Title 26—Internal Revenue--Volume 1
PART 1—INCOME TAXES
§ 1.190-2   Definitions.
For purposes of section 190 and the regulations thereunder:
(a) Architectural and transportation barrier removal expenses. The term architectural and transportation barrier removal expenses means expenditures for the purpose of making any facility, or public transportation vehicle, owned or leased by the taxpayer for use in connection with his trade or business more accessible to, or usable by, handicapped individuals or elderly individuals. For purposes of this section:
(1) The term facility means all or any portion of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property.
(2) The term public transportation vehicle means a vehicle, such as a bus, a railroad car, or other conveyance, which provides to the public general or special transportation service (including such service rendered to the customers of a taxpayer who is not in the trade or business of rendering transportation services).
(3) The term handicapped individual means any individual who has:
(i) A physical or mental disability (including, but not limited to, blindness or deafness) which for such individual constitutes or results in a functional limitation to employment, or
(ii) A physical or mental impairment (including, but not limited to, a sight or hearing impairment) which substantially limits one or more of such individual's major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.
(4) The term elderly individual means an individual age 65 or over.
(b) Qualified architectual and transportation barrier removal expense —(1) In general. The term qualified architectural and transportation barrier removal expense means an architectural or transportation barrier removal expense (as defined in paragraph (a) of this section) with respect to which the taxpayer establishes, to the satisfaction of the Commissioner or his delegate, that the resulting removal of any such barrier conforms a facility or public transportation vehicle to all the requirements set forth in one or more of paragraphs (b) (2) through (22) of this section or in one or more of the subdivisions of paragraph (b) (20) or (21). Such term includes only expenses specifically attributable to the removal of an existing architectural or transportation barrier. It does not include any part of any expense paid or incurred in connection with the construction or comprehensive renovation of a facility or public transportation vehicle or the normal replacement of depreciable property. Such term may include expenses of construction, as, for example, the construction of a ramp to remove the barrier posed for wheelchair users by steps. Major portions of the standards set forth in this paragraph were adapted from “American National Standard Specifications for Making Buildings and Facilities Accessible to, and Usable by, the Physically Handicapped” (1971), the copyright for which is held by the American National Standards Institute, 1430 Broadway, New York, New York 10018.
(2) Grading. The grading of ground, even contrary to existing topography, shall attain a level with a normal entrance to make a facility accessible to individuals with physical disabilities.
(3) Walks. (i) A public walk shall be at least 48 inches wide and shall have a gradient not greater than 5 percent. A walk of maximum or near maximum grade and of considerable length shall have level areas at regular intervals. A walk or driveway shall have a nonslip surface.
(ii) A walk shall be of a continuing common surface and shall not be interrupted by steps or abrupt changes in level.
(iii) Where a walk crosses a walk, a driveway, or a parking lot, they shall blend to a common level. However, the preceding sentence does not require the elimination of those curbs which are a safety feature for the handicapped, particularly the blind.
(iv) An inclined walk shall have a level platform at the top and at the bottom. If a door swings out onto the platform toward the walk, such platform shall be at least 5 feet deep and 5 feet wide. If a door does not swing onto the platform or toward the walk, such platform shall be at least 3 feet deep and 5 feet wide. A platform shall extend at least 1 foot beyond the strike jamb side of any doorway.
(4) Parking lots. (i) At least one parking space that is accessible and approximate to a facility shall be set aside and identified for use by the handicapped.
(ii) A parking space shall be open on one side to allow room for individuals in wheelchairs and individuals on braces or crutches to get in and out of an automobile onto a level surface which is suitable for wheeling and walking.
(iii) A parking space for the handicapped, when placed between two conventional diagonal or head-on parking spaces, shall be at least 12 feet wide.
(iv) A parking space shall be positioned so that individuals in wheelchairs and individuals on braces or crutches need not wheel or walk behind parked cars.
(5) Ramps. (i) A ramp shall not have a slope greater than 1 inch rise in 12 inches.
(ii) A ramp shall have at least one handrail that is 32 inches in height, measured from the surface of the ramp, that is smooth, and that extends 1 foot beyond the top and bottom of the ramp. However, the preceding sentence does not require a handrail extension which is itself a hazard.
(iii) A ramp shall have a nonslip surface.
(iv) A ramp shall have a level platform at the top and at the bottom. If a door swings out onto the platform or toward the ramp, such platform shall be at least 5 feet deep and 5 feet wide. If a door does not swing onto the platform or toward the ramp, such platform shall be at least 3 feet deep and 5 feet wide. A platform shall extend at least 1 foot beyond the strike jamb side of any doorway.
(v) A ramp shall have level platforms at not more than 30-foot intervals and at any turn.
(vi) A curb ramp shall be provided at an intersection. The curb ramp shall not be less than 4 feet wide; it shall not have a slope greater than 1 inch rise in 12 inches. The transition between the two surfaces shall be smooth. A curb ramp shall have a nonslip surface.
(6) Entrances. A building shall have at least one primary entrance which is usable by individuals in wheelchairs and which is on a level accessible to an elevator.
(7) Doors and doorways. (i) A door shall have a clear opening of no less than 32 inches and shall be operable by a single effort.
(ii) The floor on the inside and outside of a doorway shall be level for a distance of at least 5 feet from the door in the direction the door swings and shall extend at least 1 foot beyond the strike jamb side of the doorway.
(iii) There shall be no sharp inclines or abrupt changes in level at a doorway. The threshold shall be flush with the floor. The door closer shall be selected, placed, and set so as not to impair the use of the door by the handicapped.
(8) Stairs. (i) Stairsteps shall have round nosing of between 1 and 1 1/2 inch radius.
(ii) Stairs shall have a handrail 32 inches high as measured from the tread at the face of the riser.
(iii) Stairs shall have at least one handrail that extends at least 18 inches beyond the top step and beyond the bottom step. The preceding sentence does not require a handrail extension which is itself a hazard.
(iv) Steps shall have risers which do not exceed 7 inches.
(9) Floors. (i) Floors shall have a nonslip surface.
(ii) Floors on a given story of a building shall be of a common level or shall be connected by a ramp in accordance with subparagraph (5) of this paragraph.
(10) Toilet rooms. (i) A toilet room shall have sufficient space to allow traffic of individuals in wheelchairs.
(ii) A toilet room shall have at least one toilet stall that:
(A) Is at least 36 inches wide;
(B) Is at least 56 inches deep;
(C) Has a door, if any, that is at least 32 inches wide and swings out;
(D) Has handrails on each side, 33 inches high and parallel to the floor, 1 1/2 inches in outside diameter, 1 1/2 inches clearance between rail and wall, and fastened securely at ends and center; and
(E) Has a water closet with a seat 19 to 20 inches from the finished floor.
(iii) A toilet room shall have, in addition to or in lieu of a toilet stall described in (ii), at least one toilet stall that:
(A) Is at least 66 inches wide;
(B) Is at least 60 inches deep;
(C) Has a door, if any, that is at least 32 inches wide and swings out;
(D) Has a handrail on one side, 33 inches high and parallel to the floor, 1 1/2 inches in outside diameter, 1 1/2 inches clearance between rail and wall, and fastened securely at ends and center; and
(E) Has a water closet with a seat 19 to 20 inches from the finished floor, centerline located 18 inches from the side wall on which the handrail is located.
(iv) A toilet room shall have lavatories with narrow aprons. Drain pipes and hot water pipes under a lavatory shall be covered or insulated.
(v) A mirror and a shelf above a lavatory shall be no higher than 40 inches above the floor, measured from the top of the shelf and the bottom of the mirror.
