Publication 535 (2006), Business Expenses

This chapter discusses costs you can elect to deduct or capitalize.

You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it.

If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. When you capitalize a cost, you add it to the basis of property to which it relates.

A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs.

You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, and business organizational costs.

For more information on the alternative minimum tax, see the instructions for one of the following forms.

Form 6251, Alternative Minimum Tax—Individuals.
Form 4626, Alternative Minimum Tax—Corporations.

Carrying charges
Research and experimental costs
Intangible drilling costs
Exploration costs
Development costs
Circulation costs
Environmental cleanup costs
Business start-up and organizational costs
Reforestation costs
Retired asset removal costs
Barrier removal costs
Film and television production costs

Publication

544 Sales and Other Dispositions of Assets

Form (and Instructions)

3468
Investment Credit
8826
Disabled Access Credit

Carrying Charges

Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. Certain carrying charges must be capitalized under the uniform capitalization rules. (For information on capitalization of interest, see chapter 4.) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible.

You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. For unimproved and unproductive real property, your election is good for only 1 year. You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. For personal property, your election is effective until the date you install or first use it, whichever is later.

How to make the election. To make the election to capitalize a carrying charge, write a statement saying which charges you elect to capitalize. Attach it to your original tax return for the year the election is to be effective. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the statement to the amended return and write “Filed pursuant to section 301.9100-2” on the statement. File the amended return at the same address you filed the original return.

Research and Experimental Costs

The costs of research and experimentation are generally capital expenses. However, you can elect to deduct these costs as a current business expense. Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change.

If you meet certain requirements, you may elect to defer and amortize research and experimental costs. For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8.

Research and experimental costs defined. Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement.

The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. However, costs paid or incurred to obtain another's patent are not research and experimental costs.

Product. The term “product” includes any of the following items.

Formula.
Invention.
Patent.
Pilot model.
Process.
Technique.
Property similar to the items listed above.

It also includes products used by you in your trade or business or held for sale, lease, or license.

Costs not included. Research and experimental costs do not include expenses for any of the following activities.

Advertising or promotions.
Consumer surveys.
Efficiency surveys.
Management studies.
Quality control testing.
Research in connection with literary, historical, or similar projects.
The acquisition of another's patent, model, production, or process.

When and how to elect. You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS.

IF you . . .	THEN . . .
Elect to deduct research and experimental costs as a current business expense	Deduct all research and experimental costs in the first year you pay or incur the costs and all later years.
Do not deduct research and experimental costs as a current business expense	If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. See Research and Experimental Costs in chapter 8.

Research credit. If you pay or incur qualified research expenses, you may be able to take the research credit. For more information about the research credit, see the instructions to Form 6765, Credit for Increasing Research Activities.

Intangible Drilling Costs

The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. You can usually recover them through depreciation or depletion. However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water.

You can elect to deduct only the costs of items with no salvage value. These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. However, see Amounts paid to contractor that must be capitalized, later.

You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. It does not matter whether there is any intent to produce hydrocarbons.

If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred.

Amounts paid to contractor that must be capitalized. Amounts paid to a contractor must be capitalized if they are either:

Amounts properly allocable to the cost of depreciable property, or
Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient.

How to make the election. You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. No formal statement is required. If you file Schedule C (Form 1040), enter these costs under “Other expenses.”

For oil and gas wells, your election is binding for the year it is made and for all later years. For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later.

Energy credit for costs of geothermal wells. If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. See the instructions for Form 3468 for more information.

Nonproductive well. If you capitalize your IDCs, you have another option if the well is nonproductive. You can deduct the IDCs of the nonproductive well as an ordinary loss. You must indicate and clearly state your election on your tax return for the year the well is completed. Once made, the election for oil and gas wells is binding for all later years. You can revoke your election for a geothermal well by filing an amended return that does not claim the loss.

Costs incurred outside the United States. You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. These rules do not apply to a nonproductive well.

Exploration Costs

The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. You recover these costs through depletion as the mineral is removed from the ground. However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil, gas, and geothermal wells).

How to make the election. You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. The election applies to the tax year you make this election and all later tax years.

Partnerships. Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs.

Reduced corporate deductions for exploration costs. A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. For more information on this method of amortization, see Internal Revenue Code section 59(e).

The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544.

These rules also apply to the deduction of development costs by corporations. See Development Costs, later.

Recapture of exploration expenses. When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. Use either of the following methods.

Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. Your election must be clearly indicated on the return. Increase your adjusted basis in the mine by the amount included in income. Generally, you must elect this recapture method by the due date (including extensions) of your return. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Make the election on your amended return and write “Filed pursuant to section 301.9100-2” on the form where you are including the income. File the amended return at the same address you filed the original return.

Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted.

You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years, until the depletion you would have deducted equals the exploration costs you deducted.

Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income.

Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs.

Foreign exploration costs. If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. (Cost depletion is discussed in chapter 9.) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. These rules also apply to foreign development costs.

Development Costs

You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Development costs include those incurred for you by a contractor. Also, development costs include depreciation on improvements used in the development of ores or minerals. They do not include costs for the acquisition or improvement of depreciable property.

Instead of deducting development costs in the year paid or incurred, you can elect to treat them as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. This election applies each tax year to expenses paid or incurred in that year. Once made, the election is binding for the year and cannot be revoked for any reason.

How to make the election. The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. Generally, you must make the election by the due date of the return (including extensions). However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same address you filed the original return.

Foreign development costs. The rules discussed earlier for foreign exploration costs apply to foreign development costs.

Reduced corporate deductions for development costs. The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs.

Circulation Costs

A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. Circulation costs are deductible even if they normally would be capitalized.

This rule does not apply to the following costs that must be capitalized.

The purchase of land or depreciable property.
The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers.

Other treatment of circulation costs. If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs.

Capitalize all circulation costs that are properly chargeable to a capital account.
Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred.

How to make the election. You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it.

Environmental Cleanup Costs

Environmental cleanup (remediation) costs are generally capital expenditures. However, you can elect to deduct these costs as a current business expense if certain requirements (discussed later) are met. This special tax treatment is generally available for qualified environmental cleanup costs you pay or incur before January 1, 2008.

Qualified environmental cleanup costs. Qualified environmental cleanup costs are generally costs you pay or incur to abate or control hazardous substances at a qualified contaminated site.

Hazardous substance. Hazardous substances are defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and certain substances are designated as hazardous in section 102 of the Act. For costs paid or incurred after December 31, 2005 (after August 28, 2005, if for a Gulf Opportunity (GO) Zone site), petroleum products are treated as hazardous substances. Substances are not hazardous if a removal or remedial action is prohibited under sections 104 and 104(a)(3) of the Act. For more information on the GO Zone, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Qualified contaminated site. A qualified contaminated site is any area that meets both of the following requirements.

You hold it for use in a trade or business, for the production of income, or as inventory.
There has been a release, threat of release, or disposal of any hazardous substance at or on the site.

You must get a statement from the designated state environmental agency that the site meets requirement (2).

A site is not eligible if it is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. To find out if a site is on the national priorities list, contact the U.S. Environmental Protection Agency.

Expenditures for depreciable property. You cannot deduct the cost of acquiring depreciable property used in connection with the abatement or control of hazardous substances at a qualified contaminated site. However, the part of the depreciation for such property that is otherwise allocated to the qualified contaminated site shall be treated as a qualified environmental cleanup cost.

When and how to elect. You elect to deduct environmental cleanup costs by taking the deduction on the income tax return (filed by the due date including extensions) for the tax year in which the costs are paid or incurred. The costs are deducted differently depending on the type of business entity involved.

Individuals. Deduct the environmental cleanup costs on the “Other Expenses” line of Schedule C, E, or F (Form 1040). If the schedule requires you to separately identify each expense included in “Other Expenses” write “Section 198 Election” on the line next to the environmental cleanup costs.

All other entities. All other taxpayers (including S corporations, partnerships, and trusts) deduct the environmental cleanup costs on the “Other Deductions” line of the appropriate federal income tax return. On a schedule attached to the return that separately identifies each expense included in “Other Deductions” write “Section 198 Election” on the line next to the amount for environmental cleanup costs.

More than one environmental cleanup cost. If, for any tax year, you pay or incur more than one environmental cleanup cost, you can elect to deduct one or more of such expenditures for that year. You can elect to deduct one expenditure and elect to capitalize another expenditure (whether or not they are of the same type or paid or incurred with respect to the same qualified contaminated site). An election to deduct an expenditure for one year has no effect on other years. You must make a separate election for each year in which you intend to deduct qualified environmental cleanup costs.

Recapture. This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. For more information on recapturing the deduction, see Depreciation and amortization under Gain Treated as Ordinary Income in Publication 544.

More information. For more information about the environmental cleanup cost deduction, see Internal Revenue Code section 198.

Business Start-Up and Organizational Costs

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation. For more information on start-up and organizational costs, see chapter 8.

