Code §197(d)(1)(A) specifically defines goodwill as a “§197 intangible” and, therefore, amortized over a 15-year period beginning with the month in which the asset was acquired. (Code §197(a).) The Code does not differentiate between company goodwill and personal goodwill for this purpose. Other common “§197 intangibles” requiring a 15-year amortization period include going concern value, workforce in place, patents, and copyrights. (See Code §197(d)(1) for an enumerated list of “§197 intangibles”.)

In addition to goodwill, most business sale transactions involve an allocation of purchase price to a covenant not to compete. In connection with the acquisition of a business (or a substantial portion thereof), the amortization period for the portion of the purchase price allocated to a covenant not to compete is also 15 years, regardless of the duration of the covenant not to compete. (Reg. §1.197-2(b)(9).) Meaning, a five-year covenant not to compete is amortized over 15-years by the buyer.

And a final comment – note that the amount of a §197 intangible is subject to §1245 ordinary income recapture on a subsequent sale.

For more on sellers of personal goodwill, check out my blog post on our website at: www.lgclaw.com/insights/personal-goodwill-and-the-c-corporation-business-sale/

FYI, we cover similar topics at our two flow-through tax planning seminars:

- Forum – our advanced course with the most recent structuring techniques for closely held businesses (www.taxforums.com/tax-planning-forum)

- Fundamentals of Flow-Through – an intermediate course that provides a solid foundation for using flow-through entities (www.taxforums.com/fundamentals-of-flow-through)