(vi) A toilet room for men shall have wall-mounted urinals with the opening of the basin 15 to 19 inches from the finished floor or shall have floor-mounted urinals that are level with the main floor of the toilet room.
(vii) Towel racks, towel dispensers, and other dispensers and disposal units shall be mounted no higher than 40 inches from the floor.
(11) Water fountains. (i) A water fountain and a cooler shall have upfront spouts and controls.
(ii) A water fountain and a cooler shall be hand-operated or hand-and-foot-operated.
(iii) A water fountain mounted on the side of a floor-mounted cooler shall not be more than 30 inches above the floor.
(iv) A wall-mounted, hand-operated water cooler shall be mounted with the basin 36 inches from the floor.
(v) A water fountain shall not be fully recessed and shall not be set into an alcove unless the alcove is at least 36 inches wide.
(12) Public telephones. (i) A public telephone shall be placed so that the dial and the headset can be reached by individuals in wheelchairs.
(ii) A public telephone shall be equipped for those with hearing disabilities and so identified with instructions for use.
(iii) Coin slots of public telephones shall be not more than 48 inches from the floor.
(13) Elevators. (i) An elevator shall be accessible to, and usable by the handicapped or the elderly on the levels they use to enter the building and all levels and areas normally used.
(ii) Cab size shall allow for the turning of a wheelchair. It shall measure at least 54 by 68 inches.
(iii) Door clear opening width shall be at least 32 inches.
(iv) All essential controls shall be within 48 to 54 inches from cab floor. Such controls shall be usable by the blind and shall be tactilely identifiable.
(14) Controls. Switches and controls for light, heat, ventilation, windows, draperies, fire alarms, and all similar controls of frequent or essential use, shall be placed within the reach of individuals in wheelchairs. Such switches and controls shall be no higher than 48 inches from the floor.
(15) Identification. (i) Raised letters or numbers shall be used to identify a room or an office. Such identification shall be placed on the wall to the right or left of the door at a height of 54 inches to 66 inches, measured from the finished floor.
(ii) A door that might prove dangerous if a blind person were to exit or enter by it (such as a door leading to a loading platform, boiler room, stage, or fire escape) shall be tactilely identifiable.
(16) Warning signals. (i) An audible warning signal shall be accompanied by a simultaneous visual signal for the benefit of those with hearing disabilities.
(ii) A visual warning signal shall be accompanied by a simultaneous audible signal for the benefit of the blind.
(17) Hazards. Hanging signs, ceiling lights, and similar objects and fixtures shall be placed at a minimum height of 7 feet, measured from the floor.
(18) International accessibility symbol. The international accessibility symbol (see illustration) shall be displayed on routes to and at wheelchair-accessible entrances to facilities and public transportation vehicles.
(19) Additional standards for rail facilities. (i) A rail facility shall contain a fare control area with at least one entrance with a clear opening at least 36 inches wide.
(ii) A boarding platform edge bordering a drop-off or other dangerous condition shall be marked with a warning device consisting of a strip of floor material differing in color and texture from the remaining floor surface. The gap between boarding platform and vehicle doorway shall be minimized.
(20) Standards for buses. (i) A bus shall have a level change mechanism (e.g., lift or ramp) to enter the bus and sufficient clearance to permit a wheelchair user to reach a secure location.
(ii) A bus shall have a wheelchair securement device. However, the preceding sentence does not require a wheelchair securement device which is itself a barrier or hazard.
(iii) The vertical distance from a curb or from street level to the first front door step shall not exceed 8 inches; the riser height for each front doorstep after the first step up from the curb or street level shall also not exceed 8 inches; and the tread depth of steps at front and rear doors shall be no less than 12 inches.
(iv) A bus shall contain clearly legible signs that indicate that seats in the front of the bus are priority seats for handicapped or elderly persons, and that encourage other passengers to make such seats available to handicapped and elderly persons who wish to use them.
(v) Handrails and stanchions shall be provided in the entranceway to the bus in a configuration that allows handicapped and elderly persons to grasp such assists from outside the bus while starting to board and to continue to use such assists throughout the boarding and fare collection processes. The configuration of the passenger assist system shall include a rail across the front of the interior of the bus located to allow passengers to lean against it while paying fares. Overhead handrails shall be continuous except for a gap at the rear doorway.
(vi) Floors and steps shall have nonslip surfaces. Step edges shall have a band of bright contrasting color running the full width of the step.
(vii) A stepwell immediately adjacent to the driver shall have, when the door is open, at least 2 foot-candles of illumination measured on the step tread. Other stepwells shall have, at all times, at least 2 foot-candles of illumination measured on the step tread.
(viii) The doorways of the bus shall have outside lighting that provides at least 1 foot-candle of illumination on the street surface for a distance of 3 feet from all points on the bottom step tread edge. Such lighting shall be located below window level and shall be shielded to protect the eyes of entering and exiting passengers.
(ix) The fare box shall be located as far forward as practicable and shall not obstruct traffic in the vestibule.
(21) Standards for rapid and light rail vehicles. (i) Passenger doorways on the vehicle sides shall have clear openings at least 32 inches wide.
(ii) Audible or visual warning signals shall be provided to alert handicapped and elderly persons of closing doors.
(iii) Handrails and stanchions shall be sufficient to permit safe boarding, onboard circulation, seating and standing assistance, and unboarding by handicapped and elderly persons. On a levelentry vehicle, handrails, stanchions, and seats shall be located so as to allow a wheelchair user to enter the vehicle and position the wheelchair in a location which does not obstruct the movement of other passengers. On a vehicle that requires the use of steps in the boarding process, handrails and stanchions shall be provided in the entranceway to the vehicle in a configuration that allows handicapped and elderly persons to grasp such assists from outside the vehicle while starting to board, and to continue using such assists throughout the boarding process.
(iv) Floors shall have nonslip surfaces. Step edges on a light rail vehicle shall have a band of bright contrasting color running the full width of the step.
(v) A stepwell immediately adjacent to the driver shall have, when the door is open, at least 2 foot-candles of illumination measured on the step tread. Other stepwells shall have, at all times, at least 2 foot-candles of illumination measured on the step tread.
(vi) Doorways on a light rail vehicle shall have outside lighting that provides at least 1 foot-candle of illumination on the street surface for a distance of 3 feet from all points on the bottom step tread edge. Such lighting shall be located below window level and shall be shielded to protect the eyes of entering and exiting passengers.
(22) Other barrier removals. The provisions of this subparagraph apply to any barrier which would not be removed by compliance with paragraphs (b)(2) through (21) of this section. The requirements of this subparagraph are:
(i) A substantial barrier to the access to or use of a facility or public transportation vehicle by handicapped or elderly individuals is removed;
(ii) The barrier which is removed had been a barrier for one or more major classes of such individuals (such as the blind, deaf, or wheelchair users); and
(iii) The removal of that barrier is accomplished without creating any new barrier that significantly impairs access to or use of the facility or vehicle by such class or classes.
§ 1.190-3   Election to deduct architectural and transportation barrier removal expenses.
(a) Manner of making election. The election to deduct expenditures for removal of architectural and transportation barriers provided by section 190(a) shall be made by claiming the deduction as a separate item identified as such on the taxpayer's income tax return for the taxable year for which such election is to apply (or, in the case of a partnership, to the return of partnership income for such year). For the election to be valid, the return must be filed not later than the time prescribed by law for filing the return (including extensions thereof) for the taxable year for which the election is to apply.
