- Investigate the nature of the intangible assets whether leases, patents, licenses, trademarks, goodwill, copyright, franchise and others.
- Costs of acquiring the intangible should be capitalized when useful lives can be estimated. If not, no amortization is allowable for tax purposes.
- Determine if the recorded cost and cost of current additions includes proper elements such as legal fees, application fees and other costs of acquisition. Examine contracts and other legal documents.
- Verify correctness of deductions claimed as amortization of intangible assets as follows:
- Leasehold costs are subject to amortization over the term of the lease.
- Goodwill cannot be amortized if it is for an indefinite period of time.
- Research and development expenditures may either be capitalized or treated as outright deductible expense.
- Patents sold with the exclusive right to make, use and sell an article constitutes ordinary income.
Reference: RAMO 1-2000