In the appropriate circumstances, a sale of a shareholder’s personal goodwill may be in order, which generally results in long-term capital gain for the shareholder and only one level of tax. Commonly, this opportunity exists when the shareholder controls customer relationships (and there is no non-compete or non-solicitation agreement in place) or has key supplier relationships. However, structuring the sale requires care, such as (1) making sure that the sale is contemplated at the letter of intent stage, (2) obtaining an appraisal for the value of the goodwill (not required but strongly recommended), and (3) ensuring appropriate transition to the purchaser of the personal goodwill.
Q. I represent a C corporation (that does not qualify for the §1202 exclusion) that is going to be sold, and the buyer is insisting on purchasing assets. Is there any way of avoiding the “double tax” that arises from the tax on the gain at the corporate level and the tax on the after-tax liquidation proceeds at the shareholder level?
A.