IRS Proposes Change to Amortization of Organization Costs for Partnerships

Dec. 19, 2013

The IRS has issued proposed regulations that do not allow a partnership to deduct its unamortized startup, organization, and syndication costs upon a technical termination and require the continued amortization of these costs. The regulations apply to technical terminations that occur on or after Dec. 9, 2013.

Startup, organization, and syndication costs incurred by a partnership generally are capitalized and amortized over a 15-year period. Under the existing guidance, taxpayers may claim a deduction for any remaining unamortized costs upon the dissolution or termination of an entity.

Partnerships that have a greater than 50 percent change in ownership during a 12-month period go through a technical termination. Although the partnership may continue for legal purposes, federal tax law treats this change in ownership as the termination of one entity and the formation of a new entity. Some partnerships have taken the position that unamortized startup, organization, and syndication costs are deductible upon a technical termination.

The regulations would not affect the deduction of unamortized startup or organization costs where partnership operations cease and do not continue in another entity.

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Howard M. Wagner
Partner, National Tax Services