SALE OF GOODWILL OF VETERINARIAN PRACTICE ON SCH D OR 4797?

[Greta]

Any difference in tax if it goes through 4797 to Sch D long term gain? Is it subject to the NIT?

[itonewbie]

@Greta This is related to your previous question.  Instead of asking what if, have you determined the character of the income based on our discussion?  We can then come back to this new question of yours.

[Ephesians3-14 · Accepted solution]

This is a taxpayer selling the ASSETS or stock of the vet practice? I assume assets. Please confirm.

[Greta]

Sole Proprietor selling equipment, inventory, goodwill, and Covenant not to compete, evaluated/agreed by buyer and seller for price per category. They agreed to make the goodwill worth almost 1/2 mil, equip 65K, a small amount for inventory, and 10K for CNC. I entered equipment individually on asset worksheets, inventory into Sch C income, goodwill on long term 4797, and CNC on short term 4797. Does this seem OK? Proseries charged a hefty investment tax on sales of Goodwill and the CNC.

[George4Tacks]

I think CNC should be 4797 Part II, as ordinary income. Goodwill is a capital asset and hence NIIT, but I don't think CNC should be. I may be wrong and @itonewbie would be very right to correct me.

[Greta]

I had used the smart box to say CNC was short term and hence ordinary income, and Proseries did in fact put it into 4797 Part II. Thank you.

[itonewbie]

A bit unusual for a vet to operate as a sole proprietorship but I guess it is what it is.

It is established that CNC is ordinary income and it would be right to report it in Part II of F.4797.  It should not be subject to NIIT.

Prima facie, goodwill is subject to NIIT pursuant to §1411(c)(1)(A)(i) and §§1.1411-1(d)(11) unless an argument can be made in reliance on §§1.469-2T(c)(7)(i).

[Ephesians3-14]

Hmmmmm...my understanding was that only net gain which is NOT attributable to an ACTIVE trade or business (that is, passive activities) is subject to NIIT. So if she was actively involved in operating the business, then the sale of goodwill would not be subject to NIIT.

[itonewbie]

@TaxPreprEA You can refer to the citations I provided.  The question is whether you can make an argument based on §469 and take a position.