013 Sale, exchange, transfer, Sale, Exchange, or Other Transfer Special basis adjustment, Special adjustment to basis. E file 2011 tax return in 2013 Transactions with partnership, Transactions Between Partnership and Partners Partnership Abandoned or worthless interest, Abandoned or worthless partnership interest. E file 2011 tax return in 2013 Agreement, Partnership Agreement Basis, contributed property, Basis of contributed property. E file 2011 tax return in 2013 Capital interest, Capital interest. E file 2011 tax return in 2013 Defined, Forming a Partnership Exclusion from rules, Exclusion From Partnership Rules Family, Family Partnership Forming, Forming a Partnership Liabilities, Effect of Partnership Liabilities Terminating, Terminating a Partnership Transactions with partner, Transactions Between Partnership and Partners Partnership item, TEFRA, Partnership Item. E file 2011 tax return in 2013 Precontribution gain, Net precontribution gain. E file 2011 tax return in 2013 Profits interest, Profits interest. E file 2011 tax return in 2013 Publications (see Tax help) R Related person, Related person. E file 2011 tax return in 2013 S Self-employed health insurance, Self-employed health insurance premiums. E file 2011 tax return in 2013 Short period return, Short period return. E file 2011 tax return in 2013 Small partnership exception to TEFRA, Small Partnerships and the Small Partnership Exception, Small Partnership TEFRA Election Statute of Limitations and TEFRA, Statute of Limitations and TEFRA Substantially appreciated inventory items, Substantially appreciated inventory items. E file 2011 tax return in 2013 Suggestions for publication, Comments and suggestions. E file 2011 tax return in 2013 T Tax help, How To Get Tax Help Tax matters partner, Role of Tax Matters Partner (TMP) in TEFRA Proceedings Tax withholding, foreign person or firm, Withholding on foreign partner or firm. E file 2011 tax return in 2013 TEFRA, Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) Terminating a partnership, Terminating a Partnership TTY/TDD information, How To Get Tax Help U Uniform Limited Partnership ACT (ULPA), Role of Tax Matters Partner (TMP) in TEFRA Proceedings Unrealized receivables, Unrealized receivables. 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