Personal goodwill and passthrough entities

Resource Information

The work Personal goodwill and passthrough entities represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

Personal goodwill and passthrough entities

Creator

• Griffith, J.L

Subject

• case law
• goodwill
• income classification
• pass-through entity

Language

eng

Summary

Generally when a successful business is acquired, whether by an asset acquisition or an equity acquisition, the assets will include both tangible and intangible property. When an entity conducting a business is liquidated, the tangible and intangible assets of the entity are distributed to the owners. Often, one very valuable intangible that does not appear on the balance sheet is goodwill. In many businesses, particularly service businesses, goodwill is often one of the largest, if not the largest, assets of the business. Indeed, in personal service businesses, the value of the goodwill may be a major multiple of all the other assets combined. There are two variations of goodwill - "enterprise goodwill" attributable to the entity and "personal goodwill" that is attributable to the individual. The failure to differentiate between enterprise goodwill and personal goodwill in the context of an asset sale, a liquidation of the business or the value of business in an estate can have negative tax effects not only in a C corporation context, but also even for a passthrough entity and its owners. The author successively discusses the relevance of personal goodwill to a passthrough entity, definition of goodwill, enterprise goodwill vs. personal goodwill, characterization of personal goodwill as an ordinary income asset or as a capital asset, historical perspective of personal goodwill, and relatively recent cases finding personal goodwill. The author concludes that personal goodwill exists in appropriate circumstances and can be used to facilitate transactions and minimize taxes in many situations - even those involving passthrough entities

Citation source

In: Taxes - the tax magazine. - Riverwoods. - Vol. 94 (2016), no. 8 ; p. 23-36

Geographic coverage

North America

Language note

English