(b) Scope of election. An election under section 190(a) shall apply to all expenditures described in § 1.190-2 (or in the case of a taxpayer whose architectural and transportation barrier removal expenses exceed $25,000 for the taxable year, to the $25,000 of such expenses with respect to which the deduction is claimed) paid or incurred during the taxable year for which made and shall be irrevocable after the date by which any such election must have been made.
(c) Records to be kept. In any case in which an election is made under section 190(a), the taxpayer shall have available, for the period prescribed by paragraph (e) of § 1.6001-1 of this chapter (Income Tax Regulations), records and documentation, including architectural plans and blueprints, contracts, and any building permits, of all the facts necessary to determine the amount of any deduction to which he is entitled by reason of the election, as well as the amount of any adjustment to basis made for expenditures in excess of the amount deductible under section 190.
§ 1.193-1   Deduction for tertiary injectant expenses.
(a) In general. Subject to the limitations and restrictions of paragraphs (c) and (d) of this section, there shall be allowed as a deduction from gross income an amount equal to the qualified tertiary injectant expenses of the taxpayer. This deduction is allowed for the later of:
(1) The taxable year in which the injectant is injected, or
(2) The taxable year in which the expenses are paid or incurred.
(b) Definitions —(1) Qualified tertiary injectant expenses. Except as otherwise provided in this section, the term qualified tertiary injectant expense means any cost paid or incurred for any tertiary injectant which is used as part of a tertiary recovery method.
(2) Tertiary recovery method. Tertiary recovery method means:
(i) Any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the June 1979 energy regulations (as defined by section 4996(b)(8)(C)),
(ii) Any method for which the taxpayer has obtained the approval of the Associate Chief Counsel (Technical), under section 4993(d)(1)(B) for purposes of Chapter 45 of the Internal Revenue Code,
(iii) Any method which is approved in the regulations under section 4993(d)(1)(B), or
(iv) Any other method to provide tertiary enhanced recovery for which the taxpayer obtains the approval of the Associate Chief Counsel (Technical) for purposes of section 193.
(c) Special rules for hydrocarbons —(1) In general. If an injectant contains more than an insignificant amount of recoverable hydrocarbons, the amount deductible under section 193 and paragraph (a) of this section shall be limited to the cost of the injectant reduced by the lesser of:
(i) The fair market value of the hydrocarbon component in the form in which it is recovered, or
(ii) The cost to the taxpayer of the hydrocarbon component of the injectant. Price levels at the time of injection are to be used in determining the fair market value of the recoverable hydrocarbons.
(2) Presumption of recoverability. Except to the extent that the taxpayer can demonstrate otherwise, all hydrocarbons shall be presumed recoverable and shall be presumed to have the same value on recovery that they would have if separated from the other components of the injectant before injection. Estimates based on generally accepted engineering practices may provide evidence of limitations on the amount or value of recoverable hydrocarbons.
(3) Significant amount. For purposes of section 193 and this section, an injectant contains more than an insignificant amount of recoverable hydrocarbons if the fair market value of the recoverable hydrocarbon component of the injectant, in the form in which it is recovered, equals or exceeds 25 percent of the cost of the injectant.
(4) Hydrocarbon defined. For purposes of section 193 and this section, the term hydrocarbon means all forms of natural gas and crude oil (which includes oil recovered from sources such as oil shale and condensate).
(5) Injectant defined. For purposes of applying this paragraph (c), an injectant is the substance or mixture of substances injected at a particular time. Substances injected at different times are not treated as components of a single injectant even if the injections are part of a single tertiary recovery process.
(d) Application with other deductions. No deduction shall be allowed under section 193 and this section for any expenditure:
(1) With respect to which the taxpayer has made an election under section 263(c) or
(2) With respect to which a deduction is allowed or allowable under any other provision of chapter 1 of the Code.
(e) Examples. The application of this section may be illustrated by the following examples:
§ 1.194-1   Amortization of reforestation expenditures.
(a) In general. Section 194 allows a taxpayer to elect to amortize over an 84-month period, up to $10,000 of reforestation expenditures (as defined in § 1.194-3(c)) incurred by the taxpayer in a taxable year in connection with qualified timber property (as defined in § 1.194-3(a)). The election is not available to trusts. Only those reforestation expenditures which result in additions to capital accounts after December 31, 1979 are eligible for this special amortization.
(b) Determination of amortization period. The amortization period must begin on the first day of the first month of the last half of the taxable year during which the taxpayer incurs the reforestation expenditures. For example, the 84-month amortization period begins on July 1 of a taxable year for a calendar year taxpayer, regardless of whether the reforestation expenditures are incurred in January or December of that taxable year. Therefore, a taxpayer will be allowed to claim amortization deductions for only six months of each of the first and eighth taxable years of the period over which the reforestation expenditures will be amortized.
(c) Recapture. If a taxpayer disposes of qualified timber property within ten years of the year in which the amortizable basis was created and the taxpayer has claimed amortization deductions under section 194, part or all of any gain on the disposition may be recaptured as ordinary income. See section 1245.
§ 1.194-2   Amount of deduction allowable.
(a) General rule. The allowable monthly deduction with respect to reforestation expenditures made in a taxable year is determined by dividing the amount of reforestation expenditures made in such taxable year (after applying the limitations of paragraph (b) of this section) by 84. In order to determine the total allowable amortization deduction for a given month, a taxpayer should add the monthly amortization deductions computed under the preceding sentence for qualifying expenditures made by the taxpayer in the taxable year and the preceding seven taxable years.
(b) Dollar limitation —(1) Maximum amount subject to election. A taxpayer may elect to amortize up to $10,000 of qualifying reforestation expenditures each year under section 194. However, the maximum amortizable amount is $5,000 in the case of a married individual (as defined in section 143) filing a separate return. No carryover or carryback of expenditures in excess of $10,000 is permitted. The maximum annual amortization deduction for expenditures incurred in any taxable year is $1,428.57 ($10,000/7). The maximum deduction in the first and eighth taxable years of the amortization period is one-half that amount, or $714.29, because of the half-year convention provided in § 1.194-1(b). Total deductions for any one year under this section will reach $10,000 only if a taxpayer incurs and elects to amortize the maximum $10,000 of expenditures each year over an 8-year period.
(2) Allocation of amortizable basis among taxpayer's timber properties. The limit of $10,000 on amortizable reforestation expenditures applies to expenditures paid or incurred during a taxable year on all of the taxpayer's timber properties. A taxpayer who incurs more than $10,000 in qualifying expenditures in connection with more than one qualified timber property during a taxable year may select the properties for which section 194 amortization will be elected as well as the manner in which the $10,000 limitation on amortizable basis is allocated among such properties. For example, A incurred $10,000 of qualifying reforestation expenditures on each of four properties in 1981. A may elect under section 194 to amortize $2,500 of the amount spent on each property, $5,000 of the amount spent on any two properties, the entire $10,000 spent on any one property, or A may allocate the $10,000 maximum amortizable basis among some or all of the properties in any other manner.
(3) Basis —(i) In general. Except as provided in paragraph (b)(3)(ii) of this section, the basis of a taxpayer's interest in qualified timber property for which an election is made under section 194 shall be adjusted to reflect the amount of the section 194 amortization deduction allowable to the taxpayer.
(ii) Special rule for trusts. Although a trust may be a partner of a partnership, income beneficiary of an estate, or (for taxable years beginning after December 31, 1982) shareholder of an S corporation, it may not deduct its allocable share of a section 194 amortization deduction allowable to such a partnership, estate, or S corporation. In addition, the basis of the interest held by the partnership, estate, or S corporation in the qualified timber property shall not be adjusted to reflect the portion of the section 194 amortization deduction that is allocable to the trust.
