[15761]
March 19, 2003
TO: ACCOUNTING/TREASURERS MEMBERS No. 16-03
ADVISER DISTRIBUTOR TAX ISSUES TASK FORCE No. 6-03
TAX MEMBERS No. 18-03
RE: INSTITUTE COMMENTS ON PROPOSED CAPITALIZATION REGULATIONS
Attached are the Institute’s comments on the proposed regulations1 governing the
capitalization of intangible assets that were filed with the IRS today.
The proposed regulations address several issues raised by the Institute in earlier
comments to the Service. The attached comments largely seek clarification or confirmation of
the favorable treatment outlined in the proposed regulations. In particular, the comments
address the following points:
1. The Institute supports the provision in the proposed regulations specifying that
stock issuance expenses of open-end investment companies are deductible, and asks
for confirmation that redemption expenses are likewise deductible.
2. The Institute supports the inclusion of an example in the proposed regulations
stating that a contribution to a money market fund that an adviser must make in
order to prevent the fund from having a NAV of less than $1.00 per share is
deductible.
3. The Institute supports the provision in the proposed regulations that all employee
compensation and overhead costs are deductible. The comments suggest that the
same treatment should be extended to amounts paid to independent contractors who
are not hired to facilitate acquisition, creation, or enhancement of an intangible asset,
and do not work predominantly on facilitating such transactions.
4. The Institute requests additional guidance on identifying expenditures that must be
capitalized because they were incurred to “enhance” an intangible asset. The
comments suggest that such expenditures should be deductible if they are “regular
and recurring,” or if they result in only an “incidental” enhancement of an intangible
asset.
1 See, Institute Memorandum to Accounting/Treasurers Member No. 53-02 and Tax Members No. 53-02, dated
December 19, 2002.
2
5. Finally, the Institute requests additional guidance on the distinction between
amounts paid to induce a party to enter into a contract (which must be capitalized)
and amounts paid in expectation of an ongoing business relationship (which may be
deducted).
Under the proposed regulations, the new capitalization rules would apply to costs
incurred on or after the date that the final regulations are published in the Federal Register. We
understand that Treasury intends to issue final regulations by the end of the year.
David Orlin
Assistant Counsel
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attachment for memo 15761.
Attachment (in .pdf format)