Did you know that Personal Goodwill can be a Corporate Asset and can exist outside of a “C” corporation in an M&A Transaction.
Most buyers want to buy the assets, not the stock, of a closely held corporation. This poses an extra problem for the owner of a “C” corporation since there is a tax both at the corporate level on the asset sale and a tax at the shareholder level on the liquidation of the corporation (so that the shareholder can get the sale proceeds). In the 1998 Tax Court case of Martin Ice Cream, the shareholder tried to defeat the “double tax” by claiming to own a great deal of the goodwill, for which Haagen-Dazs paid him personally. The IRS lost, opening a door to a planning technique. People thought that this was a difficult planning technique, which was arguably closed by Larry E. Howard v. U.S. (D.C. Wa. 2010). However, H&M, Inc. TC Memo 2012-290 and Bross Trucking, TC Memo 2014-107, as bolstered by an estate tax case – Estate of Franklin Adell, TC Memo 2014-155 – confirm that personal goodwill can exist outside of the “C” corporation. As a result, planners must help their clients document this goodwill far in advance of a sale to achieve this result.
EMCO/ Hanover (website: www.emcohanover.com) is an expert in this field and has been accepted by the I.R.S. and the U.S. Tax Courts as such. Refer also to: Litigation Cases in which Bruce Barren has been qualified as an expert