Deduction Versus Amortization of Start-Up Costs: 'Kellett v. Commissioner'
The article discusses 'Kellett v. Commissioner', a recent Tax Court decision addressing the tax treatment of start-up expenditures and, perhaps more generally, the ability of a taxpayer to rely on IRS guidance that is determined by a court to lack statutory authorization.
August 17, 2022 at 12:00 PM
9 minute read
A "start-up" typically incurs significant expenses before actually carrying on business activities. Under subsection (a) of Internal Revenue Code (Code) §162, the deduction of trade or business expenses is limited to "ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business" (emphasis added). Thus, only when a trade or business is being carried on may expenses be deducted under that provision. The prohibition against current deduction of start-up expenditures is also stated explicitly in Code §195, which then goes on to allow an amortization deduction over a 15-year period for such expenditures, beginning when the trade or business is actually commenced.
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