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Tuesday, June 07, 2011

Tax Consequences of Transaction Costs

EXECUTIVE
SUMMARY
  • Generally, transaction costs related to property purchases are capitalized. Transaction costs related to property sales generally are expensed if the property sold is inventory and capitalized if the property is not inventory.
  • Subject to specific requirements, taxpayers are not required to capitalize certain de minimis expenses (including transaction costs) related to property purchases.
  • There are two types of transaction costs incurred in acquiring tangible property, investigatory costs and facilitative costs. Generally, investigatory costs are costs incurred before the decision to acquire a particular property is made, and facilitative costs are incurred after the decision is made. Certain costs specified in the regulations are considered inherently facilitative and are treated as facilitative costs regardless of the time they are incurred.
  • The rules for the treatment of costs to acquire or create the various types of intangible assets are found in Regs. Secs. 1.263(a)-4 and 1.263(a)-5.



Tax Consequences of Transaction Costs

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