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IS MARTIN ICE CREAM MELTING?
May 29, 2008
When C corporations sell their assets, two taxes result. The C corporation pays tax on its gain, and the shareholders also pay tax when the sales proceeds are distributed.
The taxpayer in Martin Ice Cream was able to avoid some of the corporate level tax by selling "personal goodwill" to the buyer of the corporation assets; he convinced the Tax Court that his personal efforts were critical to the success of the company, and his customer relationship was a separate asset outside the company.
This doesn't work with every set of facts, as one taxpayer recently learned. Marc Ward has the, er, scoop at Iowa LLC Blog.
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