The allocation of the purchase price in a business acquisition structured as an asset purchase can have significant tax impacts on the purchaser and the seller. The seller wants an allocation that results in no tax or capital gains tax rates, as opposed to ordinary income tax rates. The purchaser wants an allocation that allows the purchaser to deduct the purchase price over the fastest period of time. These conflicting interests often lead to compromises in the allocation. One way to strike a compromise is to allocate a portion of the purchase price to personal goodwill, as opposed to company goodwill. Personal goodwill is the goodwill of the individual owner of the seller that results from the person’s unique expertise, reputation or relationship with vendors and/or customers. The benefit to the seller is that personal goodwill is subject to capital gains tax rates. The purchaser can deduct amounts attributed to personal goodwill over fifteen years. Personal goodwill, as opposed to company goodwill, does not exist in every business. Before agreeing to an allocation to personal goodwill, an analysis should be made to determine the likelihood that the allocation will withstand any challenge by the Internal Revenue Service.
If you have any questions about this or any other M&A issue,
please contact Glenn Solomon at email@example.com or 443-738-1522.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With over 130 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our ten offices serve individual and corporate clients in the Maryland, Delaware, New Jersey, and Northern Virginia markets, as well as the Washington DC, Baltimore, Philadelphia, and New York City metropolitan areas. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.
You can connect with Offit Kurman via our Blog, Facebook, Twitter, Google+, YouTube, and LinkedIn pages. You can also sign up to receive Law Matters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
MARYLAND | PENNSYLVANIA | VIRGINIA| NEW JERSEY | NEW YORK | DELAWARE | WASHINGTON, DC