IRS offers relief from ISO 9000 costs

By Staff -- Industrial Distribution, 6/1/2000

Chicago-For manufacturers that have achieved ISO 9000 qualification, some costs associated with this certification are now generally deductible.

The Internal Revenue Service has released a Revenue Ruling (2000-4) stating that the costs of obtaining, renewing and maintaining ISO 9000 qualification are generally deductible, according to Neil Lonergan, a tax partner in the Madison, Wis., office of Grant Thornton LLP, an international accounting and management consulting firm.

This development is significant because it represents a major change from what has been occurring in IRS field audits, Lonergan says. Agents have been arguing that the current deduction is limited to the training component-and that the rest of the costs were to be amortized over the three-year renewal period.

The capitalization argument relates to the 1992 Supreme Court decision to uphold the Tax Court's decision in INDOPCO, Inc. vs. Commissioner in favor of the IRS. With that decision, the Supreme Court ruled that any expenditure that results in a benefit beyond the year in which it was made has to be capitalized. In the case of ISO 9000 qualification, the benefit of being qualified extends beyond the year in which a manufacturer invests in becoming qualified.

"Until this ruling, we were concerned that the IRS was going to argue that consulting fees be capitalized because they, in effect, create an intangible asset that has an indefinite useful life," says Lonergan. "This ruling gives manufacturers some comfort that the IRS will not take that approach."