Certification Fees

[Jill Graff]

Client, a 3-member LLC electing to be taxed as an S-Corp, is going to provide hospice services. There is about a 1-year process to get certified in Texas. The fees will be about $5,000. LLC organized 06/07, will hopefully be certified by 06/08.

Question: Are the certification fees amortizable as organization/start-up fees or do they just have to be capitalized with no amortization or writeoff?

Thanks in advance.

[erchess]

I wish someone who knows more than I do would answer,

but here's my two cents. The question is a Federal tax question and as I understand it an LLC that elects to be taxed as an S-Corp IS an S-Corp for all Federal tax purposes.

Now the discussion starting on pg 8-17 of TTB does not mention S-Corps as far as I can see but there is nothing to authorize anyone to include state licensing fees in startup or organizational expenses. I would say therefore that this expense must be capitalized.

[Fuzzy Faced Leader]

All expenses incurred prior to start of operations, including certification fees, have to be capitalized, and amortized starting in the year operations begin.

[oceanlovin'ea]

TTB page 18-19

Jill,

Look at page 19-14 in the Tax Book. There is a discussion of orgainzational costs and start-up costs for an s corporation. There is an election to deduct up to $5000 of each.

Page 8-17 breaks down what fits in each category.

It does not specifically mention certification fees but it might fit into one of those categories.

NSTP and NAEA both will answer specific questions for you.

Linda F

[Bees Knees]

It’s a question of whether you can conduct your trade or business prior to certification, or whether you can't conduct any business until after certification.

For example, you can run a day care business in Minnesota without being certified. But you can't qualify for various food programs for the day care until you do get certified. In this case, as long as you are already conducting business prior to certification, the fees would be deductible in the year incurred.

On the other hand, you can't run a private hair salon in Minnesota until you are certified. In this case, since your trade or business cannot even start prior to certification, the fees would be considered start up costs, deductible up to $5,000 and amortizable for the rest.