An intangible asset is a non-physical asset with economic value — patents, trademarks, copyrights, software, customer lists, brand value, and goodwill. Intangibles are amortized over their useful life and receive different tax treatment than physical assets.
Intangible assets lack physical form but represent real economic value. They are classified as either identifiable (separately valued, acquired or contractually arising — patents, trademarks, customer relationships, non-competes, software) or unidentifiable (goodwill, which cannot be separated from the business). Under ASC 350, intangibles with finite useful lives are amortized; those with indefinite lives (some trademarks, goodwill for public companies) are tested for impairment. For financial reporting, intangibles acquired in a business combination are recorded at fair value at the acquisition date. Internally developed intangibles are largely expensed as incurred under GAAP — the cost of developing a patent, a brand, or software for internal use is typically expensed, not capitalized. This creates an asymmetry: acquired intangibles appear on the balance sheet; internally created ones generally do not. For tax purposes, IRC §197 covers most intangibles acquired in connection with a business acquisition — they are amortized over 15 years regardless of useful life. Software (IRC §167/197), patents (varies), and other self-created intangibles follow different rules. The 15-year amortization under §197 applies to a broad list including goodwill, going concern value, customer lists, trade names, and many licenses. Lenders typically assign little to no collateral value to intangible assets (except in specific IP-backed lending transactions) because they are difficult to liquidate separately and may have no value outside the business. However, strong intangible assets (a valuable brand, a patent portfolio) can positively influence overall business valuation in acquisition financing.
Acquired intangibles (from purchases or business combinations) appear on the balance sheet. Internally developed intangibles generally do not — development costs are expensed. This means a business that built its brand organically shows no brand asset on its balance sheet, while a company that acquired a brand at $5M shows it as an intangible asset.
Most intangibles acquired in business transactions are amortized over 15 years under IRC §197, providing consistent annual tax deductions. Self-created intangibles have different rules — R&D costs, for example, are currently required to be amortized over 5 years (domestic) or 15 years (foreign) for tax purposes under TCJA changes effective 2022, rather than expensed immediately.
In limited circumstances. IP-backed lending against patents, trademarks, or proprietary software is an emerging specialty finance category. However, most traditional lenders do not accept intangibles as collateral because valuation is difficult and liquidation is uncertain. IP-backed lenders (rare, typically institutional) specialize in this.