Tax Policy:

Issues and Policy Proposals Regarding Tax Treatment of Intangible Assets

GGD-91-88: Published: Aug 9, 1991. Publicly Released: Aug 9, 1991.

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Pursuant to a congressional request, GAO provided information regarding the extent to which business taxpayers can deduct the price they pay for intangible assets, focusing on: (1) types of deductible intangible assets and their claimed values and useful lives; (2) industries claiming such deductions; and (3) various proposals for revising intangible asset tax rules.

GAO found that: (1) Internal Revenue Service (IRS) tax data on unresolved or open intangible asset cases showed that, between tax years 1979 and 1987, taxpayers in 9 industry groups claimed deductions for 175 types of purchased intangible assets valued at $23.5 billion; (2) intangible asset categories include customer- or market-based assets, contract-based assets, technology-based assets, statutory-based assets, work-force-based assets, corporate organizational or financial assets, and other unidentifiable assets; (3) IRS believed that 70 percent of the claimed intangible assets were actually goodwill and not amortizable; (4) IRS proposed about $8 billion in adjustments to such claims, based on its evaluation of the assets' values, useful life, and classification; and (5) tax rules are much clearer for tangible than for intangible assets, and courts have issued conflicting and inconsistent decisions regarding the treatment and definition of intangible assets. GAO also found that proposals for changing tax rules for intangible assets involve: (1) expanding amortization of purchased intangible assets through easier amortization qualification standards, a more restrictive definition of goodwill, and the use of predetermined cost-recovery periods for amortization; and (2) disallowing amortization for specific purchased intangible assets or categories of intangible assets by deeming them to have indeterminable useful lives.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Congress should consider revising current tax law to allow amortization of purchased intangible assets, including goodwill, over specific statutory cost recovery periods.

    Status: Closed - Implemented

    Comments: Congress considered and passed legislation to allow the amortization of most purchased intangible assets over a specific cost recovery period. The legislation was vetoed by the President. Congress did not override the veto.

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