How to handle sell of internet business

[Beth]

Client had an online internet store where she sold items. Business was drop ship only, so no inventory.The costs (prgramming and professional design) for creating the store were taken as Sec 179 over the years. Business was sole proprietor LLC. and business was 6 years old,

She sold the business, including client lists, to a competitor for $60K in 2008.

How do I account for the sale? Sect 1231? Is all of the sale income treated as regular income? Could really use some direction, found nothing of help in the IRS site...

[erchess]

I think

it would be Section 1245 Property eligible for special treatment under Section 1231 on Form 4797. Remember that you will be forced to recapture some of the Sec 179 expensing that was done if any of the property was still in its regular MACRS recovery period.

I feel certain that I am right about the property originally being 1245 property, use of F 4797 and the potential need to recover Section 179. I believe that when you follow the instructions fr F 4797 you are acting under the auspices of Section 1231 but I may be confused because actually reading the Tax Code is not something I do well or often.

It would please me if someone like Brad or Bees or NYEA or even Snags or BB would confirm or deny the accuracy of what I have posted before you act on it.

[BHoffman]

Client had an online internet store where she sold items. Business was drop ship only, so no inventory.The costs (prgramming and professional design) for creating the store were taken as Sec 179 over the years. Business was sole proprietor LLC. and business was 6 years old,

She sold the business, including client lists, to a competitor for $60K in 2008.

How do I account for the sale? Sect 1231? Is all of the sale income treated as regular income? Could really use some direction, found nothing of help in the IRS site...

Hi Beth - I always understood that website design and programming costs were Sec 197 assets and subject to the amortization rules.

I'm looking at Treas Reg Subchapter A Sec. 1.197-2(g)(8), where it says Sec 1231 applies to this type of asset upon disposition.

http://www.taxalmanac.org/index.php/...C_Sec._1.197-2.