(4) Allocation of amortizable basis among component members of a controlled group. Component members of a controlled group (as defined in § 1.194-3(d)) on a December 31 shall be treated as one taxpayer in applying the $10,000 limitation of paragraph (b)(1) of this section. The amortizable basis may be allocated to any one such member or allocated (for the taxable year of each such member which includes such December 31) among the several members in any manner, Provided That the amount of amortizable basis allocated to any member does not exceed the amount of amortizable basis actually acquired by the member in the taxable year. The allocation is to be made (i) by the common parent corporation if a consolidated return is filed for all component members of the group, or (ii) in accordance with an agreement entered into by the members of the group if separate returns are filed. If a consolidated return is filed by some component members of the group and separate returns are filed by other component members, then the common parent of the group filing the consolidated return shall enter into an agreement with those members who do not join in filing the consolidated return allocating the amount between the group filing the return and the other component members of the controlled group who do not join in filing the consolidated return. If a consolidated return is filed, the common parent corporation shall file a separate statement attached to the income tax return on which an election is made to amortize reforestation costs under section 194. See § 1.194-4. If separate returns are filed by some or all component members of the group, each component member to which is allocated any part of the deduction under section 194 shall file a separate statement attached to the income tax return in which an election is made to amortize reforestation expenditures. See § 1.194-4. Such statement shall include the name, address, employer identification number, and the taxable year of each component member of the controlled group, a copy of the allocation agreement signed by persons duly authorized to act on behalf of those members who file separate returns, and a description of the manner in which the deduction under section 194 has been divided among them.
(5) Partnerships —(i) Election to be made by partnership. A partnership makes the election to amortize qualified reforestation expenditures of the partnership. See section 703(b).
(ii) Dollar limitations applicable to partnerships. The dollar limitations of section 194 apply to the partnership as well as to each partner. Thus, a partnership may not elect to amortize more than $10,000 of reforestation expenditures under section 194 in any taxable year.
(iii) Partner's share of amortizable basis. Section 704 and the regulations thereunder shall govern the determination of a partner's share of a partnership's amortizable reforestation expenditures for any taxable year.
(iv) Dollar limitation applicable to partners. A partner shall in no event be entitled in any taxable year to claim a deduction for amortization based on more than $10,000 ($5,000 in the case of a married taxpayer who files a separate return) of amortizable basis acquired in such taxable year regardless of the source of the amortizable basis. In the case of a partner who is a member of two or more partnerships that elect under section 194, the partner's aggregate share of partnership amortizable basis may not exceed $10,000 or $5,000, whichever is applicable. In the case of a member of a partnership that elects under section 194 who also has separately acquired qualified timber property, the aggregate of the member's partnership and non-partnership amortizable basis may not exceed $10,000 or $5,000 whichever is applicable.
(6) S corporations. For taxable years beginning after December 31, 1982, rules similar to those contained in paragraph (b)(5) (ii) and (iv) of this section shall apply in the case of S corporations (as defined in section 1361(a)) and their shareholders.
(7) Estates. Estates may elect to amortize in each taxable year up to a maximum of $10,000 of qualifying reforestation expenditures under section 194. Any amortizable basis acquired by an estate shall be apportioned between the estate and the income beneficiary on the basis of the income of the estate allocable to each. The amount of amortizable basis apportioned from an estate to a beneficiary shall be taken into account in determining the $10,000 (or $5,000) amount of amortizable basis allowable to such beneficiary under this section.
(c) Life tenant and remainderman. If property is held by one person for life with remainder to another person, the life tenant is entitled to the full benefit of any amortization allowable under section 194 on qualifying expenditures he or she makes. Any remainder interest in the property is ignored for this purpose.
§ 1.194-3   Definitions.
(a) Qualified timber property. The term qualified timber property means property located in the United States which will contain trees in significant commercial quantities. The property may be a woodlot or other site but must consist of at least one acre which is planted with tree seedlings in the manner normally used in forestation or reforestation. The property must be held by the taxpayer for the growing and cutting of timber which will either be sold for use in, or used by the taxpayer in, the commercial production of timber products. A taxpayer does not have to own the property in order to be eligible to elect to amortize costs attributable to it under section 194. Thus, a taxpayer may elect to amortize qualifying reforestation expenditures incurred by such taxpayer on leased qualified timber property. Qualified timber property does not include property on which the taxpayer has planted shelter belts (for which current deductions are allowed under section 175) or ornamental trees, such as Christmas trees.
(b) Amortizable basis. The term amortizable basis means that portion of the basis of qualified timber property which is attributable to reforestation expenditures.
(c) Reforestation expenditures —(1) In general. The term reforestation expenditures means direct costs incurred to plant or seed for forestation or reforestation purposes. Qualifying expenditures include amounts spent for site preparation, seed or seedlings, and labor and tool costs, including depreciation on equipment used in planting or seeding. Only those costs which must be capitalized and are included in the adjusted basis of the property qualify as reforestation expenditures. Costs which are currently deductible do not qualify.
(2) Cost-sharing programs. Any expenditures for which the taxpayer has been reimbursed under any governmental reforestation cost-sharing program do not qualify as reforestation expenditures unless the amounts reimbursed have been included in the gross income of the taxpayer.
(d) Definitions of controlled group of corporations and component member of controlled group. For purposes of section 194, the terms controlled group of corporations and component member of a controlled group of corporations shall have the same meaning assigned to those terms in section 1563 (a) and (b), except that the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1).
§ 1.194-4   Time and manner of making election.
(a) In general. Except as provided in paragraph (b) of this section, an election to amortize reforestation expenditures under section 194 shall be made by entering the amortization deduction claimed at the appropriate place on the taxpayer's income tax return for the year in which the expenditures were incurred, and by attaching a statement to such return. The statement should state the amounts of the expenditures, describe the nature of the expenditures, and give the date on which each was incurred. The statement should also state the type of timber being grown and the purpose for which it is being grown. A separate statement must be included for each property for which reforestation expenditures are being amortized under section 194. The election may only be made on a timely return (taking into account extensions of the time for filing) for the taxable year in which the amortizable expenditures were made.
(b) Special rule. With respect to any return filed before March 15, 1984, on which a taxpayer was eligible to, but did not make an election under section 194, the election to amortize reforestation expenditures under section 194 may be made by a statement on, or attached to, the income tax return (or an amended return) for the taxable year, indicating that an election is being made under section 194 and setting forth the information required under paragraph (a) of this section. An election made under the provisions of this paragraph (b) must be made not later than,
(1) The time prescribed by law (including extensions thereof) for filing the income tax return for the year in which the reforestation expenditures were made, or
(2) March 15, 1984, whichever is later. Nothing in this paragraph shall be construed as extending the time specified in section 6511 within which a claim for credit or refund may be filed.
(c) Revocation. An application for consent to revoke an election under section 194 shall be in writing and shall be addressed to the Commissioner of Internal Revenue, Washington, DC 20224. The application shall set forth the name and address of the taxpayer, state the taxable years for which the election was in effect, and state the reason for revoking the election. The application shall be signed by the taxpayer or a duly authorized representative of the taxpayer and shall be filed at least 90 days prior to the time prescribed by law (without regard to extensions thereof) for filing the income tax return for the first taxable year for which the election is to terminate. Ordinarily, the request for consent to revoke the election will not be granted if it appears from all the facts and circumstances that the only reason for the desired change is to obtain a tax advantage.
§ 1.195-1   Election to amortize start-up expenditures.
