Elect to amortize nondeductible start-up expenses

Article Abstract:

New business enterprises are required to capitalize expenses incurred before the start of an active trade or business because these are not deductibles. However, there are certain Internal Revenue Codes that allow taxpayers to elect to amortize some of these costs as deferred expenses. Under these provisions, the amortization period is determined by the taxpayers, which must at least be 60 months and commence when the active trade or business starts. Sec. 195 is for investigatory, start-up and specific active anticipatory business costs. Sec. 248 is for organization costs that are directly incident to the formation of a corporation. Lastly, Sec. 709 is for partnership organization and syndication costs. The election must be indicated in the tax return for the year the business started. If not, amortization will not be allowed.

Methods, Taxation, New business enterprises, Startups, Amortization

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Asbestos removal in renovation must be capitalized

Article Abstract:

The Tax Court found in the 'Norwest' case that the taxpayer involved is required to capitalize the cost of asbestos removal from an office building since the eradication of asbestos was treated as part of a general building renovation scheme. The taxpayer in the case, who was an owner of a three-story commercial building, decided to start a substantial renovation to accommodate personnel expansion. This taxpayer hired two contractors, one to do the general remodeling job and the other to take away the asbestos materials. The owner capitalized the general remodeling expenses but applied for a deduction of the asbestos removal costs incurred in 1987 to 1989. However, the IRS challenged the request and argued that the latter costs must also be capitalized. The Tax Court sided with the agency.

Remodeling and renovation, Office buildings

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Asbestos removal expenses must be capitalized

Article Abstract:

The costs of removing asbestos from industrial equipment and replacing it with other insulation should be considered a capital expenditure and not as a maintenance expense. In TAM 9240004, it was decided that such expenses could not be treated as repair expenses deductible in the present year since the asbestos removal and replacement were not remedial measures. They instead constituted permanent improvements that raised the equipment's value and will yield long-term future benefits. Moreover, the improvement of the equipment due to the removal of the asbestos and its replacement with other insulation enhanced the taxpayer's own performance through lesser equipment interruptions and reduced exposure to legal risks related to Occupational Safety and Health Administration requirements.

Accounting and auditing, Costs, Industrial, Industrial costs

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