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Tuesday, August 22, 2017

Federal Tax Reform and Intangibles

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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?

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