Taxation of liquidating distributions

Posted by / 04-Jan-2020 15:12

But what about distributions of the business’s intangible property and goodwill?The Tax Court has held goodwill to be a vendible—and taxable—asset that can be sold with a professional practice 37 TC 39, 44 (1961)).THE PRACTITIONER SHOULD ADVISE the client to terminate employment and noncompete agreements with shareholders before liquidation.WHETHER PLANNING FOR A LIQUIDATION of their own professional practices or advising clients about the liquidation of a commercial organization, CPAs will find that the problems and the solutions associated with each are likely to be the same.

In a firm or corporate liquidation, or when a shareholder redeems his or her interest, it’s not uncommon for the business to distribute property as well as money in exchange for the capital stock a shareholder held.THE QUESTION OF WHO "OWNS" the clients and customer-based intangibles turns on whether there is an employment or noncompete agreement in effect at the time the intangibles are distributed.Without such an agreement, client goodwill attributable to the personal characteristics of a shareholder isn’t a property right belonging to, or transferable by, a firm.When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.This is usually the case in bankruptcy liquidations.

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A NONCOMPETE COVENANT, to be enforceable, must reasonably reflect an employer’s protectable interest in both the nature and the scope of the restraint on the employee.

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  1. A Christian single parent friend of mine says she sometimes feels like “a gerbil running round and round on a wheel, with no end in sight.” If you’re a single parent reading this article, do you ever feel this way?