Some Tax Help

A reader better-versed in tax law than I responds to my suggestion that copyight’s useful life for purposes of depreciation deductions be tied to its duration by point out that it already is:

Regarding your below post about depreciation of intangibles: acquired patents and copyrights are, in fact, generally depreciated over their terms (i.e., their useful lives). Treas. Reg. sec. 1.167(a)-14(c)(4). (There is also another way to depreciate them, called the “income forecast method,” that tries to take into account the fact that their value may actually be frontweighted. Sec. 167(g). And self-made patents are immediately deductible, as R&D expenses. Sec. 174(a).)

Patents and copyrights are section 197 intangibles, and thus subject to fifteen-year straight-line depreciation, only if they are acquired in in a transaction involving the acquisition of assets constituting a trade or business. Sec. 197(e)(4)(C) (excluding patents and copyrights acquired separately from the definition of “section 197 intangible”). The IRS’s concern here is that taxpayers would try to game the system when purchasing a bunch of intangibles (as in the purchase of a trade or business) by allocating value so as to produce greater depreciation deductions. The IRS solves the problem by lumping all intangibles together. When there’s not that risk, as noted above, they do try to have amortization of patents and copyrights reflect their terms.

This is actually rather sensible. There are places in which the tax law doesn’t make much sense, but as I’ve been learning, there are also places in which it does.