Final answer:
Amortization, specifically for intangible assets for tax purposes, is covered under Section 197 of the Internal Revenue Code. This allows businesses to deduct the cost of certain intangible assets over a 15-year period, reducing taxable income over time.
Step-by-step explanation:
The topic of amortization for tax purposes, as it relates to intangible assets, is principally covered under Section 197 of the Internal Revenue Code (IRC). Amortization is the process of spreading the cost of an intangible asset over its useful life. For example, if a company acquires a patent or copyright, the cost of this asset can typically be amortized over a 15-year period under Section 197, allowing the business to deduct a portion of the asset's cost on their taxes each year.
Under Section 197, certain intangible assets such as goodwill, going-concern value, workforce in place, business books and records, operating systems, or any other similar item that are acquired in connection with the acquisition of a business, can be amortized. This deduction is important for businesses as it can reduce taxable income and thus, lower tax liabilities over time. It's important to note that there are specific rules and exceptions that apply for different types of intangible assets, and these need to be carefully considered when calculating amortization for tax purposes.