C-Corp client is selling business assets (restaurant). Part of the selling price will be allocated to covenant not to compete. There are no written agreements yet for allocation of the selling price, as there have just been offers and counter offers at this point.
It would seem to me that the covenant would actually be with the shareholder and not with the corporation and that the portion of the sale allocated to the covenant should be reported on the shareholder's tax return. Is this correct? Is there discretion about where to report it? C-Corp tax bracket will be lower than shareholder's and also there are credit carry forwards which will offset some of the tax on the sale for the corporation.
If it impacts the answer at all, the corp will liquidate upon the sale of the assets.
Many thanks for any insight you can offer!
It would seem to me that the covenant would actually be with the shareholder and not with the corporation and that the portion of the sale allocated to the covenant should be reported on the shareholder's tax return. Is this correct? Is there discretion about where to report it? C-Corp tax bracket will be lower than shareholder's and also there are credit carry forwards which will offset some of the tax on the sale for the corporation.
If it impacts the answer at all, the corp will liquidate upon the sale of the assets.
Many thanks for any insight you can offer!
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