The Revenue Reconciliation Act of 1993 (P.L. 103-66) added
section 197, which allows an amortization deduction with respect
to the capitalized costs of certain intangible property that is
acquired by a taxpayer and that is held by the taxpayer in
connection with the conduct of a trade or business or an
activity engaged in for the production of income. The amount of
the deduction is determined by amortizing the adjusted basis
(for purposes of determining gain) of the intangible ratably
over a 15-year period that begins with the month that the
intangible is acquired.
The term “section 197 intangible” is defined to include “any
license, permit, or other right granted by a governmental unit
or any agency or instrumentality thereof.” Thus, for example,
the capitalized cost of acquiring from any person a liquor
license, a regulated airline route, or a television or radio
broadcasting license is to be amortized over a 15-year period.
Consequently, the definition of an amortizable intangible can be
interpreted to include a limited entry fishing permit.
This provision generally applies to property acquired after
the date of enactment of the 1993 bill. However, a taxpayer may
elect to apply the bill to all property acquired after July 25,
1991. “Anti-churning” rules prevent taxpayers from converting an
existing IRC section 197 intangible for which depreciation or
amortization would not have been allowable under present law
into amortizable property to which the bill applies.
Depreciable Life of a Fishing Vessel
Water transportation equipment such as barges, tugs, and
similar water transportation equipment have a class life of 18
years and a MACRS recovery period of 10 years. Fish tender
vessels and fish processing vessels are considered water
transportation equipment and should also be depreciated over a
period of 10 years. Fishing boats, however, used in one's
fishing trade or business is generally depreciated over 7 years.
You can generally depreciate a net, pot, or trap in your
fishing trade or business as 7 year property. However, if based
on your own experience you determine that any of these items
will not be used for more than one year in your business, you
may be able to deduct the cost as a business expense.
Depreciating Fishing Nets
Fishing Nets are expected to last longer than the year they
are placed into service; therefore, they are capital assets and
require depreciation treatment. See
Depreciating Fishing Nets
Fish Processing Equipment
Fish processing equipment includes items such as belts and
screws, conveyors, bins, holding tanks, washes, climate control
devices, screens, separators, automatic deheaders and filleters,
waste product recovery systems, refiners, plate freezers,
packaging equipment, and a large number of standard motors and
power transmission systems.
It has been the long standing position of the Internal
Revenue Service that fish processing equipment falls under the
Asset Class 20.4 as food production and manufacturing equipment
and should be depreciated over 7 years. Some taxpayers are
erroneously treating these assets as "special handling devices,"
as described in Asset Class 20.5, and are depreciating them over
A taxpayer's reliance on the economic life of the assets
corresponding to the 3-year recovery period is unsupported since
recovery periods are statutorily defined by class lives and do
not correspond to economic lives. The fact that a taxpayer's
fish processing equipment is species specific does not justify a
shorter recovery period.
Special handling devices such as returnable pallets,
palletized containers, boxes, baskets, carts and flaking trays
used in a taxpayer's fish processing facility may be classified
under Asset Class 20.5 and be depreciated over 3 years.