Taxpayer sold his business with no assets sold other than his book of clients. I believe that is good will and a Section 197 asset. Isn't the $15,000 he received a Section 1231 gain and reported as such on 4797 and then Schedule D as long term?
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A section 197 intangible asset is goodwill that you purchase from somebody else. If you are the taxpayer who created the goodwill, it is not a sale of a Section 197 asset.
TTB, Small Business Edition, page 27-1 says the seller's tax treatment of self created goodwill is a capital gain. However, I would question whether or not a customer list is purely goodwill. The sale of a covenant not to compete is taxed as ordinary income.
Who would buy your customer list if you did not agree not to compete with the person who bought your customer list? There has to be an element of covenant not-to-compete along with the goodwill. The split between the two should be spelled out in the sales agreement.
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