(a) In general. Under section 195(b), a taxpayer may elect to amortize start-up expenditures as defined in section 195(c)(1). In the taxable year in which a taxpayer begins an active trade or business, an electing taxpayer may deduct an amount equal to the lesser of the amount of the start-up expenditures that relate to the active trade or business, or $5,000 (reduced (but not below zero) by the amount by which the start-up expenditures exceed $50,000). The remainder of the start-up expenditures is deductible ratably over the 180-month period beginning with the month in which the active trade or business begins. All start-up expenditures that relate to the active trade or business are considered in determining whether the start-up expenditures exceed $50,000, including expenditures incurred on or before October 22, 2004.
(b) Time and manner of making election. A taxpayer is deemed to have made an election under section 195(b) to amortize start-up expenditures as defined in section 195(c)(1) for the taxable year in which the active trade or business to which the expenditures relate begins. A taxpayer may choose to forgo the deemed election by affirmatively electing to capitalize its start-up expenditures on a timely filed Federal income tax return (including extensions) for the taxable year in which the active trade or business to which the expenditures relate begins. The election either to amortize start-up expenditures under section 195(b) or to capitalize start-up expenditures is irrevocable and applies to all start-up expenditures that are related to the active trade or business. A change in the characterization of an item as a start-up expenditure is a change in method of accounting to which sections 446 and 481(a) apply if the taxpayer treated the item consistently for two or more taxable years. A change in the determination of the taxable year in which the active trade or business begins also is treated as a change in method of accounting if the taxpayer amortized start-up expenditures for two or more taxable years.
(c) Examples. The following examples illustrate the application of this section:
(d) Effective/applicability date. This section applies to start-up expenditures paid or incurred after August 16, 2011. However, taxpayers may apply all the provisions of this section to start-up expenditures paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax for the year the election under paragraph (b) of this section is deemed made has not expired. For start-up expenditures paid or incurred on or before September 8, 2008, taxpayers may instead apply § 1.195-1, as in effect prior to that date (§ 1.195-1 as contained in 26 CFR part 1 edition revised as of April 1, 2008).
§ 1.195-2   Technical termination of a partnership.
(a) In general. If a partnership that has elected to amortize start-up expenditures under section 195(b) and § 1.195-1 terminates in a transaction (or a series of transactions) described in section 708(b)(1)(B) or § 1.708-1(b)(2), the termination shall not be treated as resulting in a disposition of the partnership's trade or business for purposes of section 195(b)(2). See § 1.708-1(b)(6) for rules concerning the treatment of these start-up expenditures by the new partnership.
(b) Effective/applicability date. This section applies to a technical termination of a partnership under section 708(b)(1)(B) that occurs on or after December 9, 2013.
§ 1.197-0   Table of contents.
This section lists the headings that appear in § 1.197-2.
(a) Overview.
(1) In general.
(2) Section 167(f) property.
(3) Amounts otherwise deductible.
(b) Section 197 intangibles; in general.
(1) Goodwill.
(2) Going concern value.
(3) Workforce in place.
(4) Information base.
(5) Know-how, etc.
(6) Customer-based intangibles.
(7) Supplier-based intangibles.
(8) Licenses, permits, and other rights granted by governmental units.
(9) Covenants not to compete and other similar arrangements.
(10) Franchises, trademarks, and trade names.
(11) Contracts for the use of, and term interests in, other section 197 intangibles.
(12) Other similar items.
(c) Section 197 intangibles; exceptions.
(1) Interests in a corporation, partnership, trust, or estate.
(2) Interests under certain financial contracts.
(3) Interests in land.
(4) Certain computer software.
(i) Publicly available.
(ii) Not acquired as part of trade or business.
(iii) Other exceptions.
(iv) Computer software defined.
(5) Certain interests in films, sound recordings, video tapes, books, or other similar property.
(6) Certain rights to receive tangible property or services.
(7) Certain interests in patents or copyrights.
(8) Interests under leases of tangible property.
(i) Interest as a lessor.
(ii) Interest as a lessee.
(9) Interests under indebtedness.
(i) In general.
(ii) Exceptions.
(10) Professional sports franchises.
(11) Mortgage servicing rights.
(12) Certain transaction costs.
(13) Rights of fixed duration or amount.
(d) Amortizable section 197 intangibles.
(1) Definition.
(2) Exception for self-created intangibles.
(i) In general.
(ii) Created by the taxpayer.
(A) Defined.
(B) Contracts for the use of intangibles.
(C) Improvements and modifications.
(iii) Exceptions.
(3) Exception for property subject to anti-churning rules.
(e) Purchase of a trade or business.
(1) Goodwill or going concern value.
(2) Franchise, trademark, or trade name.
(i) In general.
(ii) Exceptions.
(3) Acquisitions to be included.
(4) Substantial portion.
(5) Deemed asset purchases under section 338.
(6) Mortgage servicing rights.
(7) Computer software acquired for internal use.
(f) Computation of amortization deduction.
(1) In general.
(2) Treatment of contingent amounts.
(i) Amounts added to basis during 15-year period.
(ii) Amounts becoming fixed after expiration of 15-year period.
(iii) Rules for including amounts in basis.
(3) Basis determinations for certain assets.
(i) Covenants not to compete.
(ii) Contracts for the use of section 197 intangibles; acquired as part of a trade or business.
(A) In general.
(B) Know-how and certain information base.
(iii) Contracts for the use of section 197 intangibles; not acquired as part of a trade or business.
(iv) Applicable rules.
(A) Franchises, trademarks, and trade names.
(B) Certain amounts treated as payable under a debt instrument.
(1) In general.
(2) Rights granted by governmental units.
(3) Treatment of other parties to transaction.
(4) Basis determinations in certain transactions.
(i) Certain renewal transactions.
(ii) Transactions subject to section 338 or 1060.
(iii) Certain reinsurance transactions.
(g) Special rules.
(1) Treatment of certain dispositions.
(i) Loss disallowance rules.
(A) In general.
(B) Abandonment or worthlessness.
(C) Certain nonrecognition transfers.
(ii) Separately acquired property.
(iii) Disposition of a covenant not to compete.
(iv) Taxpayers under common control.
(A) In general.
(B) Treatment of disallowed loss.
(2) Treatment of certain nonrecognition and exchange transactions.
(i) Relationship to anti-churning rules.
(ii) Treatment of nonrecognition and exchange transactions generally.
(A) Transfer disregarded.
(B) Application of general rule.
(C) Transactions covered.
(iii) Certain exchanged-basis property.
(iv) Transfers under section 708(b)(1).
(A) In general.
(B) Termination by sale or exchange of interest.
(C) Other terminations.
(3) Increase in the basis of partnership property under section 732(b), 734(b), 743(b), or 732(d).
(4) Section 704(c) allocations.
(i) Allocations where the intangible is amortizable by the contributor.
(ii) Allocations where the intangible is not amortizable by the contributor.
(5) Treatment of certain insurance contracts acquired in an assumption reinsurance transaction.
(i) In general.
(ii) Determination of adjusted basis of amortizable section 197 intangible resulting from an assumption reinsurance transaction.
(A) In general.
(B) Amount paid or incurred by acquirer (reinsurer) under the assumption reinsurance transaction.
(C) Amount required to be capitalized under section 848 in connection with the transaction.
( 1 ) In general.
( 2 ) Required capitalization amount.
( 3 ) General deductions allocable to the assumption reinsurance transaction.
( 4 ) Treatment of a capitalization shortfall allocable to the reinsurance agreement.
( i ) In general.
( ii ) Treatment of additional capitalized amounts as the result of an election under § 1.848-2(g)(8).
( 5 ) Cross references and special rules.
(D) Examples
(E) Effective/applicability date.
(iii) Application of loss disallowance rule upon a disposition of an insurance contract acquired in an assumption reinsurance transaction.
(A) Disposition.
( 1 ) In general.
( 2 ) Treatment of indemnity reinsurance transactions.
(B) Loss.
(C) Examples.
(iv) Effective dates.
(A) In general.
(B) Application to pre-effective date acquisitions and dispositions.
(C) Change in method of accounting.
( 1 ) In general.
( 2 ) Acquisitions and dispositions on or after effective date.
( 3 ) Acquisitions and dispositions before the effective date.
(6) Amounts paid or incurred for a franchise, trademark, or trade name.
(7) Amounts properly taken into account in determining the cost of property that is not a section 197 intangible.
(8) Treatment of amortizable section 197 intangibles as depreciable property.
(h) Anti-churning rules.
(1) Scope and purpose.
(i) Scope.
(ii) Purpose.
(2) Treatment of section 197(f)(9) intangibles.
(3) Amounts deductible under section 1253(d) or § 1.162-11.
(4) Transition period.
(5) Exceptions.
(6) Related person.
(i) In general.
(ii) Time for testing relationships.
(iii) Certain relationships disregarded.
(iv) De minimis rule.
(A) In general.
(B) Determination of beneficial ownership interest.
(7) Special rules for entities that owned or used property at any time during the transition period and that are no longer in existence.
(8) Special rules for section 338 deemed acquisitions.
(9) Gain-recognition exception.
(i) Applicability.
(ii) Effect of exception.
(iii) Time and manner of election.
(iv) Special rules for certain entities.
(v) Effect of nonconforming elections.
(vi) Notification requirements.
(vii) Revocation.
(viii) Election Statement.
(ix) Determination of highest marginal rate of tax and amount of other Federal income tax on gain.
(A) Marginal rate.
( 1 ) Noncorporate taxpayers.
( 2 ) Corporations and tax-exempt entities.
(B) Other Federal income tax on gain.
(x) Coordination with other provisions.
(A) In general.
(B) Section 1374.
(C) Procedural and administrative provisions.
(D) Installment method.
(xi) Special rules for persons not otherwise subject to Federal income tax.
(10) Transactions subject to both anti-churning and nonrecognition rules.
(11) Avoidance purpose.
(12) Additional partnership anti-churning rules
(i) In general.
(ii) Section 732(b) adjustments. [Reserved]
(iii) Section 732(d) adjustments.
(iv) Section 734(b) adjustments. [Reserved]
(v) Section 743(b) adjustments.
(vi) Partner is or becomes a user of partnership intangible.
(A) General rule.
(B) Anti-churning partner.
(C) Effect of retroactive elections.
(vii) Section 704(c) elections.
(A) Allocations where the intangible is amortizable by the contributor.
(B) Allocations where the intangible is not amortizable by the contributor.
(viii) Operating rule for transfers upon death.
(i) Reserved
(j) General anti-abuse rule.
(k) Examples.
(l) Effective dates.
(1) In general.
(2) Application to pre-effective date acquisitions.
(3) Application of regulation project REG-209709-94 to pre-effective date acquisitions.
(4) Change in method of accounting.
(i) In general.
(ii) Application to pre-effective date transactions.
(iii) Automatic change procedures.
§ 1.197-1T   Certain elections for intangible property (temporary).
(a) In general. This section provides rules for making the two elections under section 13261 of the Omnibus Budget Reconciliation Act of 1993 (OBRA '93). Paragraph (c) of this section provides rules for making the section 13261(g)(2) election (the retroactive election) to apply the intangibles provisions of OBRA '93 to property acquired after July 25, 1991, and on or before August 10, 1993 (the date of enactment of OBRA '93). Paragraph (d) of this section provides rules for making the section 13261(g)(3) election (binding contract election) to apply prior law to property acquired pursuant to a written binding contract in effect on August 10, 1993, and at all times thereafter before the date of acquisition. The provisions of this section apply only to property for which an election is made under paragraph (c) or (d) of this section.
(b) Definitions and special rules —(1) Intangibles provisions of OBRA '93. The intangibles provisions of OBRA '93 are sections 167(f) and 197 of the Internal Revenue Code (Code) and all other pertinent provisions of section 13261 of OBRA '93 (e.g., the amendment of section 1253 in the case of a franchise, trademark, or trade name).
(2) Transition period property. The transition period property of a taxpayer is any property that was acquired by the taxpayer after July 25, 1991, and on or before August 10, 1993.
(3) Eligible section 197 intangibles. The eligible section 197 intangibles of a taxpayer are any section 197 intangibles that—
(i) Are transition period property; and
(ii) Qualify as amortizable section 197 intangibles (within the meaning of section 197(c)) if an election under section 13261(g)(2) of OBRA '93 applies.
(4) Election date. The election date is the date (determined after application of section 7502(a)) on which the taxpayer files the original or amended return to which the election statement described in paragraph (e) of this section is attached.
(5) Election year. The election year is the taxable year of the taxpayer that includes August 10, 1993.
(6) Common control. A taxpayer is under common control with the electing taxpayer if, at any time after August 2, 1993, and on or before the election date (as defined in paragraph (b)(4) of this section), the two taxpayers would be treated as a single taxpayer under section 41(f)(1) (A) or (B).
(7) Applicable convention for sections 197 and 167(f) intangibles. For purposes of computing the depreciation or amortization deduction allowable with respect to transition period property described in section 167(f) (1) or (3) or with respect to eligible section 197 intangibles—
(i) Property acquired at any time during the month is treated as acquired as of the first day of the month and is eligible for depreciation or amortization during the month; and
(ii) Property is not eligible for depreciation or amortization in the month of disposition.
(8) Application to adjustment to basis of partnership property under section 734(b) or 743(b). Any increase in the basis of partnership property under section 734(b) (relating to the optional adjustment to basis of undistributed partnership property) or section 743(b) (relating to the optional adjustment to the basis of partnership property) will be taken into account under this section by a partner as if the increased portion of the basis were attributable to the partner's acquisition of the underlying partnership property on the date the distribution or transfer occurs. For example, if a section 754 election is in effect and, as a result of its acquisition of a partnership interest, a taxpayer obtains an increased basis in an intangible held through the partnership, the increased portion of the basis in the intangible will be treated as an intangible asset newly acquired by that taxpayer on the date of the transaction.
(9) Former member. A former member of a consolidated group is a corporation that was a member of the consolidated group at any time after July 25, 1991, and on or before August 2, 1993, but that is not under common control with the common parent of the group for purposes of paragraph (c)(1)(ii) of this section.
(c) Retroactive election —(1) Effect of election —(i) On taxpayer. Except as provided in paragraph (c)(1)(v) of this section, if a taxpayer makes the retroactive election, the intangibles provisions of OBRA '93 will apply to all the taxpayer's transition period property. Thus, for example, section 197 will apply to all the taxpayer's eligible section 197 intangibles.
(ii) On taxpayers under common control. If a taxpayer makes the retroactive election, the election applies to each taxpayer that is under common control with the electing taxpayer. If the retroactive election applies to a taxpayer under common control, the intangibles provisions of OBRA '93 apply to that taxpayer's transition period property in the same manner as if that taxpayer had itself made the retroactive election. However, a retroactive election that applies to a non-electing taxpayer under common control is not treated as an election by that taxpayer for purposes of re-applying the rule of this paragraph (c)(1)(ii) to any other taxpayer.
