FINALE SOFTWARE BREAKS INTERNET INSTALL

168 over a five-year period (4) the software development costs were currently deductible under Sec. 162 (3) the computer hardware should be capitalized under Sec.

167(f) (2) the employee training and other associated costs were currently deductible under Sec. 263(a) and depreciated over 36 months under Sec.

The IRS came to the following conclusions on the tax treatment of the computer costs: (1) the cost of the purchased software (including sales tax) should be capitalized under Sec.

FINALE SOFTWARE BREAKS INTERNET INSTALL

Implementation of this software involved various costs: (1) costs to acquire the software, (2) costs to train employees to use the software, (3) costs of the computer hardware, (4) software development costs, as well as costs to install and configure the software to the taxpayerРІР‚в„ўs needs, and (5) consulting costs for further modifications to the software. Also, the taxpayer was required to pay the consultants regardless of the success or failure of the implementation of the software, and the taxpayer was responsible for all costs. All these contracts provided no guarantees or warranties. Finally, the taxpayer entered into a contract with another vendor to act as a project manager to implement and design any additional modifications to the software. The taxpayer also entered into a contract with the vendor in which the vendor would provide consulting services for further software development and employee training. ERP software integrates the different business functions, including financial accounting, sales and distribution, materials management, and production planning into one system. In Letter Ruling 200236028, the IRS addressed the tax effects of a taxpayerРІР‚в„ўs purchase, development, and implementation of enterprise resource planning (ERP) computer software and the purchase of computer hardware from a vendor. The Chief Counsel clears up this misconception, stating, РІР‚СљSection 1.263(a)-4 did not render PLR 200236028 obsolete.РІР‚Сњ CCA 201549024 distinguishes between the regulation and the letter ruling. Since the IRS issued the regulation in proposed form in December 2002 and finalized it in January 2004 after issuing Letter Ruling 200236028 in June 2002, taxpayers apparently have been under the impression that the tax treatment of computer software costs was changed. 1.263(a)-4 governs the tax treatment of amounts paid to acquire or create intangible assets. Letter Ruling 200236028 addresses the income tax consequences of the purchase, development, and implementation of a customized computer software database.Р”Р„ccording to the Chief CounselРІР‚в„ўs statement in the CCA, some taxpayers have been under the misconception that Letter Ruling 200236028 no longer applied to the treatment of computer software costs after the IRS promulgated Regs. Recently, the Office of the Chief Counsel issued Chief Counsel Advice (CCA) 201549024, which reaffirms the principles and conclusions of Letter Ruling 200236028.

Finale software breaks internet