[14514]
March 8, 2002
TO: TAX COMMITTEE No. 7-02
TASK FORCE ON ADVISER/DISTRIBUTOR TAX ISSUES
RE: DRAFT INSTITUTE COMMENTS FOR YOUR REVIEW ON CAPITALIZATION
GUIDANCE
As we previously informed you, the Treasury Department and the Internal Revenue
Service have issued an Advance Notice of Proposed Rulemaking (“Advance Notice”) describing
guidance that will be issued regarding the deductibility or capitalization of expenditures
incurred in connection with intangible assets.1 The Advance Notice provides a framework for
proposed regulations describing (1) specific categories of expenditures incurred in acquiring,
creating or enhancing intangible assets or benefits that taxpayers are required to capitalize and
(2) certain types of transaction costs otherwise capitalizable that nevertheless would be
deductible.
We have prepared for your review the attached draft comment letter on the Advance
Notice based upon the discussion at our February meeting. Our comments address the
following aspects of the Advance Notice: Part I provides comments on the general approach
reflected in the Advance Notice and expands upon the reasons we endorse this approach. Part
II expresses our specific support for the proposed treatment of employee compensation and
suggests that similar treatment should be accorded to contract employees who are functionally
similar to regular employees in terms of the capitalization analysis. Part III indicates that
regular and recurring expenses should generally be deductible, particularly when such costs
constitute routine costs of operating a business. In this Part, we also request specific
confirmation that the approach contemplated by the Advance Notice is not intended to
overturn published guidance permitting mutual funds to deduct their stock issuance expenses.
Finally, Part IV responds to the Advance Notice’s request for comments on a possible residual
rule (or principles) that could be used to identify costs that should be capitalized under section
263(a) but that are not described in the Advance Notice. In this Part, we suggest that any such
rule or principles be drafted as narrowly and objectively as possible and that costs that are
permitted to be currently deducted in accordance with existing published guidance not be
subject to the residual rule.
1 See, Institute Memorandum to Tax Committee No. 3-02 and Task Force on Adviser/Distributor Tax Issues, dated
January 25, 2002.
2
ACTION REQUESTED
We welcome your input on the issues that are reflected in the letter as well as on issues
that we have not included at this time. In order to submit the comment letter by the due date,
we request that you provide your comments and suggestions to the undersigned
(cbarre@ici.org or 202/326-5821) or Keith Lawson (lawson@ici.org or 202/326-5832) by
March 15, 2002.
Catherine Barre
Assistant Counsel
Attachment (in .pdf format)