(iii) On former members of consolidated group. A retroactive election by the common parent of a consolidated group applies to transition period property acquired by a former member while it was a member of the consolidated group and continues to apply to that property in each subsequent consolidated or separate return year of the former member.
(iv) On transferred assets —(A) In general. If property is transferred in a transaction described in paragraph (c)(1)(iv)(C) of this section and the intangibles provisions of OBRA '93 applied to such property in the hands of the transferor, the property remains subject to the intangibles provisions of OBRA '93 with respect to so much of its adjusted basis in the hands of the transferee as does not exceed its adjusted basis in the hands of the transferor. The transferee is not required to apply the intangibles provisions of OBRA '93 to any other transition period property that it owns, however, unless such provisions are otherwise applicable under the rules of this paragraph (c)(1).
(B) Transferee election. If property is transferred in a transaction described in paragraph (c)(1)(iv)(C)( 1 ) of this section and the transferee makes the retroactive election, the transferor is not required to apply the intangibles provisions of OBRA '93 to any of its transition period property (including the property transferred to the transferee in the transaction described in paragraph (c)(1)(iv)(C)( 1 ) of this section), unless such provisions are otherwise applicable under the rules of this paragraph (c)(1).
(C) Transactions covered. This paragraph (c)(1)(iv) applies to—
( 1 ) Any transaction described in section 332, 351, 361, 721, 731, 1031, or 1033; and
( 2 ) Any transaction between corporations that are members of the same consolidated group immediately after the transaction.
(D) Exchanged basis property. In the case of a transaction involving exchanged basis property (e.g., a transaction subject to section 1031 or 1033)—
( 1 ) Paragraph (c)(1)(iv)(A) of this section shall not apply; and
( 2 ) If the intangibles provisions of OBRA '93 applied to the property by reference to which the exchanged basis is determined (the predecessor property), the exchanged basis property becomes subject to the intangibles provisions of OBRA '93 with respect to so much of its basis as does not exceed the predecessor property's basis.
(E) Acquisition date. For purposes of paragraph (b)(2) of this section (definition of transition period property), property (other than exchanged basis property) acquired in a transaction described in paragraph (c)(1)(iv)(C)( 1 ) of this section generally is treated as acquired when the transferor acquired (or was treated as acquiring) the property (or predecessor property). However, if the adjusted basis of the property in the hands of the transferee exceeds the adjusted basis of the property in the hands of the transferor, the property, with respect to that excess basis, is treated as acquired at the time of the transfer. The time at which exchanged basis property is considered acquired is determined by applying similar principles to the transferee's acquisition of predecessor property.
(v) Special rule for property of former member of consolidated group —(A) Intangibles provisions inapplicable for certain periods. If a former member of a consolidated group makes a retroactive election pursuant to paragraph (c)(1)(i) of this section or if an election applies to the former member under the common control rule of paragraph (c)(1)(ii) of this section, the intangibles provisions of OBRA '93 generally apply to all transition period property of the former member. The intangibles provisions of OBRA '93 do not apply, however, to the transition period property of a former member (including a former member that makes or is bound by a retroactive election) during the period beginning immediately after July 25, 1991, and ending immediately before the earlier of—
( 1 ) The first day after July 25, 1991, that the former member was not a member of a consolidated group; or
( 2 ) The first day after July 25, 1991, that the former member was a member of a consolidated group that is otherwise required to apply the intangibles provisions of OBRA '93 to its transition period property (e.g., because the common control election under paragraph (c)(1)(ii) of this section applies to the group).
(B) Subsequent adjustments. See paragraph (c)(5) of this section for adjustments when the intangibles provisions of OBRA '93 first apply to the transition period property of the former member after the property is acquired.
(2) Making the election —(i) Partnerships, S corporations, estates, and trusts. Except as provided in paragraph (c)(2)(ii) of this section, in the case of transition period property of a partnership, S corporation, estate, or trust, only the entity may make the retroactive election for purposes of paragraph (c)(1)(i) of this section.
(ii) Partnerships for which a section 754 election is in effect. In the case of increased basis that is treated as transition period property of a partner under paragraph (b)(8) of this section, only that partner may make the retroactive election for purposes of paragraph (c)(1)(i) of this section.
(iii) Consolidated groups. An election by the common parent of a consolidated group applies to members and former members as described in paragraphs (c)(1)(ii) and (iii) of this section. Further, for purposes of paragraph (c)(1)(ii) of this section, an election by the common parent is not treated as an election by any subsidiary member. A retroactive election cannot be made by a corporation that is a subsidiary member of a consolidated group on August 10, 1993, but an election can be made on behalf of the subsidiary member under paragraph (c)(1)(ii) of this section (e.g., by the common parent of the group). See paragraph (c)(1)(iii) of this section for rules concerning the effect of the common parent's election on transition period property of a former member.
(3) Time and manner of election —(i) Time. In general, the retroactive election must be made by the due date (including extensions of time) of the electing taxpayer's Federal income tax return for the election year. If, however, the taxpayer's original Federal income tax return for the election year is filed before April 14, 1994, the election may be made by amending that return no later than September 12, 1994.
(ii) Manner. The retroactive election is made by attaching the election statement described in paragraph (e) of this section to the taxpayer's original or amended income tax return for the election year. In addition, the taxpayer must—
(A) Amend any previously filed return when required to do so under paragraph (c)(4) of this section; and
(B) Satisfy the notification requirements of paragraph (c)(6) of this section.
(iii) Effect of nonconforming elections. An attempted election that does not satisfy the requirements of this paragraph (c)(3) (including an attempted election made on a return for a taxable year prior to the election year) is not valid.
(4) Amended return requirements —(i) Requirements. A taxpayer subject to this paragraph (c)(4) must amend all previously filed income tax returns as necessary to conform the taxpayer's treatment of transition period property to the treatment required under the intangibles provisions of OBRA '93. See paragraph (c)(5) of this section for certain adjustments that may be required on the amended returns required under this paragraph (c)(4) in the case of certain consolidated group member dispositions and tax-free transactions.
(ii) Applicability. This paragraph (c)(4) applies to a taxpayer if—
(A) The taxpayer makes the retroactive election; or
(B) Another person's retroactive election applies to the taxpayer or to any property acquired by the taxpayer.
(5) Adjustment required with respect to certain consolidated group member dispositions and tax-free transactions —(i) Application. This paragraph (c)(5) applies to transition period property if the intangibles provisions of OBRA '93 first apply to the property while it is held by the taxpayer but do not apply to the property for some period (the “interim period”) after the property is acquired (or considered acquired) by the taxpayer. For example, this paragraph (c)(5) may apply to transition period property held by a former member of a consolidated group if a retroactive election is made by or on behalf of the former member but is not made by the consolidated group. See paragraph (c)(1)(v) of this section.
(ii) Required adjustment to income. If this paragraph (c)(5) applies, an adjustment must be taken into account in computing taxable income of the taxpayer for the taxable year in which the intangibles provisions of OBRA '93 first apply to the property. The amount of the adjustment is equal to the difference for the transition period property between—
(A) The sum of the depreciation, amortization, or other cost recovery deductions that the taxpayer (and its predecessors) would have been permitted if the intangibles provisions of OBRA '93 applied to the property during the interim period; and
(B) The sum of the depreciation, amortization, or other cost recovery deductions that the taxpayer (and its predecessors) claimed during that interim period.
(iii) Required adjustment to basis. The taxpayer also must make a corresponding adjustment to the basis of its transition period property to reflect any adjustment to taxable income with respect to the property under this paragraph (c)(5).
