Personal Goodwill: Three Recent Taxpayer Defeats Nevertheless Affirm Existence of a Sometimes Forgotten Asset

Document Type



Published by the Civic Research Institute in the Journal of Taxation of Investments, volume 28 issue 2, 2011. Bryant users may access this article here.


goodwill; buyer; shareholder-employee; shareholder; intangible; target; compete; scenario; covenant; intangible assets; jacpac; seller; double taxation; non-competition; purchase price; after-tax; customer; repeal; entity; employment agreement; fair market value; asset sale; negotiation; liquidation; selling; inside; savings; corporate business; partnership; contractual


Civic Research Institute

Publication Source

Journal of Taxation of Investments


When a business that is a C corporation is sold, is it possible that related intangibles, including goodwill, can be considered to be owned by individual shareholders--and thus not subject to a corporate-level tax? In three recent cases, Kennedy v. Commissioner, n1 Howard v. United States, n2 and Muskat v. United States, n3 individual taxpayers took this position. In each case, the taxpayer was unsuccessful. But each of these cases recognizes that a shareholder-employee can individually own and sell intangible assets used in an incorporated business where the facts and circumstances support that position. This article discusses these three cases, as well as the development of the concept of personal goodwill and the stakes involved in being able to apply that concept to avoid what would otherwise be double taxation on the sale of C corporation assets.