Tax Deduction for ISO 9000 Costs

The Internal Revenue Service has issued a ruling that allows businesses a tax deduction for the costs of implementing and maintaining ISO 9000 registration. Several organizations had petitioned the IRS to permit firms to deduct ISO 9000-related costs in a single year instead of spreading the expenses over several years. The IRS ruling stated, “Although ISO 9000 is voluntary, it increasingly is a contractual requirement for doing business with many organizations, both public and private, worldwide.” A prior unofficial IRS position paper had concluded all ISO 9000 costs had to be capitalized over a three year period. The costs of ISO 9000 are now viewed as satisfying the conditions for applying section 162 of the Income Tax Regulations: it is an expense, ordinary, necessary, paid or incurred during the tax year, and made to carry out a trade or business. The new ruling that ISO 9000 registration is necessary is, in part, responsible for this policy change. “ISO 9000 certification does not itself result in the creation of an asset having a useful life substantially beyond the taxable year,” according to the IRS ruling. However, exceptions remain. New equipment must still be capitalized because they result in the creation of an asset. Check with your tax adviser to determine which ISO 9000 expenses are deductible.