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For Richer or Poorer: Intangibles Spawn Deductions

Interesting information that may be of interest to technology, biotech, recent company acquirors, or others with lots of intangible assets on the books. -T. C. Wright

By acquiring the rights to develop and market a product, a struggling company can pick up tax benefits.

April 25, 2011

Embedded in the tax code is the principle that just as companies must pay taxes on their earnings, they also merit tax breaks when they suffer losses. Thus, when a corporation incurs more expenses than revenues, its allowable tax deductions often exceed its taxable income by what’s called a net operating loss (NOL). For the struggling companies that often can report them, NOLs can be a very good thing, since they can be used to recover past tax payments or cut future outlays.

In a letter ruling (201106001) issued February 11, the Internal Revenue Service showed how a company with intangible assets can boost the amount of NOLs it can use following an ownership change. The subject, a company we’ll call PoorSmart, entered into a sub-license agreement with another company we’ll call RichSmart. Under the agreement, RichSmart provided PoorSmart with patents, know-how, and the rights to develop and distribute a certain product worldwide.

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About Tiffany C. Wright

Hi! I,Tiffany C. Wright, am the author of the ebook, "Help! I Need Money for My Business Now!!" and the book "Solving the Capital Equation: Financing Solutions for Small Businesses", available on Amazon. I am the president of Toca Family Business Services, a short-term & project-based interim management & strategic and financial advisory firm, located in Atlanta, Georgia. In the past five years I've helped small and medium companies restructure and obtain over $31 Million in financing and a similar amount in purchase orders and contracts. I have an MBA in Finance and Entrepreneurial Management from the Wharton School of Business at the University of Pennsylvania and a B.S. in Industrial and Systems Engineering from The Ohio State University. Personal: I enjoy investing. I am a prodigious reader of everything from business books, magazines, and newspapers to horror and popular fiction. I read 4-6 books per month. I also love to travel. I've been to 33 countries on 5 continents and lived in Japan for 2.5 years and aim for a foreign locale twice a year. I am also an athlete and run track on the Master's Circuit. The highlight was placing 7th in my age group in the 2007 World Master's Track and Field Championships in Italy.

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The Resourceful CEO, Tiffany C. Wright

the president of Toca Family Business Services, a strategic and financial advisory firm which provides short-term & project-based C-level management. She is the author of Solving the Financial Equation: Financing Solutions for Small Businesses, available on Amazon.

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