Sell of Goodwill

[PIGLEE]

I have a client who has a personal service corporation. He wants to sell his goodwill (client list) but not his corporation. After seeing the Goodwill is treated as a Long Term Capital Gain, and within the Corporation it would be treated as taxable at the 35% rate. I think I remember hearing once that there was a way to sell the goodwill as a personal asset and tax on personal return, at the lower capital gains rate. I have not been able to find anything. Was I dreaming? Is there a way that anyone knows of to tax as personal instead of C Corp?

Any help would be appreciated.

[RJM]

May be possible

There is a way to sell personal goodwill outside of the corp to avoid double-taxes. But I would not call it a client list, just call it personal goodwill. To make this work, I think you need to quantify the value of the personal relationships which qualify for the Personal goodwill treatment. Then a purchase/sale outside of the corporation is negotiated, and there you have it.

To pass muster, you will need a contemporaneous appraisal of the value (third party is obviously best), which probably will cost at least several thousand dollars. In last month's Tax Advisor magazine there is an article on this which may help you get started with your research. A tax attorney may also be useful for a consultation.

I have not done one of these yet, and am interested in advice from experienced tax accountants on this type of transaction. Anyone?

[JON]

If the personal

goodwill is worth anything on a sale than the person who sold it would not be able to work in the same field. There would be nothing for the buyer to benefit from if he did not get full and only use of the name in the field and the community.