22-May-2018 7:58pm
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23-May-2018 6:38am
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23-May-2018 9:04am
23-May-2018 9:08am
Jeff-Ohio wrote:What I don’t quite follow is that you gave fixed numbers for consideration and then said there’s a contingent element.
And is there not a franchise fee on the books that you’ve been amortizing down?
23-May-2018 9:19am
I understood the facts to be that client is the franchisor.
23-May-2018 9:27am
. I did not know IRS was so short of agents that the Commissioner had to do audits personally.Everything seemed fine until the Commissioner showed up in 2009, ...
23-May-2018 9:54am
Not sure how to answer your first question
I'm assuming they are simply ordinary income when received, just like my assumption on the $30K initial franchise fee.
23-May-2018 10:43am
Nilodop wrote:Section 1253 covers treatment of sale of a franchise. This recent case, https://www.ustaxcourt.gov/ustcinop/opi ... x?ID=11288, has some pretty good analysis of how to apply 1253. It's taxpayer-favorable for capital gains treatment, but its facts are different from OP's. The case has this clause in it:. I did not know IRS was so short of agents that the Commissioner had to do audits personally.Everything seemed fine until the Commissioner showed up in 2009, ...
23-May-2018 10:53am
Jeff-Ohio wrote:
Is the 1% Royalty the contingent consideration you speak of? And are you saying that said Royalty is above and beyond the $300k?
On the one hand, you’re talking about the 1% Royalty being contingent consideration for the sale of assets. And on the other hand, you’re talking about it being separate from the sale.
23-May-2018 1:28pm
I guess I'm not sure why it matters and I'm hoping you'll clarify.
23-May-2018 3:05pm
24-May-2018 8:50am
MSchmahl wrote:I am with IDCPA that the 30k and the 1% are royalties, and separate from the rest of the sale. (Perhaps a part of this is a non-compete agreement, but ordinary income nonetheless.)
I would treat the franchise fee, sale of equipment, and sale of goodwill as three separate transactions and, unless the contract stipulates otherwise, treat each payment as proportional to the agreed allocation:
Down payment: 160k -> 16,000 Franchise Fee, 74,667 Equipment(incl. interest), 69,333 Goodwill(incl. interest)
Monthly installment: 5k -> 500 Franchise Fee, 2,333 Equipment(incl. interest), 2,167 Goodwill(incl. interest)
The franchise fee is ordinary income (probably royalties) as it is received. Using the June 2018 AFR of 2.32%, the PV of the equipment purchase is 138,204 and the PV of the goodwill purchase is 128,331. For the equipment, there is 8,204 of ordinary income recapture, and otherwise zero gain. Thus a 6252 should not be filed for the equipment sale and only the interest needs to be claimed in the future. For the goodwill, the entire 128,331 amount is capital gain and needs to be reported on Form 6252.
I assume you are familiar with Form 8594?
24-May-2018 12:14pm
treat each payment as proportional to the agreed allocation: Down payment: 160k -> 16,000 Franchise Fee, 74,667 Equipment(incl. interest), 69,333 Goodwill(incl. interest)
Monthly installment: 5k -> 500 Franchise Fee, 2,333 Equipment(incl. interest), 2,167 Goodwill(incl. interest)
unless the contract stipulates otherwise
24-May-2018 12:22pm