Proving that Personal Goodwill Exists

Document Type



Published in The CPA Journal, volume 83 issue 6, 2013. Bryant users may access this article here.


New York State Society of Certified Public Accountants

Publication Source

The CPA Journal


Depending upon one's particular circumstances, the vehicle of choice for a professional business is a pass-through entity, which avoids the double taxation problem. But this was not the case in the 1980s, when many professionals opted for C corporation status because corporate tax rates were lower than individual rates and the corporate form offered better retirement options for shareholder-employees. In 1986, one major change impacted C corporations: Congress repealed the General Utilities Doctrine. Prior to the repeal, C corporations were not subject to a corporate-level tax on the gain attributed to appreciated property distributed to a shareholder in liquidation; however, the Tax Reform Act of 1986 began taxing such gains. Selling stock, as opposed to assets, is one way to avoid such a tax. Another possible solution is to prove that the goodwill is not a corporate asset to begin with. This article focuses on how to successfully negotiate a transfer of a professional corporation involving personal goodwill.