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More on allocation of personal good will with C Corp seller

June 20, 2022
More on allocation of personal good will with C Corp seller from article on June 10, 2022
          I couldn't agree more with Mitch's right on analysis of the issue- the original case allowing for Personal Goodwill was based on very specific facts which showed that the asset being sold was never transferred to the Company and remained the personnel asset of one of the founding stockholders which he used to build the business; one of my client's in a proposed stock purchase where the seller was still a ""  C Corp",  was told by the broker for the seller that using the approach of a sale of Personal Goodwill to reduce his client's tax exposure was not an issue and well established among CPAs.    
       When we disputed the claim (especially given the very unique factual situation in the original IRS case in which the Personal Goodwill exemption was allowed) that there was nothing to worry about even if there was a subsequent audit, I suggested in that case since they were sure it would not be a problem which my client would have to deal with down the road in case of an IRS audit disallowing the Personal Goodwill classification given that it was a stock purchase, that the broker's client agree to fully indemnify the buyer against any future liability if an audit was performed and the Personal Goodwill argument was not accepted by the IRS.  Despite assuring us that there was no doubt that the IRS would sustain the position that ended all discussion of the proposed stock sale as the seller was not willing to indemnify against a risk they said was non-existent; creating a meaningful funded indemnification would have in any case been a negotiating challenge since the fund would have had to remain open for the 7 years audit period.
          The seller probably should check with his CPA as why his corporation was never converted to an "S Corp" years ago.
Dennis Stern,Esq
Of Counsel
Kirschenbaum & Kirschenbaum PC
203 536 9957
          It appears that unless there are very special circumstances, highly unlikely, the recommendation that personal goodwill should be part of the allocation in a C Corp sale of alarm accounts is tantamount to recommending that the transaction not be reported at all or that no tax return be filed.  Odds of getting caught may be close.  Obviously lawyers and accountants should not be suggesting this alternative absent very special circumstances and legal authority; and malpractice insurance in place.
          K&K has extensive experience representing sellers and buyers in the alarm industry.  You will find our rates more than reasonable and our knowledge of the industry and documentation unsurpassed.  Whatever your transactional needs, contract Ken Kirschenbaum at 516 747 6700 x 301 or  K&K has alarm industry attorneys for every deal, from the small quick to the most sophisticated.  

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301