Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has amended final regulations and issued temporary and proposed regulations relating to elections to deduct start-up expenditures under Code Sec. 195, organizational expenditures of corporations under Code Sec. 248 and organizational expenses of partnerships under Code Sec. 709. The newly issued regulations reflect amendments made by the American Jobs Creation Act of 2004 (P.L. 108-357) and update the manner in which taxpayers elect to deduct such expenses. The temporary regulations contain numerous examples that illustrate how the election is made, how to calculate the amount of the allowable deduction, and how to treat later changes in the characterization of an item or redeterminations of the year in which the trade or business begins. The temporary regulations generally apply to expenditures that are paid or incurred after September 8, 2008. However, taxpayers may apply all the provisions of the regulations to expenditures that are paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax has not expired for the year that the election is deemed made.

  For start-up expenditures paid or incurred after September 8, 2008, the temporary regulations under Code Sec. 195 provide that a taxpayer is deemed to make an election to deduct such expenditures for the tax year in which the active trade or business to which the expenditures relate begins. Taxpayers are no longer required to attach a statement to their returns or specifically identify the deducted amounts as start-up expenditures in order for the election to be effective. Taxpayers can forego the deemed election by clearly electing to capitalize start-up expenditures on a timely filed federal income tax return (including extensions) for the tax year in which the active trade or business begins. The election to capitalize start-up expenditures is made in accordance with the form and instructions used by the taxpayer to file its federal income tax return. The election either to deduct start-up expenditures or to capitalize start-up expenditures is irrevocable and applies to all the taxpayer's start-up expenditures related to the active trade or business. In general, a change in the characterization of an item as a start-up expenditure or a change in the determination of the tax year in which the active trade or business begins is treated as a change in accounting method that requires a
Code Sec. 481(a) adjustment.

  Temporary regulations under Code Secs. 248 and 709 provide similar rules for organizational expenditures of corporations and organizational expenses of partnerships that are paid or incurred after September 8, 2008. Corporations and partnerships are deemed to make an election to deduct such amounts for the tax year in which the corporation or partnership begins business. Corporations and partnerships are no longer required to attach a statement to their returns or specifically identify the deducted amounts as organizational expenditures or expenses in order for the election to be effective. Such entities can forgo the deemed election by clearly electing to capitalize organizational expenditures or expenses on a timely filed federal income tax return (including extensions) for the tax year in which the corporation or partnership begins business. The election to capitalize corporate organizational expenditures or partnership organizational expenses is made in accordance with the form and instructions used by the corporation or partnership to file its federal income tax return. The election either to deduct corporate organizational expenditures or partnership organizational expenses or to capitalize such amounts is irrevocable and applies to all corporate organizational expenditures or partnership organizational expenses. In general, a change in the characterization of an item as an organizational expenditure or expense or a change in the determination of the tax year in which the corporation or partnership begins business is treated as a change in accounting method that requires a Code Sec. 481(a) adjustment.

  The text of the temporary regulations also serves as the text of the proposed regulations. Written or electronic comments and requests for a public hearing must be received by October 6, 2008.

T.D. 9411, 2008FED ¶47,048

Proposed Regulations, NPRM REG-164965-04, 2008FED ¶49,816

Other References:

 
Code Sec. 195

  CCH Reference - 2008FED ¶12,370D

  CCH Reference - 2008FED ¶12,370H

 
Code Sec. 248

  CCH Reference - 2008FED ¶13,351

  CCH Reference - 2008FED ¶13,351E

 
Code Sec. 709

  CCH Reference - 2008FED ¶25,221

  CCH Reference - 2008FED ¶25,221E

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 9,450
CCH Reference - TRC PART: 18,158.10
CCH Reference -
TRC PART: 18,200
CCH Reference -
TRC DEPR: 21,400
CCH Reference -
TRC DEPR: 24,500