Any negative aspects to amortizing a business?

[Openfire]

Can anyone think of any negative issues that might go along with amortizing the value of a business?

[Bees Knees]

Can anyone think of any negative issues that might go along with amortizing the value of a business?

Maybe because the IRS might throw out the deduction if audited?

What rule allows you to amortize the value of a business?

[spanel]

Can anyone think of any negative issues that might go along with amortizing the value of a business?

When you mean value.. do you mean what the money that was used to purchase something?

Chris

[taxmom34]

maybe meant "good will"?

[Bees Knees]

maybe meant "good will"?

You can amortize the cost of goodwill. You cannot amortize the value of goodwill.

[Openfire]

Sorry! I have been out of the office. Clearly I did not word this well. I have a client that had a franchise that was absorbed by another franchise. First year receipts was 70K, low overhead, no real COGS, and they established a decent reputation in an exclusive (as per this company) territory. The Attorney and the CPA have valued the business at $105K.

They have valued the business as follows: Good Will: $60,500
Value of Franchise purchase: $44,500

They have told me to start the amortization of the company for tax purposes. I am struggling, because he initially purchased the 1st Franchise for $70K, but the first company was an LLC of one owner (filing 1120S), and has established new company with a second owner and will file as a 1065.

I am unsure, frankly, how to proceed. Since the first party (owner) was the original investor, do I begin this company with the adjusted basis (purchase price minus 1st year of amortization)? There are no tangible assets included in this The franchise was purchased based on name recognition and territory. It is a service company. Because the original franchise dissolved, the owner was able to secure another territory in another state for the initial buy-in of $70K, which is why he valued this one lower for this year.

Also, he is still a 60% owner. So, can I even amortize the Good Will part of this?

[kathyc2]

So, did the 1065 company purchase the goodwill from the 1120S company? If so, yes, they can amortize, but the 1120S company will need to recognize the gain. Also, both companies will need to file a 8594.