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Treasury Issues Final Regulations On Capitalization Costs

by Mike Godfrey, Tax-News.com, Washington

24 December 2003


The US Treasury on Monday announced the issuance of final regulations simplifying the rules governing capitalizing costs incurred in the acquisition or creation of intangible assets.

In addition, the Internal Revenue Service also released a notice explaining that the government intends to propose new regulations clarifying the treatment of expenditures to repair, improve or rehabilitate tangible property.

“In recent years, controversy regarding the capitalization of costs associated with tangible and intangible assets has consumed substantial IRS and taxpayer resources,” stated Assistant Secretary for Tax Policy Pam Olson.

She continued: “The final regulations issued today provide clear and administrable rules that will provide certainty to taxpayers regarding the treatment of costs associated with intangible assets and will enable the IRS to fairly and efficiently administer the law. The notice begins the process of providing similar certainty regarding the treatment of costs associated with tangible assets.”

Meanwhile, in a statement the Treasury Department explained that the final regulations will: “provide safe harbors and simplifying assumptions that permit the current deduction of certain costs and reduce taxpayers' record-keeping burden including a '12 month' rule for costs of certain intangible assets with relatively short useful lives, 'de minimis' rules for costs less than a specified dollar amount, an employee compensation rule, and an overhead rule.”

The final regulations also create a fifteen-year safe harbor amortization period for certain created intangible assets that do not have an easily ascertainable useful life.

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


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