Disposable Personal Goodwill, Frosty the Snowman, and Martin Ice Cream All Melt Away in the Bright Sunlight of Analysis

Abstract:     
The current rage in dispositional tax planning for closely-held C corporations is to bifurcate the sale transaction and to argue that the shareholder sold “personal goodwill” that is owned at the shareholder level. This planning is premised on the position that certain goodwill associated with the target C corporation can be, and is in fact, owned (for tax purposes) by one or more shareholders. If the “personal goodwill” is in fact owned by the selling shareholders and can be sold by the selling shareholders to the buyer, then the disposition of this “personal goodwill” is not subject to corporate-level taxation.

Although this planning has garnered much attention and is being marketed by many in the tax community as an innovative solution to avoid corporate-level taxes, the authors believe that this tax planning technique is unsustainable for several reasons set forth in the article. The article analyzes this technique in terms of existing transfer pricing regulations, the duty of consistency doctrine, existing case law involving goodwill (including the Tax Court’s decision in Martin Ice Cream).

Number of Pages in PDF File: 56

Keywords: Martin Ice Cream, intangibles, marketing intangibles, goodwill, personal goodwill, residual goodwill

Accepted Paper Series