Client has service business (S-Corp, single shareholder) and wants to downsize. He is referring approximately one-half of his clients to another person in the same type of business, and that person is going to pay client a percentage of income received in 2016 from each of the referral clients (for one year.) There will be no-covenant-not-to-compete. Is the payment-per-client method considered the sale of goodwill? It was all created by client, not from a prior purchase, so there is no basis.
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I think it's a "customer based intangible", but that should be treated the same way as Goodwill.
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as long as your client has never purchased a like intangible and amortized it as deductible for tax it is Goodwill (long term), but hopefully it is described appropriately in some written agreement.. If the amortized, like above, IRS says to the extent of previous amortization that is ordinary income. CPA practices have not cared for that.Comment
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