Reference: Yapp v. Commissioner, TC Memo, 2018=47

Husband operated a single member LLC taxed as a sole proprietorship starting in 2009.  In 2010, he incurred legal fees to redraft contracts and the operating agreement. The entire $120k was allowed by the Tax Court due to the fact that his LLC was a functioning business.

Wife formed a single member LLC taxed as a sole proprietorship in 2009.  In 2009 and 2010, she worked to reformulate health supplement recipes, but didn’t have finished products to sell until February 2011.  The Tax Court upheld the IRS denial of those development costs as they occurred prior to the start of business.  Rather, they should be capitalized and amortized over fifteen years as IRC Section 195 intangibles.

This serves as a good reminder of the treatment of pre-opening costs.