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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 307
Experience:  Tax Accountant at Praxair, Inc.
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Tax strategy sale of family business (worth $3 million) to

Customer Question

Tax strategy for parent sale of family business (worth $3 million) to son. Pitfalls, opportunities to consider. Can parent obtain capital gain treatment on sale of intangibles -- such as customer lists, trade name, etc . ? Most of all other assets are depreciated equipment. Only expert with significant expertise and experience need respond.
Submitted: 1 year ago.
Category: Tax
Expert:  Jonathan Tierney replied 1 year ago.

Hi, my name is ***** ***** my goal here is to answer your question as completely and accurately as possible.

First point: There are two ways to sell a business: you can sell the stock of the corporation (or limited liability company units) or you can sell all the assets of the business. Selling the stock of the business is best for the seller as the whole sale is treated as a sale of a capital asset. However, this is less advantageous to the buyer of the stock as the new owner is subject to all the prior liabilities of the old business (whether recorded or not). In addition, the buyer is unable to mark up the asset of the business to fair market value in the case of a stock purchase.

When there is a bulk sale of assets, the purchase price is allocated first to the most liquid assets transferred (such as cash and then marketable securities), and then to the increasing less liquid assets (such as depreciable property, then intangible assets like customer lists and goodwill). Intangible assets such as customer lists, trade name, etc are capital assets except for non-compete agreements which are always ordinary.

If you want me discuss the pros/cons of an asset sale more, I would need to know what type of entity the business being sold is. There are substantial differences between C corps, S corps, and partnerships. I hope this helps so far and let me know what type of entity you have so I can help more. Jonathan