Discussion:Franchise Fee
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Discussion Forum Index --> Tax Questions --> Franchise Fee
| 14 March 2007 | |
| A client of mine operates a well-known franchise. He paid over $150k as the initial franchise fee which is being amortized over 5 years (as per the franchise agreement) in the books. For tax purposes, I am amortizing the franchise fee over 15 years per Sec. 197. My client informed me that other franchisees are amortizing the franchise fees over 5 years in their taxes as well. Who is correct? | |
Machster179 (talk|edits) said: | 14 March 2007 |
| My understanding agrees with SunGod, 15 years on franchise fees. | |
| March 14, 2007 | |
| Agreed. Also amazing how our client's seem to always tell us, "well, you know, my friend who is a plumber told me that I can deduct my cat, is that true?"... | |
| March 14, 2007 | |
| Nope:) Just a cat that I send to a private school. Can I deduct that? | |
Death&Taxes (talk|edits) said: | 14 March 2007 |
| I know plumbers who deduct snakes!!!!! Badddabing. | |
| 14 March 2007 | |
| Does the answer change if the franchise fee only covers/has a life of 5 years? | |
| 14 March 2007 | |
| JR, tomorrow must be a major due date or something, because your patient responses are sounding like mine. | |
| 14 March 2007 | |
| Yes I read the original question and thought I asked a different one.
What if the franchise agreement allowed for a 5 year fanchise for XX payment. Year 6 comes and you have no franchise right. Is it still 15 years per the tax code? | |
| 14 March 2007 | |
| In other words, IRS doesn't give a crap whether or not the franchise rights only lasts five years or not...they say that you get a useful life of 15 for no other reason than THEY SAID SO!!! So it's Fifteen if the contract says 2 it's fifteen if the contract says 2 days. | |
| March 15, 2007 | |
| Please, Lord, just a little May...that's all I need right now. | |
Dianeoffutt (talk|edits) said: | 16 August 2007 |
| I was hoping I'd find a discussion on Sec 197 Franchise Fee amortization. I just took on a new client (Partnership tax return)...looked at his 2005 Form 1065 tax return and noticed his prior accountant amortized the franchise fee on a 5 year timeframe. I guess he is related to that plumber above. Anyway.....I know he should have amortized over 15 years. Here are all the problems: 2005 was the first year of franchise. In 2006 , my client settled (legally) with the franchisor and is no longer a franchise. He is running the same company, but not as a franchise. It was the ONLY Sec 197 and is disposed of Dec 2006 (so it is more than one year). I planned on taking a SEC 1231 ordinary loss for the remaining unamortized franchise fee in 2006. My question is since the 2005 overstated amortization, I believe I should be amending the Partnership 2005 tax return...which will flow through to 1040...so the 2005 Form 1040 also needs to be amended. This will change the amount to Sec 1231 in 2006. The Partnership is made up of two partners. Also....and very importantly....in 2005 the company had a $150K loss. So I am wondering....do I really need to amend 2005 Form 1065 and two K1s and Form 1040...which will reduce the 2005 by approx $7K....or should I just file 2006 and disclose in both the FORM 1065 and 1040 the problem of the overstated amortization in 2005. The partners are the same in both years...as is the allocation of the loss. I want to take the easy way...however I have this gut feeling that I truly need to amend all the 2005 returns and of course explain to IRS WHY the amendment.
All responses will be GREATLY appreciated. Diane Offutt Woodstock, Georgia 30189 | |
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