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Limited Entry Permits and Anti-Churning Rules

IRC section 197 provides for the amortization of limited entry fishing permits (they are a government permit). Generally, limited entry fishing permits may only be amortized if they were acquired after August 10, 1993. However, at the election of the taxpayer, they may amortize all section 197 intangibles, including a fishing permit, if acquired after July 25, 1991.

The anti-churning rules were created to prevent taxpayers from converting existing section 197 intangibles, for which a depreciation or amortization deduction would not have been allowable under the law as it existed prior to enactment of section 197, into amortizable property under the new section 197 rules. "Existing section 197 intangibles" are intangibles held by the taxpayer on the date of enactment of the Revenue Reconciliation Act of 1993 (RRA '93), which is the law that created section 197 intangible amortization. Under the anti-churning rules, a limited entry fishing permit cannot be amortized if:

  • the taxpayer or a related person held or used the fishing permit at any time during the period that begins on July 25, 1991, and ends on August 10, 1993, OR
  • the taxpayer acquired the fishing permit from a person that held it at any time during the period that begins on July 25, 1991, and ends on August 10, 1993, and, as part of the transaction, the user of the fishing permit does not change, OR
  • the taxpayer grants the right to use the fishing permit to a person (or a person related to such person) that held or used the fishing permit at any time during the period that begins on July 25, 1991, and ends on August 10, 1993.

In addition, Congress gave the Department of the Treasury the authority to issue regulations as may be appropriate to carry out the purposes of this section, including such regulations as may be appropriate to prevent avoidance of the purposes of this section through related persons or otherwise. The "anti-abuse" portion of the regulations state, "The rules in this section shall be interpreted and applied as necessary and appropriate to prevent avoidance of the purposes of section 197. If one of the principal purposes of a transaction is to achieve a tax result that is inconsistent with the purposes of section 197, the Commissioner can recast the transaction for Federal tax purposes as appropriate to achieve tax results that are consistent with the purposes of section 197, in light of applicable statutory and regulatory provisions and the pertinent facts and circumstances."

Based upon all of this, it is doubtful that there is any possibility to convert a limited entry fishing permit that was owned before July 25, 1991, to an amortizable section 197 intangible.


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Page Last Reviewed or Updated: 19-Dec-2014