II 109th CONGRESS 2d Session S. 3974 IN THE SENATE OF THE UNITED STATES September 28, 2006 Mr. Bunning (for himself and Mr. Conrad) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To permit a special amortization deduction for intangible assets acquired from eligible small businesses to take account of the actual economic useful life of such assets and to encourage growth in industries for which intangible assets are an important source of revenue.

1.

Special amortization deduction for certain intangible property acquired from eligible small businesses after December 31, 2005

(a)

In general

Section 197 of the Internal Revenue Code of 1986 (relating to amortization of goodwill and certain other intangibles) is amended by redesignating subsection (g) as subsection (h) and inserting after subsection (f) the following new subsection: (g)

Special deduction for certain property acquired from eligible small businesses after December 31, 2005

(1)

Special deduction

In the case of any amortizable section 197 intangible— (A)the amortization deduction provided by subsection (a) for the taxable year in which such property is acquired shall include an allowance equal to 100 percent of the adjusted basis of the taxpayer’s qualified section 197 intangible property, and (B)the adjusted basis of the qualified section 197 intangible property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as an amortization deduction under subsection (a) for such taxable year and any subsequent taxable year. (2)

Qualified Section 197 intangible property

For purposes of this subsection, the term qualified section 197 intangible property means any amortizable section 197 intangible which is acquired in a transaction (or series of transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof from an eligible small business (as defined in section 474(c)) after December 31, 2005. (3)

Limitations

(A)

Maximum dollar amount

The aggregate amount of adjusted basis of qualified section 197 intangible property which a taxpayer may take into account under this subsection for any taxable year shall not exceed $5,000,000 ($2,500,000 in the case of a separate return of a married individual (as defined in section 7703)). (B)

Allocation of dollar amount

(i)

Controlled group

For purposes of applying the dollar limitation under subparagraph (A)— (I)all component members of a controlled group shall be treated as one taxpayer, and (II)the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group. For purposes of the preceding sentence, the term controlled group has the meaning assigned to it by section 1563(a), except that the phrase more than 50 percent shall be substituted for the phrase at least 80 percent each place it appears in section 1563(a)(1).(ii)

Partnerships and s corporations

In the case of a partnership, the dollar limitation contained in subparagraph (A) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders. (C)

Subsection not to apply to trusts

This subsection shall not apply to trusts. (D)

Estates

The benefit of the special deduction provided by this subsection shall be allowed to estates in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiary and the fiduciary under regulations prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account for purposes of determining the amount allowable as a deduction under this subsection to such beneficiary. . (b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2005.