A sophisticated and under-utilized approach to tax planning is an American Viticultural Area (AVA) 15-year amortization under Tax Code Section 197. This process requires a qualified accountant and appraiser who have experience with the amortization of AVAs.
When a vineyard is purchased (within an AVA), a portion of the purchase price allocation can be defined as intangible AVA value. For 197 purposes, the right to use an AVA designation is a license, permit, or other right granted by a governmental unit and is not an interest in land. Therefore, the right to use an AVA designation and a portion of the vineyard’s purchase price can be amortizable.
An interest in land is not a 197 intangible. However, the AVA designation applies to one of the uses of a particular crop from any land within the designated AVA, which is further processed into a finished product.
The national office of the IRS released a Chief Counsel Memorandum (CCM) concluding: The right to use an AVA designation is a 197 intangible and the amount of the vineyard's purchase price allocated by Taxpayer to the right to use the AVA designation is an amortizable 197 intangible.
The first step in claiming a deduction for an AVA is determining the value of the AVA. A competent, well-supported valuation is an important part of supporting the value allocated to an acquired AVA and the corresponding amortization deduction. The good news is that for those who have acquired vineyards and did not assign value to an AVA, an automatic change in method of accounting is available.
With the help of experts, my clients and other vineyard owners have successfully claimed amortization for AVAs. I cannot give recent valuations or provide estimates (I am not an ASFMRA Appraiser), but I can warrant that the value of this technique is tremendous. Even in outlying AVAs without AVA-designated brands, I have seen significant price allocations. To discuss this strategy please call me or directly contact some of my resources, including: Tony Correia, The Correia Company Appraisal and David Pardes, PricewaterhouseCoopers.