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Federal Tax Reform And Intangibles



Annette Nellen

Federal tax reform discussions have included writing off all business assets (other than land) at acquisition. In contrast, some have suggested increasing the Section 179 expensing amount which covers tangible assets. Some reform proposals have suggested lengthening depreciable lives for tangibles and intangibles. Proposals are obviously quite varied. I think that is primarily due to two factors: (1) no agreed upon goal for tax reform, and (2) focus on hitting a certain revenue target to allow for lower rates in a revenue neutral manner.

I have an article in this week’s BloombergBNA Tax Management Memorandum on Federal Tax Reform and the Future of §197. It reviews various tax reform plans of the past few years. It also notes some reforms needed to Section 197 on amortization of intangible assets.  Section 197 was enacted in 1993 and allows for 15-year straight-line amortization of acquired and some self-created intangible assets. Given its pre-Internet enactment date, it doesn’t mention domain names (URLs), social media assets, and other modern intangibles. Thus, it should be updated for new intangibles.

Also, I think Section 179 on expensing of assets up to $500,000 with a dollar-for-dollar reduction once acquired eligible assets for the year exceeds $2 million, should be modified to cover both tangible and intangible assets. The purpose of this rule is simplification and to encourage asset acquisition by small and medium-sized businesses. Today, acquisition of intangible assets is common for all businesses.

I hope you’ll take a look at the article.

What do you think? How should Section 197 be reformed and fit into overall fundamental tax reform?

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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One comment

  1. A.J. Decaria says:

    Sec. 179 is overly restrictive for the small taxpayer who may acquire an intangible with a life of only a few years or whose value expires in less than 15 years. The law should provide similar flexibility to how it treats tangibles. Eg shorter lives, “bonus amortization”, write-offs when part of the value is gone. Example: Purchase by a tax preparer of a book of business from a closing prep firm. Many clients don’t stay, or stay one or two years and leave. The asset should be able to be written off for partial loss of value.

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