Key Takeaways
- Section 197 intangibles: amortized over 15 years (180 months).
- Includes: goodwill, customer lists, covenants not to compete, franchises.
- Start-up/organizational costs: $5,000 immediate deduction if ≤$50,000 total.
- Excess start-up costs: amortize over 180 months.
- Stock issuance costs: NEVER deductible or amortizable.
- Self-created intangibles: generally NOT §197 (unless acquired with business).
Last updated: January 2026
Amortization of Intangibles
Why This Matters for the Exam
Section 197 and start-up costs are frequently tested. Know the 15-year rule and the $5,000/$50,000 phase-out.
Expect at least 2-3 questions on intangibles.
Section 197 Intangibles (15 Years)
| Asset | Amortization Period |
|---|---|
| Goodwill | 15 years |
| Going concern value | 15 years |
| Workforce in place | 15 years |
| Customer lists | 15 years |
| Covenants not to compete | 15 years (regardless of term) |
| Franchises, trademarks | 15 years |
Key Exclusions from §197
| Item | Treatment |
|---|---|
| Self-created intangibles | Generally not §197 |
| Off-the-shelf software | 36 months (3 years) |
| Stand-alone intangible | May not qualify |
Covenant Trap
| Covenant Term | Amortization Period |
|---|---|
| 3-year covenant | 15 years |
| 5-year covenant | 15 years |
| 10-year covenant | 15 years |
| Rule: | ALWAYS 15 years if acquired with business |
Start-Up Costs (§195)
| Cost Type | Examples |
|---|---|
| Investigating business | Travel, market studies |
| Pre-opening training | Employee training |
| Pre-opening advertising | Grand opening ads |
Organizational Costs (§248/§709)
| Cost Type | Examples |
|---|---|
| Legal fees | Drafting articles |
| Accounting fees | Initial books |
| State fees | Incorporation fees |
The $5,000 / $50,000 Rule
| Total Costs | Immediate Deduction | Amortize Remainder |
|---|---|---|
| ≤$50,000 | Up to $5,000 | Over 180 months |
| >$50,000 | Reduced $1 for $1 | Over 180 months |
| ≥$55,000 | $0 | Entire amount over 180 months |
Non-Deductible Costs
| Cost | Treatment |
|---|---|
| Stock issuance | NEVER deductible |
| Syndication fees | NEVER deductible |
| Selling stock | Reduce capital raised |
Real-World Scenario
Scenario: Corporation incurs $54,000 organizational costs.
- Excess over $50,000: $4,000.
- Reduced immediate deduction: $5,000 - $4,000 = $1,000.
- Amount to amortize: $53,000 over 180 months.
On the Exam
Expect 2-3 questions on intangibles, typically:
- §197 Questions: "Amortization period for customer list?"
- Covenant Questions: "3-year covenant—how long to amortize?"
- Start-Up Questions: "Immediate deduction if $54,000 costs?"
The key is to remember: §197 = 15 years (180 months). Start-up: $5,000 immediate if ≤$50,000. Stock issuance = never deductible.
Test Your Knowledge
Under §197, amortization period for acquired customer list?
A
B
C
D
Test Your Knowledge
Corporation incurs $54,000 organizational costs. Immediate deduction?
A
B
C
D
Test Your Knowledge
Which cost is NEVER deductible or amortizable?
A
B
C
D