- 21 -
Attached to SPC-FL's 1990 Form 1120S was Form 859419 (Asset
Acquisition Statement Under Section 1060). That Form 8594
reports a sale of Class III assets20 by SSI to SPC-FL in exchange
for consideration of $1,150,000 on August 8, 1990. Mr. Spencer
signed and reviewed SPC-FL's 1990 Federal income tax return.
Amortization
Upon acquisition of the assets from the SPC-SC shareholders
and the SPC-FL shareholders, SPC-SC and SPC-FL, respectively,
claimed amortization deductions for the intangible contract
rights based on 100 percent of their purchase price. No amounts
were allocated to goodwill or other nonamortizable assets.
Initially, respondent disallowed the claimed amortization
deductions in their entirety. Respondent's adjustment
transformed the ordinary losses reported by SPC-SC and SPC-FL
19 Form 8594 is used to report information concerning the
amount of consideration transferred in an "applicable asset
acquisition" and its allocation among the assets transferred.
Sec. 1.1060-1T(h), Temporary Income Tax Regs., 53 Fed. Reg. 27042
(July 18, 1988). The term "applicable asset acquisition" is
defined to mean any transfer (whether directly or indirectly) (1)
of assets which constitute a trade or business, and (2) with
respect to which the transferee's basis in such assets is
determined wholly by reference to the consideration paid for such
assets. Sec. 1060(c).
20 "Class III assets are all assets (other than Class I, II,
and IV assets), both tangible and intangible * * * including
furniture and fixtures, land, buildings, equipment, accounts
receivable, and covenants not to compete." Sec. 1.1060-
1T(d)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 27040
(July 18, 1988).
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