Tax Deduction for ISO 9001

The Internal Revenue Service issued a ruling in 2000 that allows businesses to take a tax deduction for the costs of implementing and maintaining ISO 9001 registration. Several organizations had petitioned the IRS to permit firms to deduct ISO 9001-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 9001 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 ruling that ISO 9001 registration is necessary was, 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.

For more information, see: Internal Revenue Bulletin 2000–4. It states, “Cost incurred by a taxpayer to obtain, maintain, and renew ISO 9000 certification are deductible as ordinary and necessary business expenses under section 162 of the Code, except to the extent they result in the creation or acquisition of an asset having a useful life substantially beyond the taxable year (e.g., a quality manual).” 

In addition, see: Internal Revenue Bulletin 2004-7. It states in Example 4 for business process certification, “Z corporation, a manufacturer, seeks to obtain a certification that its quality control standards meet a series of international standards known as ISO 9000. Z pays $50,000 to an independent registrar to obtain a certification from the registrar that Z’s quality management system conforms to the ISO 9000 standard. Z’s payment is an amount paid to obtain a certification of Z’s business processes and is not required to be capitalized under this paragraph (d)(4).”