Start-Up Costs

[Snaggletoof]

I don't know that anything I read can be any substitute for facts & circumstances judgement when it comes to accumulating amortizable start-up costs.

Sorta easy when you have a retail store, and your start-up costs can stop when you first open your doors to the public.

Not so easy with this situation: New corporation is in the business of government contracting. ACRN Corp begins Sept 1, 2009 with minimal payroll and operating expenses. Corp will add a staff of 8 people and begin bidding Oct 1, 2009 on 3-4 Federal government defense contracts. After many months of bidding activity, the first such contract award will occur no earlier than March 1st of 2010. Others will be awarded from April to July 2010.

As you can read, this is not simply a matter of painting an old shop and opening your doors. This is a very long and drawn-out process.

Anyone offer any suggestions (with citation guidance) as to when we can stop collecting these start-up costs, and begin ordinary and necessary deductions??

[Corduroy Frog]

Bump It Up

Bump this thing back up to the top. It's falling down the page faster than concrete shoes.

Must be a boring topic.

"We Thank You For Your Support"...

[JG EA]

Since IRS Section 195 leaves it up the Secretary unless the business is acquired - then facts and circumstances..
Try this web site. It talks about the final decision to acquire or create the business, the expenses that do not qualify for amortization and the acquisiton costs. There are some cites of regulation and letter rulings there that may help.

http://www.thefreelibrary.com/Tax+treatment+of+due+diligence+and+start-up+costs+remains+uncertain-a053933208

For general information TTB 8-17 explains it well and simply. So you have to decide what is acquiring, what is start up and what is started. If a lot of money is involved and therefore a lot of risk of advising on your part would a letter ruling be possible? Your situation sounds very complex, but maybe it is clearer to more experienced with complex corporations.

[Gretel]

No citations. I would think corporation is in business once bidding starts - especially with that many people hired. Bidding is as much part of business and the actual work done and will be after the first contracts.

[Snaggletooth]

Thanks

Thanks to JG and Gretel for responding.

As I had feared, looks like no ironclad rules. However, major proposal work is reason enough to have the "doors opened" and I am inclined to agree with her. Actual performance of an awarded contract may be as much as an entire year down the road.

[Davc]

Start up ends when you are ready to provide the goods or services you sell. The day they are ready to actually perform the service or make the product if somebody walked in and handed them a contract is the date start up ends.If the same people than work on the bids are also the people that would do the work, then start up ends when they're ready to go. However, if they're only able to do the sales activities (bids) then they're still in the start up phase.

[Nashville]

Oregon

Davc, I notice you are from Roseburg, OR. Also, you post answers on this board to difficult questions, and over time I have developed a great deal of confidence in your knowledge and expertise.

Snaggletooth will begin a post tonight with Oregon implications. Please drop in and contribute your two cents worth. I believe our more ubiquitous Oregon guy, Veritas, will be out in full force from the bridge city.

[Roland Slugg]

Code §195(c)(2)(A) says, "Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe."

Unfortunately, the IRS has not yet issued any Regs (nor are there any proposed Regs) under §195.

In my opinion the start-up period ends and the active business begins, for a business like you described, when most or all of the initial group of employees are in place and they begin actively working on putting together bids for government contracts. Since the first successful bid might come back 24 hours later or 6 months or more later (as per your post) does not seem to me to make any difference. Using the example dates in your post, I would say start-up costs end on September 30, 2009, and business starts on October 1, 2009.

[Black Bart]

No problem.

Bump this thing back up to the top. It's falling down the page faster than concrete shoes. Must be a boring topic...

Stayin' up top and pop is easy as pie, Frogger. Simply mention tacos (or maybe pie) in your next post.