Business sale

[BP.]

Sole proprietor with a distributorship sold the rights to service 50 accounts in his territory for $50,000. I don't know if this is a capital gain or ordinary income for him. Would love to hear from those of you with experience in this. Thanks!
Barbara

[taxmandan]

What does the Form 8594 say?

Sole proprietor with a distributorship sold the rights to service 50 accounts in his territory for $50,000. I don't know if this is a capital gain or ordinary income for him. Would love to hear from those of you with experience in this. Thanks!
Barbara

Buyer and Seller did fill out an 8594 at the time of sale right? Depends on what he sold: inventory, goodwill, covenant not to compete, or an exclusive territory license?

[BP.]

Thanks, taxmandan, for your reply. I haven't seen his docs yet. Just heard from him on the phone today about the sale. Said he used a business broker, so hopefully any required documents were prepared. However, no allocation of the amount paid was needed, as he says he only sold the one thing- the rights to service the particular accounts. No inventory. Would 8594 still be required?

Whether the 8594 exists, I am thinking section 197 intangible, treated as 1231 capital gain. Am I close to correct on this?

[taxmandan]

From the Instructions for 8594:
"Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser’s basis in the assets is determined only by the amount paid for the assets."

I would say both have to attach the form 8594 to their returns.

Intangibles held for more than one year, allowable amortization would be ordinary income, any remaining would be Section 1231 gain or loss. If the seller held the intangible for less than one year, it's all ordinary gain or loss.