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6. A customer-based intangible. 7. A supplier-based intangible. 8. Any item similar to items 3 through 7. 9. A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals). 10. A covenant not to compete entered into in connection with the acquisition of an inter- est in a trade or business. 11. Any franchise, trademark, or trade name. 12. A contract for the use of, or a term interest in, any item in this list. You can't amortize any of the intangi- bles listed in items 1 through 8 that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Goodwill. This is the value of a trade or busi- ness based on expected continued customer patronage due to its name, reputation, or any other factor. Going concern value. This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. It includes value based on the ability of a business to con- tinue to function and generate income even though there is a change in ownership (but doesn't include any other section 197 intangi- ble). It also includes value based on the imme- diate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business wouldn't other- wise be available or operational. Workforce in place, etc. This includes the composition of a workforce (for example, its ex- perience, education, or training). It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their at- tributes. For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Also, you must amortize the cost of acquiring an ex- isting employment contract or relationship with employees or consultants. Business books and records, etc. This in- cludes the intangible value of technical man- uals, training manuals or programs, data files, and accounting or inventory control systems. It also includes the cost of customer lists, sub- scription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Patents, copyrights, etc. This includes pack- age design, computer software, and any inter- est in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That aren't Section 197 In- tangibles. Customer-based intangible. This is the com- position of market, market share, and any other CAUTION ! value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. For example, you must amortize the part of the purchase price of a business that is for the exis- tence of the following intangibles. • A customer base. • A circulation base. • An undeveloped market or market growth. • Insurance in force. • A mortgage servicing contract. • An investment management contract. • Any other relationship with customers in- volving the future provision of goods or services. Accounts receivable or other similar rights to income for goods or services provided to cus- tomers before the acquisition of a trade or busi- ness aren't section 197 intangibles. Supplier-based intangible. A supplier-based intangible is the value resulting from the future acquisitions (through contract or other relation- ships with suppliers in the ordinary course of business) of goods or services that you will sell or use. The amount you pay or incur for sup- plier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the exis- tence of a favorable relationship with persons providing distribution services (such as a favor- able shelf or display space or a retail outlet), or the existence of favorable supply contracts. Don't include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Also, see Assets That aren't Section 197 Intangibles, later. Government-granted license, permit, etc. This is any right granted by a governmental unit or an agency or instrumentality of a governmen- tal unit. For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medal- lion or license, or a television or radio broad- casting license. Covenant not to compete. Section 197 intan- gibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. An interest in a trade or business in- cludes an interest in a partnership or a corpora- tion engaged in a trade or business. An arrangement that requires the former owner to perform services (or to provide prop- erty or the use of property) isn't similar to a cov- enant not to compete to the extent the amount paid under the arrangement represents reason- able compensation for those services or for that property or its use. Franchise, trademark, or trade name. A franchise, trademark, or trade name is a section 197 intangible. You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. For in- formation on currently deductible contingent payments, see chapter 11. Professional sports franchise. A fran- chise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player con- tracts) is a section 197 intangible amortizable over a 15-year period. Contract for the use of, or a term interest in, a section 197 intangible. Section 197 intangi- bles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Assets That aren't Section 197 Intangibles The following assets aren't section 197 intangi- bles. 1. Any interest in a corporation, partnership, trust, or estate. 2. Any interest under an existing futures con- tract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. 3. Any interest in land. 4. Most computer software. (See Computer software, later.) 5. Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. a. An interest in a film, sound recording, video tape, book, or similar property. b. A right to receive tangible property or services under a contract or from a governmental agency. c. An interest in a patent or copyright. d. Certain rights that have a fixed dura- tion or amount. (See Rights of fixed duration or amount, later.) 6. An interest under either of the following. a. An existing lease or sublease of tangi- ble property. b. A debt that was in existence when the interest was acquired. 7. A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. 8. Certain transaction costs incurred by par- ties to a corporate organization or reorgan- ization in which any part of a gain or loss isn't recognized. Intangible property that isn't amortizable un- der the rules for section 197 intangibles can be depreciated if it meets certain requirements. You generally must use the straight line method over its useful life. For certain intangibles, the depreciation period is specified in the law and regulations. For example, the depreciation pe- riod for computer software that isn't a section 197 intangible is generally 36 months. For more information on depreciating intan- gible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Pub. 946. Chapter 8 Amortization Page 31