Allocation for sale of business

Question 1

Cant just take proceeds and - the aggregate basis of all assets must…

Answer 1

allocate purchase price to each of the assets being sold via FMV and determine gain/loss on each asset individualy.

Question 2

The allocations will lead to: (Types of gains losses)

Answer 2

1. Ordinary
2. Capital
3. 1231 b property

Question 3

Allocation via residual method order:

Answer 3

1. Allocate purchase price to identifiable assets
   i. Land, buildings, Acct Rev
2. Rest goes to first goodwill, second going concern

Question 4

Goodwill

Answer 4

1060, continued patronage, LTCG. Self created goodwill has 0 basis. Goodwill is treated as an intangible and can amoritze over 15 yeears via SL method– 197

Question 5

Going concern

Answer 5

Value of buying existing business which continues to produce income as opposed to starting an new business. Not as valuable as goodwill

Question 6

Cov non to compete:

Answer 6

not a capital asset because not listed in 1221, It’s OI, since its not property.

Question 7

allocation using FMV is tough because

Answer 7

assets dont come with price tags.

Question 8

seller wants:

Answer 8

max cap gains

Question 9

buyer wants

Answer 9

to max recovery of basis

Question 10

Best Practice is to

Answer 10

buyer and seller allocate price in K and take same positions on their taxes .

Question 11

buyer seller bound to their K absent

Answer 11

substantial circumstances- fraud

Question 12

Is IRS bound to buyer/seller allocaiton/K

Answer 12

Nope. only go after big money usually.

Question 13

Positive of the FMV allocation

Answer 13

felxibility

Question 14

problems on 11.16 notes

Answer 14

ok