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did not contain provisions for cost recovery of intangible assets; rather, the intangible assets were depreciated under the current provisions for depreciation of tangible assets, 26 U.S.C. §§ 167 and 168. However, the problem before 1993 was that many intangible assets did not meet the burdensome
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Under §197 most acquired intangible assets are to be amortized ratably over a fifteen-year period. This is not the best treatment of an intangible whose actual life is much shorter than fifteen years. Furthermore, if an intangible is not eligible for amortization under § 197, the taxpayer can
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in a systematic manner over an asset's estimated useful economic life so as to reflect its consumption, expiration, obsolescence or other decline in value as a result of use or the passage of time, many times a perfect match of income and deductions does not occur for policy reasons.
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Unlike other sections in the tax code which do not allow current deductions for most startup expenses, section 195 allows a taxpayer to amortize start-up expenditures over a 180-month period. The policy behind this provision is to encourage taxpayers to explore new business ventures.
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Startup expenditures are defined as investigatory expenses incurred prior to commencing a trade or business activity which would have been deducted had they been paid or incurred when the taxpayer was already engaged in the trade or business activity.
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requirements of §§ 167 and 168 because intangible assets can not necessarily be subject to “wear and tear”. This led to taxpayers having the incentive to ignore any basis in the intangible asset until it was sold.
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such as goodwill or certain brands may be deemed to have an indefinite useful life, or “self-created” and are therefore not subject to amortization.
77:§§ 197(c)(1) and 197(d) and must be property held either for use in a trade, business, or for the production of income. Before 1993, the
49:. Methodologies for allocating amortization to each tax period are generally the same as for depreciation. However, many
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28:. Although the theory behind cost recovery deductions of amortization is to deduct from
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gives taxpayers larger deductions in the early years of an asset’s useful life.
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Intangible property which is subject to amortization is described in 26
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depreciate the asset if there is a showing of the assets useful life.
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Federal Income
Taxation of Individuals: Cases Problems, and Materials
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House Report No. 103-111, 103rd
Congress, 25 May 1993.
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24:refers to the cost recovery system for
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145:Treasury Regulation § 1.167(a)(3).
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57:In the United States of America
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41:A corresponding concept for
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136:House Report No. 103-111.
109:Writing down allowance
79:United States Tax Code
63:United States Congress
167:Samuel A. Donaldson.
90:Startup expenditure
69:Intangible property
26:intangible property
51:intangible assets
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115:References
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162:Sources
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75:U.S.C.
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61:The
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