SECTION 5. COSTS OF DEVELOPING

COMPUTER SOFTWARE

.01 The costs of developing computer software (whether or not the particular software is patented or copyrighted) in many respects so closely resemble the kind of research and experimental expenditures that fall within the purview of § 174 as to warrant similar accounting treatment. Accordingly, the Service will not disturb a taxpayer’s treatment of costs paid or incurred in developing software for any particular project, either for the taxpayer’s own use or to be held by the taxpayer for sale or lease to others, where:

(1) All of the costs properly attributable to the development of software by the taxpayer are consistently treated as current expenses and deducted in full in accordance with rules similar to those applicable under § 174(a); or

(2) All of the costs properly attributable to the development of software by the taxpayer are consistently treated as

capital expenditures that are recoverable through deductions for ratable amortization, in accordance with rules similar to those provided by § 174(b) and the regulations thereunder, over a period of 60 months from the date of completion of the development or, in accordance with rules provided in § 167(f)(1) and the regulations thereunder, over 36 months from the date the software is placed in service.