Tax Prep by Deb Posted January 19, 2011 Report Share Posted January 19, 2011 I have a client coming in that I have done their taxes for several years. They installed security alarms and also offer monitoring. Because of economic hardships they had to sell part of their monitoring service. Basically from what I understand is that they have clients who are charged monthly for monitoring their security system. My client then hires out to a secondary firm who does the monitoring. Recently they sold a block of their monitoring clients for a set dollar figures. How does this get reported? Anyone with any thought? I was hoping that this year they would go to a CPA but they want me to do the preliminary work and then they are going to have it reviewed by a CPA that they know. The reason they want to stick with me is because they trust me and do not want to take any work away from me, but frankly I don't know where to start with this one. I have done sales of business assets before, but I'm not sure which direction to go. Any help would be greatly appreciated! Deb! Quote Link to comment Share on other sites More sharing options...
Achmid Posted January 20, 2011 Report Share Posted January 20, 2011 Have had some experience in this. Probably they just sold an exclusive "mailing list", maybe some goodwill. Capital gain, Sch D. There is a complex form for the sale of a business should this not be the case! Quote Link to comment Share on other sites More sharing options...
ed_accountant Posted January 20, 2011 Report Share Posted January 20, 2011 A good place to start is IRS.gov. Read Publication 544 (2009), Sales and Other Dispositions of Assets http://www.irs.gov/publications/p544/index.html Sale of business property is usually reported on form 4797, sale of business property. Form 4797 flows through to schedule D. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 20, 2011 Report Share Posted January 20, 2011 Without researching, off the top of my head, and not to be relied upon..... It looks like they sold an intangible asset of the company, ie the customer list. Recorded on 4797 as a type sec 195 intagible asset. Will flow through to the schedule D. Please re-read the first line of this post again. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted January 20, 2011 Author Report Share Posted January 20, 2011 To clarify, It's more than just a customer list. They actually have contracts with these individuals. So I believe it's the contracts that they have sold. I will clarify this with my client. But if this is the case, does it change the reporting? Deb! Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 20, 2011 Report Share Posted January 20, 2011 I don't think so. The contracts themselves are not tangible property either. They have no inherent value without the performance of a service. I would stick with what I said before, Sec 195 intangible asset sold, reported on 4797, flows to the schedule D. That is my best guess. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted January 20, 2011 Report Share Posted January 20, 2011 The only caveat I would enter in this is that if they bought the business from someone else rather than starting the business, there might be some value assigned when they purchased the business on the contracts they are now selling. That might result in a basis for this "intangible" asset and cause the reporting to be on 4797. I think. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted January 20, 2011 Author Report Share Posted January 20, 2011 They started this business from ground zero. It has been about a ten year process to get it to the point that they could actually sell off some of the contracts. I have to admit that when I first posted this question my gut feeling was sale of business asset. I'm appreciative of the confirmation. This leads me to one more question. I know where the money from the sale should be reported, thanks to all of you, but I'm second guessing myself now on how I originally reported the income received from the monitoring. I've always included it as income on the schedule C and took a deduction for the outside monitoring costs on the schedulce C. Was this correct? Should this have been reported somewhere else? It's of particular concern for me because if I had been doing this wrong then they have been paying Self-employment tax on this money. If I'm wrong I would like to be able to correct my mistake. It's just that when I get a situation that I've not handled before I get a little up-tight because I want to do the best I can for my clients. Thanks for your input! Deb! Quote Link to comment Share on other sites More sharing options...
taxit Posted January 20, 2011 Report Share Posted January 20, 2011 Sch C was correct. Quote Link to comment Share on other sites More sharing options...
Pacun Posted January 21, 2011 Report Share Posted January 21, 2011 Sch C is correct since they are providing a service. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted January 21, 2011 Report Share Posted January 21, 2011 You reported the income correctly on Schedule C. taxbilly Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted January 21, 2011 Author Report Share Posted January 21, 2011 Thanks to all who replied. I was pretty sure I had. This client was actually audited a couple of years ago and it turned out to be a no change audit. This was my first I had been through and was extremely nervous, but all turned out well. I just wanted to double check. Like I said, when things change for a client I get to second guessing myself. Deb! Quote Link to comment Share on other sites More sharing options...
mcb39 Posted January 21, 2011 Report Share Posted January 21, 2011 Thanks to all who replied. I was pretty sure I had. This client was actually audited a couple of years ago and it turned out to be a no change audit. This was my first I had been through and was extremely nervous, but all turned out well. I just wanted to double check. Like I said, when things change for a client I get to second guessing myself. Deb! We probably all do at some time or other. (start second guessing ourselves) One of the reasons that this board is so great. I concur with Intangible Assets. Good Luck. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 6, 2011 Author Report Share Posted April 6, 2011 I hope that someone who was kind enough to repond to my initial question will help me again. I'm actually finishing this tax return and frankly I do not have a clue where to begin. The monitoring contracts were sold on an installment basis. The client is going to give me the complete contract, however for 2010 they received 28,000. I know I have to start with the installment sale form, but how do I record this? Can someone please give me a starting point. I agree that this is sec 195 intangible assets, and from what I can see it's reported as section 1231? But on the imput screens on either form 6252, or 4797 there is no drop down menue to tell the program what section it is. Am I missing something? Please if anyone can tell me where to start my entry I'm sure I can figure this out. Thanks, Deb! Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 7, 2011 Author Report Share Posted April 7, 2011 Anybody? Deb! Quote Link to comment Share on other sites More sharing options...
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