In the circumstance where substantially all of the assets of a closely-held C corporation are being sold, the shareholder of the seller may desire to receive part of the purchase price directly from the buyer for his or her personal goodwill. The result is beneficial to both the buyer and the selling shareholder. The buyer gets to amortize the amount paid for the goodwill ratably over fifteen (15) years, and the shareholder enjoys two tax advantages, namely he or she gets capital gain treatment on the amount received for the goodwill and he or she avoids the corporate level tax. This approach works provided certain facts exist:
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- The selling shareholder has created personal goodwill;
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- The selling shareholder has the ability to take the personal goodwill with him or her to another company and has the ability to compete with the corporation;
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- There is no contractual arrangement limiting the selling shareholder’s ability to use the personal goodwill in the pursuit of work for a business competitor or the ability to sell it to a business competitor; and
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- The amount of the sale proceeds allocated to the personal goodwill is reasonable.
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Tulsa, Oklahoma. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and business transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. Mr. Brant is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. He is a Fellow in the American College of Tax Counsel. Mr. Brant publishes articles on numerous income tax issues, including Taxation of S corporations, Taxation of C corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC Section 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Since 2019, he has been a multiple-time honoree of the JD Supra Readers’ Choice Awards for Tax, recognizing him as a Top Author for thought leadership and reader engagement on its platform. Mr. Brant was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
