February 09, 1994
IRS Offers to Settle Intangibles Issues
WASHINGTON -- The Internal Revenue Service today offered to
settle issues involving the tax treatment of intangibles. The IRS
said that this settlement offer could affect hundreds of issues
currently under examination, within the IRS appeals process, or in
The IRS has decided to settle these issues as a result of the
Supreme Court decision against the government in the "Newark Morning
Ledger" case, as well as recent legislative changes to the tax
treatment of intangibles in the Omnibus Budget Reconciliation Act of
1993 (the "1993 Act").
In general, the IRS will offer to settle its intangibles issues
under a formulary approach for the greater of:
- a 15% reduction in the basis of amortized intangibles; or
- a 50% cost recovery adjustment to the basis of amortized
The specific concession required of a taxpayer under the
settlement offer will vary depending on the position taken on the
original return. In general, the more aggressive the position
taken on the return, the more the taxpayer will be required to
compromise under the offer.
The IRS cited three reasons for taking the settlement approach:
- The 1993 Act changed the tax treatment of intangibles for
future years; thus, the pending intangibles issues have
little precedential value.
- In the legislative history to the 1993 Act, Congress
encouraged the IRS to take this unique step to resolve
disputes in those years not affected by the Act.
- The settlement approach will result in quicker
resolution of these issues and, thus, in tremendous savings
through reductions in continuing controversy cost for both
the IRS and taxpayers.
The IRS expected to begin extending this offer to taxpayers
through its field officials no later than April 1, 1994.
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