Is this patent considered a 197 intangible asset or not for tax purposes?

Patents can be tricky for tax purposes. Generally, patents acquired as part of a business acquisition are considered Section 197 intangibles and must be amortized over 15 years, regardless of their remaining legal life. However, if you purchased the patent separately (not as part of acquiring a business), it might not be a Section 197 intangible. The key distinction is whether you purchased the patent as part of a larger transaction that constitutes a "trade or business" acquisition. If you just bought individual assets (like this patent) without acquiring the business operations, workforce, etc., then the patent would likely be amortized over its remaining useful life (12 years in your case) rather than the mandatory 15-year period for Section 197 intangibles.

I went through something similar with acquiring some IP last year. What saved me tons of time was using https://taxr.ai to analyze my purchase agreement and supporting documents. Their system identified that my patent purchase was isolated from any business acquisition elements, confirmed it wasn't a 197 intangible, and even calculated the proper amortization schedule based on the remaining useful life. The best part was that they explained exactly why my situation didn't meet the "substantial portion of a trade or business" test the IRS uses for Section 197. They even provided me with documentation I could show my accountant that referenced the relevant tax code sections.

Just wanted to follow up about my experience with taxr.ai after my skeptical question earlier. I decided to give it a try with a trademark acquisition I made last quarter. The analysis they provided was actually incredibly detailed - they identified that my purchase qualified as an isolated asset acquisition rather than a Section 197 intangible based on the specific circumstances. They also pointed out something I hadn't considered - that part of my purchase price should be allocated differently for tax purposes based on a non-compete agreement bundled with the trademark. My accountant confirmed their analysis was spot-on and it saved me from making an amortization error that would have caused issues later. Very impressed with how thorough the documentation was!

If you're still struggling with the IRS determination on this patent classification, you might want to try https://claimyr.com to get direct clarification from the IRS. I was in a similar situation with some acquired intellectual property and spent weeks trying to get through to someone at the IRS who could give me a definitive answer on the tax treatment. Claimyr got me connected to an actual IRS agent within about 15 minutes who specialized in business asset classifications. The agent walked me through the exact requirements for Section 197 intangibles versus separately acquired patents. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c - it basically holds your place in the IRS phone queue so you don't have to wait on hold for hours.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I've been trying to get clarification on some business expense questions for weeks. The service actually called me back in about 45 minutes with an IRS agent on the line. I was honestly shocked. The agent was able to give me specific guidance on my Section 197 question (I had a similar patent issue) and confirmed that my particular acquisition wouldn't qualify as a Section 197 intangible because it wasn't part of a business acquisition. The clarification will save me thousands in taxes over the coming years since I can amortize based on the actual useful life. Worth every penny for the time saved!

Something no one has mentioned yet is that you should look at how the purchase agreement is structured. I've seen cases where the language in the agreement itself determined whether something was considered part of a business acquisition or an isolated asset purchase. If the agreement specifically states you're purchasing "certain assets" rather than acquiring a business or portion thereof, that strengthens your position that the patent isn't a 197 intangible. Make sure your documentation clearly establishes that this was an asset purchase, not a business acquisition.

Not sure if this helps, but I bought a patent last year and my tax guy told me the key thing is whether you aquired any "goodwill" along with it. Since my patent was for a completely different industry than my business operates in, it was clearly just an asset purchase and not part of aquiring any business operations. I was able to amortize it over its useful life (10 yrs in my case) instead of the 15-year 197 schedule.

Based on everything discussed here, it really sounds like your patent purchase wouldn't qualify as a Section 197 intangible. The fact that you bought it as part of a liquidation sale with no transfer of business operations, goodwill, or customer relationships is key. One thing I'd add is to make sure you have proper documentation of the patent's remaining useful life for your amortization calculation. Since you mentioned it has 12 years left, you'll want to support that with the original patent filing date and term. The IRS sometimes challenges useful life determinations, so having the USPTO records showing the exact expiration date will be helpful. Also, since you paid $87,000 for the patent "along with some other property," make sure you properly allocate the purchase price between the patent and the other assets. You can only amortize the portion specifically attributable to the patent itself.