An accountant briefly explains how the IRS has changed the rules regarding taxing "goodwill."
How quickly can you file an amended tax return? If you can do it by September 12, you could be due for a nice refund -- that is, if your company made an acquisition during the past three years that involved what's known in accounting terminology as "goodwill."
Essentially, the IRS has just tweaked the rules. "In the past the IRS would allow companies to write off only the acquisition cost of tangible assets -- real estate, furniture, computers, and so on -- and so-called intangible assets that had a quantifiable life span, like a newspaper-subscriber list," explains Valerie Robbins, a partner in the Washington, D.C., accounting firm of Beers & Cutler. Goodwill (the euphemism for the amount paid above the value of those tangibles and intangibles) did not qualify for a tax deduction, even though it sometimes amounted to a significant share of an acquisition price.
But now the IRS has said that companies can write off the cost of goodwill over 15 years, going back to acquisitions made later than July 25, 1991, "which could amount to a significant tax saving," notes Robbins.
One caveat: as part of the regulatory change, all intangibles now qualify for the 15-year write-off. That means some companies might wind up owing taxes if they choose to amend their returns, "if some of their intangibles were written off more quickly in the past," warns Robbins. Call your accountant today to see if an amended return makes sense for your company.