Wow! Great Restaurant! It has been on Food Network, and many national Daytime TV Shows! As a matter of fact this restaurant just won an award for one of their meals on a national TV show!
About three years ago this Restaurant started the franchising process. They had lots of expenses (legal fees, start up costs, etc) but have not sold any franchises. Well they expensed these expenses as they were going and used them against their income from their restaurant business. However now they have started a separate entity (Partnership, Form 1065) and have been using some of the monies from the main restaurant to get the Franchises up and going. Actually they just sold a Franchise in 2008, but not only did they sell it they also opened it and started collecting royalties from it.
My question is since they have finally sold one and have already expensed the startup costs of the Franchise off of their primary restaurant. Do they have to pay capital gains on the sell of the franchise? If yes than I was thinking they would not have a cost basis. And 100% would be a capital gain. If not do they treat the sells as royalties? I am thinking that they have to pay capital gains but am not sure and I want to be 100% before I file this first Form 1065.
About three years ago this Restaurant started the franchising process. They had lots of expenses (legal fees, start up costs, etc) but have not sold any franchises. Well they expensed these expenses as they were going and used them against their income from their restaurant business. However now they have started a separate entity (Partnership, Form 1065) and have been using some of the monies from the main restaurant to get the Franchises up and going. Actually they just sold a Franchise in 2008, but not only did they sell it they also opened it and started collecting royalties from it.
My question is since they have finally sold one and have already expensed the startup costs of the Franchise off of their primary restaurant. Do they have to pay capital gains on the sell of the franchise? If yes than I was thinking they would not have a cost basis. And 100% would be a capital gain. If not do they treat the sells as royalties? I am thinking that they have to pay capital gains but am not sure and I want to be 100% before I file this first Form 1065.
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