IRS Issues Final Regulations on Capitalizing Intangibles

By Carl M. Jenks, Travis L. Blais and Todd Wallace

In an important tax development, the IRS has issued its long-anticipated final regulations governing the capitalization of intangible asset expenses. The regulations are effective for expenses paid or incurred on or after December 31, 2003.

For many years, this area has been one of chronic litigation and dispute. Reflecting the high stakes of cost recovery questions, the IRS and taxpayers have devoted substantial time, money, and effort to whether to deduct immediately, or else capitalize, the costs of often-amorphous, ill-defined intangible assets. The struggle has been particularly fierce since the Supreme Court’s 1992 decision in INDOPCO, holding that capitalization was required not just for the costs of separate and distinct intangible assets, but also for any expense that produces significant future benefits. The regulations represent a "peace treaty" of sorts in which the IRS concedes some ground (and some revenue) to promote