As you know, not all purchased intangible assets are necessarily “§ 197 in-tangibles.” For example, in a standalone transaction you purchase a patent with a six-year remaining life from the inventor for use in your Schedule C widget-making business – this is not a § 197 intangible. Or, as a further example, one of your key employees decides to quit; since she knows all of your trade secrets you pay her $250,000 cash in exchange for her signature on a three-year non-compete agreement. How, if at all, would you recover your capitalized investment in the patent and the noncompete agreement for FIT purposes? (a) Even though they are not § 197 intangibles you still must amortize the cost of each over 15 years. (b) You must amortize the cost of the patent over 15 years but you can amortize the cost of the noncompete agreement over its three-year term.
As you know, not all purchased intangible assets are necessarily “§ 197 in-tangibles.” For example, in a standalone transaction you purchase a patent with a six-year remaining life from the inventor for use in your
(a) Even though they are not § 197 intangibles you still must amortize the cost of each over 15 years.
(b) You must amortize the cost of the patent over 15 years but you can amortize the cost of the noncompete agreement over its three-year term.
(c) You must amortize the cost of the non-compete agreement over 15 years but you can amortize the cost of the patent over its remaining six-year life.
(d) You can amortize the capitalized cost of both of these intangible assets over their respective useful lives.
(e) No cost recovery is available for either of these assets.
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