CODE AND REGULATIONS

IRC § 195. Start-up expenditures.

(a)      Capitalization of expenditures.

Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.

(b)     Election to amortize.

(1)     In general.  Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins.)

(2)     Dispositions before close of amortization period. In any case in which a trade or business is completely disposed if by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.

(c)      Definitions.

For purposes of this section –

(1)  Start-up expenditures. The term “start-up expenditure” means any amount ---

(A)    paid or incurred in connection with –

(i)                   investigating the creation or acquisition of an active trade or business, or

(ii)                 creating an active trade or business, or

(iii)                any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and

(B)    which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in sub-paragraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.

The term “start-up” expenditure” does not include any amount with respect to which a deduction is allowable under section 163 (a), 164 , or 174.

       (2) Beginning of trade or business.

(A)    In general. Except as provided in subparagraph  (B), in determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.

(B)    Acquired trade or business. An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.

(d)     Election.

(1)     Time for making election. An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof.)

Legislative History

1984 Amendments

Pub L No 98-369, 98^th Cong. 2^nd Sess (July 18,1984).

§ 94(a) amended sec 195 effective for  taxable years beginning after June 30, 1984. Prior to amendment sec 195 read as follows:

IRC § 195. Start-up expenditures.

‘( a) Election to amortize.

“ Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins.)

(b)  Start-up expenditures. The term “start-up expenditure” means any amount ---

 “(l) paid or incurred in connection with –

       “(A) investigating the creation or acquisition of an active trade or business, or

       “(B) creating an active trade or business, and

        “(2) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in sub-paragraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.

“(c) Election.

     “(1) Time for making election. An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof.)

          “(2) Scope of election. The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.

          “(3) Manner of making election. An election under subsection (a) shall be made in such a manner as the Secretary shall be regulations prescribe.

     “(d)  Business Beginning.

            “For purpose of this section , an acquired trade or business shall be treated as beginning when the taxpayer acquires it.”

1980 Amendments
Pub L No 96-605, 96^th Cong. 2^nd Sess (Dec 28, 1980).

§ 102 (a) added sec 195 effective for amounts paid or incurred after July 29, 1980 in taxable years ending after such date.