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Sale of Mexico Business

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    Sale of Mexico Business

    Client, living in Houston, TX. formed a partnership with another person, living in Mexico.
    The business was located and operated in Mexico. Started in 1998.
    There was no money invested by client or partner in the business, Service type business.
    Started generating money immediately. My client was earning from $150,000. to $750,000.
    per year. In May, 2005, my client and partner sold the business.
    My clients 1/2 was $1,500,000. less income tax paid to Mexico, $150,000. net amount
    received, $1,350,000. U.S.$.
    In addition earnings and commissions totalled U.S.$678,000 less Mexico income tax
    of $203,400. All U.S $.
    Question: The sale of the business $1,500,000. Zero basis? Would this sale go
    on Sched. D? LTCG?
    What about basis? Zero?
    One of the requirements was that he stay with the buyer and help call on customers,etc.
    Is paid a commission for doing this.
    Any help with this will be appreciated.
    Of course, the foreign income tax credit is used on the clients U. S. tax return.

    Sale of biz

    Sounds like the basis is zero. The tax treatment will depend on how the sale was structured, how much $ for goodwill, non-compete clause, hard assets if any. They should have identified that in the sale so both the buyer and seller treat it the same for tax purposes. Form 8594 is what they complete and attach to the return. (They did complete this form at the time of sale, right?)
    "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain