Page 137 - Virtual Currencies

15:01 - 17-Jan-2023
Page 4 of 15
Fileid: … ons/p551/202212/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
For other exceptions to the uniform capitaliza- the other business assets received in propor- Modification of building. A modification of
tion rules, see section 1.263A-1(b) of the regu- tion to (but not more than) their FMV in the fol- a building won't be treated as a demolition if
lations. lowing order. both the following conditions are satisfied.
For information on the special rules that ap- 1. Certificates of deposit, U.S. government • 75% or more of the existing external walls
ply to costs incurred in the business of farming, securities, foreign currency, and actively of the building are retained in place as in-
see chapter 6 in Pub. 225, Farmer's Tax Guide. traded personal property, including stock ternal or external walls.
and securities. • 75% or more of the existing internal struc-
Intangible Assets tural framework of the building is retained
2. Accounts receivable, other debt instru- in place.
ments, and assets you mark to market at
Intangible assets include goodwill, patents, least annually for federal income tax pur- If the building is a certified historic structure,
copyrights, trademarks, trade names, and poses. the modification must also be part of a certified
franchises. The basis of an intangible asset is rehabilitation.
usually the cost to buy or create it. If you ac- 3. Property of a kind that would properly be If these conditions are met, add the costs of
quire multiple assets, for example, an ongoing included in inventory if on hand at the end the modifications to the basis of the building.
business for a lump sum, see Allocating the Ba- of the tax year or property held primarily
sis, later, to figure the basis of the individual as- for sale to customers in the ordinary Subdivided lots. If you buy a tract of land and
sets. The basis of certain intangibles can be course of business. subdivide it, you must determine the basis of
amortized. See chapter 8 of Pub. 535 for infor- 4. All other assets except section 197 intan- each lot. This is necessary because you must
mation on the amortization of these costs. gibles, goodwill, and going concern value. figure the gain or loss on the sale of each indi-
vidual lot. As a result, you don't recover your
Patents. The basis of a patent you get for an 5. Section 197 intangibles except goodwill entire cost in the tract until you have sold all of
invention is the cost of development, such as and going concern value. the lots.
research and experimental expenditures, draw- 6. Goodwill and going concern value To determine the basis of an individual lot,
ings, working models, and attorneys' and gov- (whether or not they qualify as section 197 multiply the total cost of the tract by a fraction.
ernmental fees. If you deduct the research and intangibles). The numerator is the FMV of the lot and the de-
experimental expenditures as current business nominator is the FMV of the entire tract.
expenses, you can't include them in the basis of Agreement. The buyer and seller may enter Future improvement costs. If you're a de-
the patent. The value of the inventor's time into a written agreement as to the allocation of veloper and sell subdivided lots before the de-
spent on an invention isn't part of the basis. any consideration or the FMV of any of the as- velopment work is completed, you can (with
sets. This agreement is binding on both parties IRS consent) include in the basis of the proper-
Copyrights. If you're an author, the basis of a unless the IRS determines the amounts are not ties sold an allocation of the estimated future
copyright will usually be the cost of getting the appropriate.
copyright plus copyright fees, attorneys' fees, cost for common improvements. See Revenue
Procedure 92-29, 1992-1 C.B. 748, for more in-
clerical assistance, and the cost of plates that Reporting requirement. Both the buyer and
remain in your possession. Don't include the seller involved in the sale of business assets formation, including an explanation of the pro-
cedures for getting consent from the IRS.
value of your time as the author, or any other must report to the IRS the allocation of the sales
person's time you didn't pay for. price among section 197 intangibles and the Use of erroneous cost basis. If you made
other business assets. Use Form 8594 to pro- a mistake in figuring the cost basis of subdivi-
Franchises, trademarks, and trade names. vide this information. The buyer and seller ded lots sold in previous years, you can't cor-
If you buy a franchise, trademark, or trade should each attach Form 8594 to their federal rect the mistake for years for which the statute
name, the basis is its cost, unless you can de- income tax return for the year in which the sale of limitations (generally, 3 tax years) has ex-
duct your payments as a business expense. occurred. pired. Figure the basis of any remaining lots by
Allocating the Basis More information. See Sale of a Business in allocating the correct original cost basis of the
entire tract among the original lots.
chapter 2 of Pub. 544 for more information.
Example. You bought a tract of land to
If you buy multiple assets for a lump sum, allo- which you assigned a cost of $15,000. You sub-
cate the amount you pay among the assets you Land and Buildings divided the land into 15 building lots of equal
receive. You must make this allocation to figure size and equitably divided your basis so that
your basis for depreciation and gain or loss on a If you buy buildings and the land on which they each lot had a basis of $1,000. You treated the
later disposition of any of these assets. See stand for a lump sum, allocate the basis of the sale of each lot as a separate transaction and
Trade or Business Acquired below. property among the land and the buildings so figured gain or loss separately on each sale.
you can figure the depreciation allowable on the Several years later, you determine that your
Group of Assets Acquired buildings. original basis in the tract was $22,500 and not
Figure the basis of each asset by multiplying $15,000. You sold eight lots using $8,000 of ba-
If you buy multiple assets for a lump sum, you the lump sum by a fraction. The numerator is sis in years for which the statute of limitations
and the seller may agree to a specific allocation the FMV of that asset and the denominator is has expired. You now can take $1,500 of basis
of the purchase price among the assets in the the FMV of the whole property at the time of into account for figuring gain or loss only on the
sales contract. If this allocation is based on the purchase. If you're not certain of the FMV of the sale of each of the remaining seven lots
value of each asset and you and the seller have land and buildings, you can allocate the basis ($22,500 basis divided among all 15 lots). You
adverse tax interests, the allocation will gener- based on their assessed values for real estate can't refigure the basis of the eight lots sold in
ally be accepted. However, see Trade or Busi- tax purposes. tax years barred by the statute of limitations.
ness Acquired next.
Demolition of building. Add demolition costs Adjusted Basis
Trade or Business Acquired and other losses incurred for the demolition of
any building to the basis of the land on which
If you acquire a trade or business, allocate the the demolished building was located. Don't Before figuring gain or loss on a sale, ex-
change, or other disposition of property, or fig-
consideration paid to the various assets ac- claim the costs as a current deduction. uring allowable depreciation, depletion, or am-
quired. Generally, reduce the consideration ortization, you must usually make certain
paid by any cash and general deposit accounts adjustments to the basis of the property. The re-
(including checking and savings accounts) re- sult of these adjustments to the basis is the ad-
ceived. Allocate the remaining consideration to justed basis.

Page 4 Publication 551 (December 2022)