Goodwill

[Khari64]

My business is a c-corp.  We had an asset sale in 2021.  There was goodwill paid to us, but most of it is in the form of a Note Receivable that will be due in full after the new owner's SBA loan is paid off (potentially 25 years).

So on my books I have:

Cash                           xxx              

Note Receivable      xxx

        Deferred Gain on Goodwill      xxx

        Gain on Sale of Goodwill          xxx

How can I show this via Turbo Tax Business?

And Yes, form 8594 is complete.

[Anonymous_]

Are you trying to enter figures on the balance sheet? Are you out of balance?

I will page @Rick19744 

[Khari64]

No, I'm trying to enter my numbers into Turbo Tax.  Not sure where to put them

[Khari64]

I just reread my post and I can see how it is confusing.  I have a gain on sale of goodwill that I need to report.  However, most of it is offset in a Note Receivable.  How do I put this in TurboTax to report properly to the IRS.

Thank You!

[Mike9241]

you would use form 6252 to report the installment sale.

however, I would suggest talking to a tax pro.

we know nothing about the C-Corp or your tax situation.

at the worst the C-Corp would have capital gain when it receives each installment and owe income taxes on it.

then if the net cash is distributed to the shareholders they will have dividend income and may owe a tax on that. if the corp retains the cash and invest insecurities it might become a personal holding company which has other tax consequences.

liquidating the corp might minimize the income taxes but again we know nothing about the corp or your tax situation. professional advice should be sought.

[Rick19744]

A number of things going on and not sure of all the facts:

• Is the C corp liquidating?
• If "yes", then I am going to recommend you have a one on one with a tax professional; there will most likely be tax consequences you are not expecting.
• If "no", then you have the following:
  • You need to complete a form 6252 and file it with your return
  • This form will compute the amount of gain to report each year
  • If the Goodwill amount (purchase price) is adjusted, then you will file a revised form 6252
• Entry for the installment sale
  • Dr. Note Receivable
  • Cr. Deferred Gain (liability account)
• Entry for payment on installment note
  • Dr. Cash
  • Cr. Note Receivable
  • Dr. Deferred Gain (liability account)
  • Cr. Gain (once again, this amount should agree to what is reported on form 6252)
• Unless you sold purchased Goodwill, your basis in this is zero, so all cash received will be gain

[Khari64]

So if I may modify my question.

Since the potential for repayment of this note receivable in the near future is slim (the buyer doesn't have to repay any of it for 25 years) I'm just looking for a place to report the difference between the goodwill and the note as a gain.  Would I do that in other income?

[Rick19744]

You haven't answered the question on whether the C corporation is liquidating or continuing on.

[Khari64]

Yes.  The corporation will be liquidating. 

[Rick19744]

You need to meet with a tax professional who understands corporate liquidations.

Some items to understand and document:

• Is there an actual plan of liquidation?
• When was the plan of liquidation adopted?
• One of the reasons C corporations are not always the best choice of entity structure, is that property distributions are deemed to have been sold when distributed, and gain is recognized at the C corporation level.
• The corporation must recognize in the year of liquidation all unrecognized gain on installment obligations distributed to the shareholders in accordance with Section 336(a) and Section 453B(a). The amount of gain recognized is the difference between the FMV at the date of distribution and the corporation's basis in the obligation. This rule applies both to installment obligations arising from sales occurring before the date of adoption of the plan of liquidation and those occurring after the date of adoption of the plan of liquidation.
• You currently have zero basis in your Goodwill and no payments (no cash to pay the tax) for possibly 25 years according to your facts, and apparently there is a FMV set on the note since there has been a sale.  This is a horrible situation and I recommend you get some professional advice.
• You could also potentially, depending on the facts related to the adoption of a plan of liquidation, have a second level of tax at the shareholder level AND based on your facts, no cash to pay the tax; at either level.

[Khari64]

Thank you for your response Rick.  I did talk to a tax professional earlier in the year and they seemed to think it was manageable.  They are how I got the journal entry to put the note as deferred gain against the goodwill. However, since it's tax season they are busy and won't/can't respond to my questions. I suppose I need to file an extension and wait till they aren't as busy.

In the meantime can you answer one more question?  The note is in my name, not the corporation's name.  Part of the asset sale was a purchase of real estate that was in my name.  Would it possibly be better to put the note against the real estate and not the goodwill?