How do I categorize a Service Mark registration fee?

All costs related to acquisition of an intangible (or tangible) asset are added to the basis of that asset. Even current legal fees plus everything you paid last year for failed registration are part of the asser right from the start, not an expense.

Now if this registration, and the next, fail then it would be apparent that someone else beat you to this mark and then you could write off the entire exercise

@fun-numbers 

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@john-pero wrote:

All costs related to acquisition of an intangible (or tangible) asset are added to the basis of that asset. Even current legal fees plus everything you paid last year for failed registration are part of the asser right from the start, not an expense.

 

Now if this registration, and the next, fail then it would be apparent that someone else beat you to this mark and then you could write off the entire exercise

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You lost me at "then." Are you saying the service mark registration fees are only valid as intangible assets if the service mark is approved? If it fails, then it would need to be removed from being an intangible asset and reclassified as a legal expense? Is this correct? Thanks for the help John! We're a new business and we're migrating our accounting from Freshbooks to Quickbooks online.

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@Rustler wrote:

@fun-numbers 

 

It is not an expense.

create an asset account and book the costs to that asset account, create a sub account for accumulated depreciation.

It is what the IRS calls a section 197 intangible, and it is depreciated over 15 years.  There are exceptions (there always are with the IRS) if this purchase of a service/trademark is associated with the purchase of a franchise.

 

Chapter 8, IRS pub 535

and
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Intangibles

 

Thanks Rustler! I run into your response in another post. The issue is it was not clear on how to classify a failed registration, legal fees, and the adjustment process for the depreciation. For example, does the registration need to be approved to classify the costs related under intangible asset? How about the legal fees? Thanks again.

 

 

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@fun-numbers wrote:

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@john-pero wrote:

All costs related to acquisition of an intangible (or tangible) asset are added to the basis of that asset. Even current legal fees plus everything you paid last year for failed registration are part of the asser right from the start, not an expense.

 

Now if this registration, and the next, fail then it would be apparent that someone else beat you to this mark and then you could write off the entire exercise

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You lost me at "then." Are you saying the service mark registration fees are only valid as intangible assets if the service mark is approved? If it fails, then it would need to be removed from being an intangible asset and reclassified as a legal expense? Is this correct? Thanks for the help John! We're a new business and we're migrating our accounting from Freshbooks to Quickbooks online.

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That is my thought. Consider this situation. You put down $5000 as a good faith deposit on buying a business property, a hard an touchable asset, but the deposit is non-refundable and the deal goes South you do not get the $5000 back but have no asset in hand either, you spent money, and can, in my estimation,  take that spending as an expense.

That was not always true for us. Before our tax law change at end of 2017 we could not deduct cost of investigating the purchase of an asset of we did not follow through on the purchase. 

Now, if I understand it correctly, due to being in real estate, I can deduct the cost of a business trip  to look at property to buy even if I do not buy any. (as always I could be wrong and my CPA would correct me)

Back to your situation, I do not know why your initial registration failed and second time around you may not have any problems - but if you do and end up abandoning the securement  of this particular mark you do not even end up with an intangible asset, let alone a tangible one.

From Rustler's link, first line

You must generally amortize over 15 years the capitalized costs of "section 197 intangibles" you acquired .....

Bold is mine and would appear to me to be a valid point to argue, if you do not get the registration mark you have not "acquired" it