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 litigation.

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 intangibles.

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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