CHANGES IN TREATMENT OF TRANSFERS OF FRANCHISES, TRADEMARKS, AND TRADE NAMES.

SEC. 7822. CHANGES IN TREATMENT OF TRANSFERS OF FRANCHISES, TRADEMARKS, AND TRADE NAMES. (a) Contingent Payments.—Paragraph (1) of section 1253(d) (relating to treatment of payments by transferee) is amended to read as follows: “(1) Contingent serial payments.— “(A) In general.—Any amount described in subparagraph (B) which is paid or incurred during the taxable year on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name shall be allowed as a deduction under section 162(a) (relating to trade or business expenses). “(B) Amounts to which paragraph applies.— An amount is described in this subparagraph if it— “(i) is contingent on the productivity, use, or disposition of the franchise, trademark, or trade name, and “(ii) is paid as part of a series of payments— “(I) which are payable not less frequently than annually throughout the entire term of the transfer agreement, and “(II) which are substantially equal in amount (or payable under a fixed formula).” (b) $100,000 Limitation on Certain Payments.— (1) In general.— Paragraph (2) of section 1253(d) is amended by adding at the end thereof the following new subparagraph: “(B) $100,000 limitation on deductibility of principal sum.—Subparagraph (A) shall not apply if the principal sum referred to in such subparagraph exceeds $100,000. For purposes of the preceding sentence, all payments which are part of the same transaction (or a series of related transactions) shall be taken into account as payments with respect to each such transaction.” (2) Conforming amendments.— Paragraph (2) of section 1253(d) is amended— (A) by striking all that precedes “If” and inserting: “(2) Certain payments in discharge of principal sums.— “(A) In general.—”, and (B) by redesignating subparagraphs (A), (B), and (C) as clauses (i), (ii), and (iii), respectively, and by redesignating clauses (i) and (ii) of subparagraph (B) as subclauses (I) and (II), respectively. (c) Other Payments, Etc.—Section 1253(d) is amended by adding at the end thereof the following new paragraphs: “(3) Other payments.— “(A) In general.—Any amount paid or incurred on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name to which paragraph (1) or (2) does not apply shall be treated as an amount chargeable to capital account. “(B) Election to recover amounts over 25 years.— 103 STAT. 2378 “(i) In general.—If the taxpayer elects the application of this subparagraph, an amount chargeable to capital account— “(I) to which paragraph (1) would apply but for subparagraph (B)(ii) thereof, or “(II) to which paragraph (2) would apply but for subparagraph (B) thereof, shall be allowed as a deduction ratably over the 25-year period beginning with the taxable year in which the transfer occurs. “(ii) Consistent treatment.—An election under clause (i) shall apply to all amounts which are part of the same transaction (or a series of related transactions). “(4) Renewals, etc.—For purposes of determining the term of a transfer agreement or any period of amortization under this subsection, there shall be taken into account all renewal options (and any other period for which the parties reasonably expect the agreement to be renewed). “(5) Certain rules made applicable—Rules similar to the rules of section 168(i)(7) shall apply for purposes of this subsection.”. (b) Technical Amendments.— (1) Depreciation allowable.—Subsection (r) of section 167 is hereby repealed. (2) Deduction subject to recapture.— (A) Subparagraph (C) of section 1245(a)(2) is amended by striking “or 193” and inserting “193, or 1253(d) (2) or (3)”. (B) The material preceding subparagraph (A) of section 1245(a)(3) is amended by striking “section 185” and inserting “section 185 or 1253(d) (2) or (3)”. (c) Effective Date.— (1) In general.—The amendments made by this section shall apply to transfers after October 2, 1989. (2) Binding contract.—The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before the transfer.