Closed Business Question

[rfk]

I have a client who closed his business (Ice Cream Franchise) 3/25/2008, sold his business assets to another in this business, but has kept has franchise umbrella open (kept the Franchise rights). I am wondering what to do with the existing Amortized Franchise Fees, Start-Up Costs (TY 2008 is the last year), and the Leasehold Improvements still in progress?

Therefore, I want to be sure that I consider the Amortized items which were not "sold." Do I let them fade away or... I do not want to complicate this, but want to follow tax law accordingly.

Thanks for your thoughts.

RFK

[dsi]

What form of entity was this?

[rfk]

Entity

It is an S Corp that closed and dissolved effective TY 2008.

RFK

[dsi]

So, upon dissolution, did the s-corp distribute the "franchise" to the shareholder at FMV?

[rfk]

Followup

None of the esoteric stuff has happened. If you can shed light on the Franchise holding, if you will, and the Leasehold Improvement in place, I would like to know how to handle this. I would really appreciate your thoughts. I have not had to deal with these two items before or related issues to this sort of situation.

It appears for now that he holding on to the Franchise agreement; I am not sure what he is going to do. I will quiz him on it, but need to know about scenarios of holding on to it or releasing it. Both sides of the equation.

Thank you.

RFK

[Nashville]

Original question

If I understand your question, you are only asking about the treatment of assets, and not what happens under such-and-such entity.

I would not fully amortize the franchise agreement so long as he is holding on to it. If this was carried as an asset in a C corp, S corp, LLC, or Partnership, and the entity is being shut down, then the unamortized portion should be treated as a distribution to him, and he can hold the franchise agreement as a personal business asset. If the franchise agreement comes to life again, it gets reincarnated into whatever entity houses it. Proprietorship, LLC, whatever, and owner gets credit for contributing it to same.

Start-up costs should be written off with the demise of the current entity if the operation is ceasing. However, doing so means that if he resurrects the franchise agreement with another operation, a fresh round of start-up costs should be recognized as such.

Maybe another question might be what happens to the franchise agreement if he holds on to it and it "rots out" over the remainder of the agreement. I believe this should continue to amortize over time, and he is entitled to deduct it on a Schedule C even if there is no other proprietorship activity. Would love to know what others think about this...

[rfk]

Thanks Nashville

Thank you. I do not work with that many S Corp's and their esoteric nuances.

RFK

[Snaggletooth]

Vocaboolary

"Esoteric Nuances?"

Ease up. Me and Black Bart didn't learn how to say "Refrigerator" till yesterday...