Based on the information provided:
- Business Taxpayer incurred $53,500 in start-up costs in 2002 (the initial year)
- Start-up costs are amortized over a 180-month period for tax purposes
- In the first year, the amortization deduction is prorated based on the number of months in business
Calculation:
Total start-up costs: $53,500
Amortization period: 180 months
Monthly amortization: $53,500/180 = $297
Number of months in business in 2002: 12
Prorated amortization deduction in 2002: $297 x 12 = $3,564
Therefore, the amount of start-up costs allowed as a deduction (per IRC §195 amortization) in 2002 would be $3,564.
The answer is $3,500.