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Sale/trade-in of delivery route (goodwill)


ILLMAS

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TP delivers baked goods to all of their customer assigned to their route, TP paid $60K for the route and has taken amortization of $23K = $37K basis.  The bakery they delivered for, bought back the route for $130K and resold the route back to the TP (minus a couple of stores) for $100K, TP received a check for $30K.  

Option One

Original Cost $60K

Amortization -23K

Basis            $37K

Sales Price $130K

Less Basis  $37K

Gain             $93K

New Route $100K on books

TP pays taxes on $93K

Option Two (trade-in)

Original Cost $60K

Amortization -23K

Trade-in        $40K

New Basis    $77K

Sales Price $130K

Gain             $53K

New Route $77K on books

It seems option two is more beneficial to the TP, but can one do a trade-in on goodwill?

Thanks

MAS

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16 hours ago, ILLMAS said:

$130K and resold the route back to the TP (minus a couple of stores) for $100K, TP received a check for $30K.  

Look at the substance of the transaction.  

The bakery reduced taxpayers route by a few stores and compensated him $30,000.  That is how I would treat it.

They went through some extra hoops to get there for legal/admin purposes, but they still have the route minus a few stores + a check for $30,000.

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13 minutes ago, DANRVAN said:

Look at the substance of the transaction.  

The bakery reduced taxpayers route by a few stores and compensated him $30,000.  That is how I would treat it.

They went through some extra hoops to get there for legal/admin purposes, but they still have the route minus a few stores + a check for $30,000.

Interesting....  Let's see if more people agree with this.

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46 minutes ago, DANRVAN said:

Look at the substance of the transaction.  

The bakery reduced taxpayers route by a few stores and compensated him $30,000.  That is how I would treat it.

They went through some extra hoops to get there for legal/admin purposes, but they still have the route minus a few stores + a check for $30,000.

 

31 minutes ago, ILLMAS said:

Interesting....  Let's see if more people agree with this.

 

Yes, I agree with Dan that if the client still has the same route with a reduction of several customers, then I'd say company bought back those several customers for the $30K. My answer would be different if this was not substantially the same route though.

I'd prorate the cost, amortization, and remaining basis saying that what was bought back was 30/130 or ~23.08% of the route and report that against the $30K proceeds so that the client would report ~  $21, 460 of gain  (30K - 8540 of basis).

What I wouldn't do is frontload an entire $30K of basis against this sale and report -0- gain.

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