This book primarily discusses the accounting requirements for goodwill and other intangible assets. However, goodwill and other intangible assets also have tax consequences. These tax consequences will affect either (or both of) (1) deferred tax consequences or (2) the amount of actual tax paid.
This chapter covers two intertwined subjects. First, it covers deferred tax consequences reported in financial statements concerning goodwill and other intangibles. Deferred tax consequences arise from the difference between the accounting treatment of an asset or liability and the tax treatment. Under U.S. GAAP, goodwill cannot be amortized.1 In contrast, goodwill under prescribed circumstances may be amortized and deducted in determining income tax liability.2 This difference between the accounting and tax treatments can give rise to deferred tax consequences.3
Second, this chapter covers the treatment of goodwill and other intangible assets on income tax returns. Section 197 specifies what an amortizable intangible asset is and what it is not. It is specific about the amortization of goodwill and all other intangible assets—amortize all of them over 15 years, with no exceptions. It is also an evolving area of the Internal Revenue Code, as can be seen by the change in handling professional sports franchises.4 For a more detailed analysis of I.R.C. § 197, see Nellen, 533-3rd T.M., Amortization of ...