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intangible character, is appropriate. Petitioner contends that
its costs should be amortized over a period no shorter than 60
months pursuant to section 4.01(2) of Rev. Proc. 69-21, 1969-2,
C.B. 303. Respondent contends that the software should be
depreciated over 18 years, the asset guideline period for central
office equipment (COE), for the software was an integral part of
the COE.
Rev. Proc. 69-21, supra, provides in section 4.01:
(.01) With respect to costs of purchased software, the
Service will not disturb the taxpayer's treatment of such
costs if the following practices are consistently followed:
* * * * * * *
2. Where such costs are separately stated, and
the software is treated by the taxpayer as an
intangible asset the cost of which is to be recovered
by amortization deductions ratably over a period of
five years or such shorter period as can be established
by the taxpayer as appropriate in any particular case
if the useful life of the software in his hands will be
less than five years.
Under this revenue procedure, if the taxpayer uses a period
shorter than 5 years, he must establish that the useful life is
less than 5 years; otherwise, the Commissioner will let stand the
amortization period.
The software was separately stated on petitioner's books and
in its purchase invoices from the assets from which it was
purchased. The only issue is whether petitioner treated the
software as an intangible asset. Petitioner did not originally
amortize the software pursuant to this revenue procedure but
rather treated the software and COE as one whole asset and
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