How to make the election. You elect to deduct the start-up or organizational costs by claiming the deduction on the income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same address you filed the original return. The election applies when computing taxable income for the current tax year and all subsequent years.

Reforestation Costs

Reforestation costs are generally capital expenditures. However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. This limit is increased for small timber producers with qualified timber property located in certain areas affected by Hurricanes Katrina, Rita, and Wilma. For more information, see Publication 4492. The remaining costs can be amortized over an 84-month period. For information about amortizing reforestation costs, see chapter 8.

Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Qualified timber property is property that contains trees in significant commercial quantities. See chapter 8 for more information on qualifying reforestation costs and qualified timber property.

If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed.

How to make the election. You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made.

The unique stand identification numbers.
The total number of acres reforested during the tax year.
The nature of the reforestation treatments.
The total amounts of qualified reforestation expenditures eligible to be amortized or deducted.

However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same address you filed the original return. The election applies when computing taxable income for the current tax year and all subsequent years.

If you elected to deduct qualified timber costs on a federal income tax return filed before June 15, 2006, but did not include the above information, complete Part IV of Form T or the required statement and attach it to the first federal income tax return you file after June 14, 2006. If you have not elected to deduct qualified timber costs in a prior year you may be able to do so by filing Form 3115, Application for Change in Accounting Method. For more information, see Notice 2006-47 on page 892 of Internal Revenue Bulletin 2006-20. Internal Revenue Bulletin 2006-20 is available at www.irs.gov/pub/irs-irbs/irb06-20.pdf.

For additional information on reforestation costs, see chapter 8.

Recapture. This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. For more information on recapturing the deduction, see Depreciation and amortization under Gain Treated as Ordinary Income in Publication 544.

Retired Asset Removal Costs

If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair.

Barrier Removal Costs

The cost of an improvement to a business asset is normally a capital expense. However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. You must own or lease the facility or vehicle for use in connection with your trade or business.

A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services).

You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business.

Deduction limit. The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. However, you can add any costs over this limit to the basis of the property and depreciate these excess costs.

Partners and partnerships. The $15,000 limit applies to a partnership and also to each partner in the partnership. A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property.

A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full.

Example.

John Duke's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. John had $12,000 of similar expenses in his sole proprietorship. He elected to deduct $7,000 of them. John allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. John can add the excess $5,000 of his own expenses to the basis of the property used in his business. Also, if ABC can show that John could not deduct $6,000 ($14,000 - $8,000) of his share of the partnership's expenses because of how John applied the limit, ABC can add $6,000 to the basis of its property.

Qualification standards. You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. You can view the Americans with Disabilities Act at www.usdoj.gov/crt/ada/pubs/ada.txt.

The following is a list of some architectural barrier removal costs that can be deducted.

Ground and floor surfaces.
Walks.
Parking lots.
Ramps.
Entrances.
Doors and doorways.
Stairs.
Floors.
Toilet rooms.
Water fountains.
Telephones.
Elevators.
Controls.
Signage.
Alarms.
Protruding objects.
Symbols of accessibility.

You can find the ADA guidelines and requirements for architectural barrier removal at www.usdoj.gov/crt/ada/reg3a.html.

The following is a list of some deductible transportation barrier removal costs.

Rail facilities.
Buses.
Rapid and light rail vehicles.

You can find the guidelines and requirements for transportation barrier removal at www.fta.dot.gov/14534_5608_ENG_HTML.htm

Also, you can access the ADA website at www.ada.gov for additional information.

Other barrier removals. To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests.

The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly.
The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users).
The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly.

How to make the election. If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. Identify the deduction as a separate item. The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. If you make this election, you must maintain adequate records to support your deduction.

For your election to be valid, you generally must file your return by its due date, including extensions. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same address you filed the original return. Your election is irrevocable after the due date, including extensions, of your return.

Disabled access credit. If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit.

For more information about the disabled access credit, see Form 8826.

Film and Television Production Costs

Film and television production costs are generally capital expenses. However, you can elect to deduct costs paid or incurred for certain productions that begin after October 22, 2004. For more information, see section 181 of the Internal Revenue Code. For guidance on electing to deduct these costs, see Notice 2006-47 on page 892 of Internal Revenue Bulletin 2006-20. Internal Revenue Bulletin 2006-20 is available at www.irs.gov/pub/irs-irbs/irb06-20.pdf.

7. Costs You Can Deduct or Capitalize

Introduction

Topics - This chapter discusses:

Useful Items - You may want to see: