Anti-churning rules restrict deductions for intangibles

Article Abstract:

Taxpayers are now allowed by Sec. 197 to amortize over a 15-year period intangible assets that in different circumstances might have to be capitalized without offsetting tax writeoffs. However, the use of this liberalized treatment is limited by anti-churning rules for partnership formation transactions. These rules apply only to goodwill, going concern value and other assets that would not have been amortizable were it not for the enactment of Sec. 197. In partnership formations, the form of the transaction determines whether these rules are applicable and influences the degree by which their effects can be mitigated. Therefore, taxpayers and tax professionals would do well to comprehensively familiarize themselves with these rules and the interrelationship of these rules with Sec. 704(c).

Tax deductions, Intangible property, Intangible assets

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Section 197 complicates planning for retiring LLC members

Article Abstract:

Sec. 736 offers capital gain benefits to limited liability companies (LLCs) that want to structure retirement payments in a manner that results in tax-favored results. However, the impact of Sec. 197 should be taken into consideration before assuming that the firm can avail of the benefits offered by Sec. 736. Enacted in 1993, Sec. 197 has significantly shifted tax planning opportunities connected to the acquisition of intangible assets. This section includes several categories of intangible assets such as going-concern value and goodwill that are covered by its 15-year cost recovery provision. Practical steps should be taken to protect the benefits of Sec. 736, including proper documentation for a Sec. 736 buyout and requesting an indemnity provision in the buyout arrangement.

Limited liability companies, Retirement benefits

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Significant income tax developments of 1996

Article Abstract:

Court decisions, IRS releases and tax provisions incorporated in legislation in 1996 were major news for tax professionals for the year. These less publicized developments should not be ignored just because tax legislation such as the Small Business Job Protection Act of 1996 and the Taxpayer Bill of Rights 2 made splashier news pieces. The important developments that took place in the IRS and the courts occurred in such categories as individual taxation, tax accounting, partnerships, real estate/passive activities, and corporations. Changes in procedure and administration were observed in the areas of automatic extensions, refunds, deposit/remittance, innocent spouse relief, form of business, executive-legislative powers and extension elections.

Reports, Tax administration and procedure, Tax administration, United States. Internal Revenue Service, 1996 AD, Tax courts

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