Mortgage Payment Amortization Schedule

Clarification of the term "mortgage payment amortization schedule" is needed. The statute speaks in terms of a right that is not acquired in a transaction or a series of related transactions involving the acquisition of assets constituting a trade or business, or a substantial part thereof. This determination is made on the basis of all the facts and circumstances, taking into account the assets acquired and the nature and amount of the assets retained by the seller.

In addition, a group of assets constitutes a trade or business, if the use of such assets would be a trade or business for purposes of Section 1060. These statements may be useful in understanding the issue, but they are not very clear tests. As in other areas involving a fact and circumstances test, controversy is likely to result, and judicial interpretation will be necessary. A second potential source of controversy is how multiple transactions will be as a series of related transactions. It would seem likely that the step transaction doctrine will apply, but, again, this is not a clear-cut test.

Special Rules Three sets of special rules apply to transfers of Section 197 intangible assets.(27) The first rule deals with loss deferral on Section 197 assets. A second rule deals with transfers of Section 197 intangibles in certain non-recognition transactions. The third, and final, set of rules is comprised of anti-churning rules.

The loss deferral rules defer the recognition of a loss on the disposition or worthlessness until all Section 197 intangibles acquired in the acquisition of a trade or business are disposed of or become worthless. Instead, the basis of the remaining Section 197 intangible assets is increased by the unrecognized loss, and amortization will continue. If a Section 197 intangible, however, is sold at a gain, it will be recognized.

The loss added to the basis of retained intangibles is allocated among the retained intangibles or the intangibles retaining value, in proportion to their adjusted basis. Section 197 intangibles are considered retained by a taxpayer if the intangibles are retained by any member of a controlled group. Losses added to the basis of the retained intangibles will be amortized over the remainder of the 15-year amortization period.

The intent of these rules is to prevent taxpayers from circumventing the 15-year amortization period by disposing of some purchased intangibles while retaining the remainder of the business. If losses were allowed on the disposition of any purchased intangible, a taxpayer would attempt to allocate most of the basis of all intangibles to the intangible(s) that they are to dispose of in a short time, thus accelerating the cost recovery. Under the rule, those intangibles that would generate a loss should be sold before selling those intangibles that would generate gains.

The loss deferral rules do not apply to Section 197 intangibles that are separately acquired. Consequently, a loss may be recognized upon the disposition of a separately acquired Section 197 intangible.