Tax Court: Intangible Amortization Requires an Active Trade or Business

In a decision presenting several novel questions and two questions of first impression, the Tax Court (Judge Kroupa) has ruled that the amortization of intangibles (FCC cellular licenses) under Section 197 requires that the holder be engaged in an active trade or business as defined under Section 162 (as distinguished, for example, from the definition under Section 174).

The other question of first impression addressed in the opinion was whether the pledge of stock in a related S corporation is excluded from the at-risk amount because it was “property used in the business” for purposes of recognizing losses.  The taxpayer argued that because stock represents an ownership interest and can be sold without affecting corporate assets, it is inherently separate from a business and the pledge of such stock is “unrelated to the business” for purposes of satisfying that requirement under the At-Risk rules of Section 465.

Tax practitioners who practice regularly before the Office of Appeals should note the Court’s clarification of what is required to claim equitable estoppel on reliance of the oral representations of an Appeals Officer. The Taxpayer’s sought to rely upon a settlement offer that was not memorialized in a fully executed closing agreement. The Court denied that claim because the taxpayer’s failed to demonstrate either the traditional three elements for equitable estoppel or the specific requirement of “affirmatively reckless conduct” specific to the Sixth Circuit Court of Appeals (to which the case was appealable).

Read the entire opinion here:
Broz v Commissioner 137 T.C. No. 5 (2011)

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