(6) Notification requirements —(i) Notification of commonly controlled taxpayers. A taxpayer that makes the retroactive election must provide written notification of the retroactive election (on or before the election date) to each taxpayer that is under common control with the electing taxpayer.
(ii) Notification of certain former members, former consolidated groups, and transferees. This paragraph (c)(6)(ii) applies to a common parent of a consolidated group that makes or is notified of a retroactive election that applies to transition period property of a former member, a corporation that makes or is notified of a retroactive election that affects any consolidated group of which the corporation is a former member, or a taxpayer that makes or is notified of a retroactive election that applies to transition period property the taxpayer transfers in a transaction described in paragraph (c)(1)(iv)(C) of this section. Such common parent, former member, or transferor must provide written notification of the retroactive election to any affected former member, consolidated group, or transferee. The written notification must be provided on or before the election date in the case of an election by the common parent, former member, or transferor, and within 30 days of the election date in the case of an election by a person other than the common parent, former member, or transferor.
(7) Revocation. Once made, the retroactive election may be revoked only with the consent of the Commissioner.
(8) Examples. The following examples illustrate the application of this paragraph (c).
(ii) Under section 743(b), X makes an adjustment to increase F's basis in asset M by $300, the difference between the allocated purchase price and M's inside basis ($700−$400 = $300). Under paragraphs (b)(8) and (c)(2)(ii) of this section, if F makes the retroactive election, the section 743(b) basis increase of $300 in M is an amortizable section 197 intangible even though asset M is not an amortizable section 197 intangible in the hands of X. F's increase in the basis of asset M is amortizable over 15 years beginning with the month of F's acquisition of the partnership interest. With respect to the remaining $400 of basis, F is treated as stepping into A's shoes and continues A's amortization (if any) in asset M. F's retroactive election applies to all other intangibles acquired by F or a taxpayer under common control with F.
(ii) Under paragraph (c)(1)(iii) of this section, a retroactive election by the common parent of a consolidated group applies to all transition period property acquired by a former member while it was a member of the group. The section 197 intangible acquired by S is transition period property that S, a former member of the P group, acquired while a member of the P group. Thus, P's election applies to the acquired asset. P must notify S of the election pursuant to paragraph (c)(6)(ii) of this section.
(iii) S amortizes the unadjusted basis of its eligible section 197 intangible ($180) over the 15-year amortization period using the applicable convention beginning as of the first day of the month of acquisition (August 1, 1991). Thus, the P group amends its 1991 consolidated tax return to take into account $5 of amortization ($180/15 years × 5/12 year = $5) for S.
(iv) For 1992, S is entitled to $12 of amortization ($180/15). Assume that under § 1.1502-76, $10 of S's amortization for 1992 is allocated to the P group's consolidated return and $2 is allocated to the Y group's return. The P group amends its 1992 consolidated tax return to reflect the $10 deduction for S. The Y group must amend its 1992 return to reflect the $2 deduction for S.
(ii) The Y group amends its 1992 consolidated return to claim a section 197 deduction of $2 ($180/15 years × 2/12 year = $2) for S.
(iii) Under paragraph (c)(1)(ii) of this section, the retroactive election by Y applies to all transition period property acquired by S. However, under paragraph (c)(1)(v)(A) of this section, the intangibles provisions of OBRA '93 do not apply to S's transition period property during the period when it held such property as a member of P group. Instead, these provisions become applicable to S's transition period property beginning on November 1, 1992, when S becomes a member of Y group.
(iv) Because the P group did not make the retroactive election, there is an interim period during which the intangibles provisions of OBRA '93 do not apply to the asset acquired by S. Thus, under paragraph (c)(5) of this section, the Y group must take into account in computing taxable income in 1992 an adjustment equal to the difference between the section 197 deduction that would have been permitted if the intangibles provisions of OBRA '93 applied to the property for the interim period (i.e., the period for which S was included in the P group's 1991 and 1992 consolidated returns) and any amortization or depreciation deductions claimed by S for the transferred intangible for that period. The retroactive election does not affect the P group, and the P group is not required to amend its returns.
(d) Binding contract election —(1) General rule —(i) Effect of election. If a taxpayer acquires property pursuant to a written binding contract in effect on August 10, 1993, and at all times thereafter before the acquisition (an eligible acquisition) and makes the binding contract election with respect to the contract, the law in effect prior to the enactment of OBRA '93 will apply to all property acquired pursuant to the contract. A separate binding contract election must be made with respect to each eligible acquisition to which the law in effect prior to the enactment of OBRA '93 is to apply.
(ii) Taxpayers subject to retroactive election. A taxpayer may not make the binding contract election if the taxpayer or a person under common control with the taxpayer makes the retroactive election under paragraph (c) of this section.
(iii) Revocation. A binding contract election, once made, may be revoked only with the consent of the Commissioner.
(2) Time and manner of election —(i) Time. In general, the binding contract election must be made by the due date (including extensions of time) of the electing taxpayer's Federal income tax return for the election year. If, however, the taxpayer's original Federal income tax return for the election year is filed before April 14, 1994, the election may be made by amending that return no later than September 12, 1994.
(ii) Manner. The binding contract election is made by attaching the election statement described in paragraph (e) of this section to the taxpayer's original or amended income tax return for the election year.
(iii) Effect of nonconforming election. An attempted election that does not satisfy the requirements of this paragraph (d)(2) is not valid.
(e) Election statement —(1) Filing requirements. For an election under paragraph (c) or (d) of this section to be valid, the electing taxpayer must:
(i) File (with its Federal income tax return for the election year and with any affected amended returns required under paragraph (c)(4) of this section) a written election statement, as an attachment to Form 4562 (Depreciation and Amortization), that satisfies the requirements of paragraph (e)(2) of this section; and
(ii) Forward a copy of the election statement to the Statistics Branch (QAM:S:6111), IRS Ogden Service Center, ATTN: Chief, Statistics Branch, P.O. Box 9941, Ogden, UT 84409.
(2) Content of the election statement. The written election statement must include the information in paragraphs (e)(2) (i) through (vi) and (ix) of this section in the case of a retroactive election, and the information in paragraphs (e)(2) (i) and (vii) through (ix) of this section in the case of a binding contract election. The required information should be arranged and identified in accordance with the following order and numbering system—
(i) The name, address and taxpayer identification number (TIN) of the electing taxpayer (and the common parent if a consolidated return is filed).
(ii) A statement that the taxpayer is making the retroactive election.
(iii) Identification of the transition period property affected by the retroactive election, the name and TIN of the person from which the property was acquired, the manner and date of acquisition, the basis at which the property was acquired, and the amount of depreciation, amortization, or other cost recovery under section 167 or any other provision of the Code claimed with respect to the property.
(iv) Identification of each taxpayer under common control (as defined in paragraph (b)(6) of this section) with the electing taxpayer by name, TIN, and Internal Revenue Service Center where the taxpayer's income tax return is filed.
(v) If any persons are required to be notified of the retroactive election under paragraph (c)(6) of this section, identification of such persons and certification that written notification of the election has been provided to such persons.
(vi) A statement that the transition period property being amortized under section 197 is not subject to the anti-churning rules of section 197(f)(9).
(vii) A statement that the taxpayer is making the binding contract election.
(viii) Identification of the property affected by the binding contract election, the name and TIN of the person from which the property was acquired, the manner and date of acquisition, the basis at which the property was acquired, and whether any of the property is subject to depreciation under section 167 or to amortization or other cost recovery under any other provision of the Code.
(ix) The signature of the taxpayer or an individual authorized to sign the taxpayer's Federal income tax return.
(f) Effective date. These regulations are effective March 15, 1994.