A sells a sole proprietorship to B. B writes $150 of the purchase price to goodwill and amortizes it over 15 years as Section 197 intangible. After 9 years, with $60 of "net" goodwill left on the book, B sells the proprietorship to C.
Suppose that no new goodwill is created. C's amortization of the partially amortized goodwill will be:
2. $4/year over 15 years
3. $10/year over 3 years
Now suppose instead that additional goodwill is created, although it cannot be kept separate or distinguished from the original goodwill. The new value is $90. B recognizes $30 of amortization recapture. C's goodwill amortization will be:
1. $2/year over 15 years
2. $6/year over 15 years
3. $12/year over the first three years, and $2/year thereafter
Thank you for your time, Matt
This looks to me like it's another test question. Been seeing a lot of those today. Generally test questions are easy to spot, and then easier to confirm with a quick search of the web. Found a few close to yours on quiznet.com.
When you sell an amortized asset (not a capitalized asset) the seller can deduct the remaining balance of the amortized asset in the year of sale. THe entire sales price of the asset is then taxable income to the seller. (Actually, the amount of taxable money received for the sale that is actually taxable income, is reduced by the deduction of the remaining balance on the amortization schedule.)
The buyer will start amortization all over again from the beginning, based on what they (the buyer) paid for the asset. yes, good will "is" an asset and it "does" have value. Good will is more accurately described as an intangible asset (as opposed to a tangible asset) because it's not something you touch, feel, taste or hold in your hand. Many times, quantifying the value of good will is difficult and a real bear to deal with if audited on it.
Thank you Carl.
Does this treatment apply to all S 197 intangibles or only goodwill/going concern value? That is, upon a sale, are they all freshly valued and then amortized over 15 years?
FYI this is not a test question. I am a finance professor. I am writing a research note about valuing intangibles and struggling with certain practical tax details not being a tax pro myself. Maybe it looks like a test question because writing them is what I do, but it was meant simply to elicit the least-equivocal possible answer.