Question

12) Primary Corporation incorporated on June 1, 2018. It incurred organization costs of $10,000. It began business on July 1, 2018.

a) If in 2018, Primary elects to amortize organization costs under IRC Sec 248, how much can it expense in 2018 (not including any amortization expense)?

b) What is the amount of organization expense Primary will capitalize?

c) Of the amount Primary will capitalize, what is the amortization expense for 2018?

Answer 1

According to section 248(a) corporation shall be allowed a deduction for the taxable year in which corporation begins which is equal to lesser of

amount of expenditure incurred

or

5000 reduced by amount by which expenditure exceeds 50000 and

Remainder shall be allowed over 180 months beginning from the year in which corporation begins business

a) if Primary elects to amortize cost , it can expense to the extent of $50000

b) since amount of preliminary expense is less than $50000 so it can amortize $5000 and balance in 180 months from year of incorporation

c) amount of expense it will amortize will be 5000+ (10000-5000)/180* 6 months = $5167 (6 months as exxpense from July to Dec )