IRS expects to issue 12-month rule.(capitalization of expenditures)

On Jan. 17, 2002, Treasury and the IRS released an advance notice of proposed rulemaking (REG-125638-01) on capitalization. This notice describes rules and standards that Treasury expects to issue as proposed regulations in 2002 on expenditures incurred in acquiring, creating or enhancing certain intangible assets or benefits.

In addition to clarifying which expenditure categories taxpayers will have to capitalize, the proposed regulations will probably have provisions that will reduce Sec. 263(a) administrative and compliance costs. In that regard, the proposed regulations will probably also include safe harbors and simplifying assumptions, including a 12-month rule. The 12-month rule will allow taxpayers to avoid capitalization of expenditures for intangible assets or benefits whose lives are of a relatively short duration. In addition, the …