Tax and Financial Amortization Rules

Vocabulary flashcards covering the tax and GAAP amortization rules for intangibles, Section 197 assets, research and experimental costs, and organizational/start-up expenditures.

Full-Month Convention

An amortization convention under which a full month of amortization is claimed in both the month of acquisition and the month of disposition.

Tax Recovery Period for General Intangibles

The standard recovery period of $180$ months ($15$ years) used to amortize intangible assets straight-line on an income tax return.

GAAP Rule for Intangibles with Finite Lives

Financial accounting rule stating that intangible assets with finite lives are amortized over their useful life and evaluated for impairment.

GAAP Rule for Intangibles with Infinite Lives

Financial accounting rule stating that intangible assets with infinite lives are not amortized, but remain subject to regular impairment tests.

Section 197 Purchased Intangibles

Acquired intangible assets (such as goodwill, patents, and copyrights purchased as part of a business acquisition) amortized straight-line over $180$ months beginning in the month of purchase, regardless of actual useful life.

Domestic Research and Experimental (R&E) Costs

Qualified research expenditures that taxpayers may immediately expense, or alternatively elect to capitalize and amortize over $60$ months ($5$ years) or more.

Foreign Research and Experimental (R&E) Costs

Research and experimental expenditures conducted outside the U.S. that must be capitalized and amortized straight-line over $180$ months ($15$ years).

Transition Relief for Capitalized Domestic R&E Costs

A rule permitting taxpayers with qualified domestic R&E costs capitalized in tax years beginning after December 31, 2021, and before January 1, 2025, to deduct remaining unamortized costs over a one- or two-year period.

Small Business R&E Relief Threshold

A provision for businesses with average annual gross receipts of $\\text{32 million}$ or less over the prior three years (2026) allowing retroactive immediate deductions for domestic R&E costs back to tax years beginning after December 31, 2021.

Separately Purchased Patents and Copyrights

Patents and copyrights bought separately outside of a business acquisition, which are amortized over their remaining legal or useful life rather than over $180$ months.

Self-Created Patents and Copyrights

Internally developed intangible assets that are amortized over the full legal or useful life of the patent or copyright.

Debt-Issuance Costs

Loan origination and issuance expenses that must be capitalized and amortized straight-line over the term of the related loan.

Organizational and Start-Up Costs Immediate Expensing Allowance

An initial tax deduction of up to $\\text{5,000}$ allowed in Year 1 for qualifying organizational or start-up costs, reduced dollar-for-dollar by the amount total costs exceed $\\text{50,000}$.

Capitalized Organizational and Start-Up Costs Amortization

The amortization of all remaining organizational or start-up costs exceeding the immediate expense allowance over a period of $180$ months, beginning in the month business operations commence.