Sale of Fishing License

[j-kanabis]

I have a client who purchased a fishing license back in 1991. Back then licenses were significantly lower  so it was expensed; not amortized. .  Client sold his fishing license for significant amount since they are limited .  Is the sale considered all capital gain or all ordinary income? 

[sjrcpa]

  It was used in a business?

[j-kanabis]

Yes in a business.  Additional information from client is that the cost of his Federal License was next to nothing and the cost of his State Fishing License was a yearly renewal of $ 525.- since 1985 (every year it was expensed if that can be added to provide some cost basis so the sale may be shown as some ordinary gain and some capital gain).s

[sjrcpa]

His basis is zero since all costs were expensed. I don't know if this is a capital asset.

[j-kanabis]

That is the major issue.  I did find a court case where the Canadian Gov't bought back a fishing license. The courts found that even though the Gov't was not using it for business the license is a capital asset.

I have not found anything in US

[rbynaker]

Since it's used in business I think it would be a section 1231 gain.  See if Pub 544 helps:

https://www.irs.gov/pub/irs-pdf/p544.pdf

There's also a fishing ATG that might have some helpful info:

https://www.irs.gov/pub/irs-utl/fishing_atg.pdf

Rick

[j-kanabis]

Updating information on Fishing License and any tips appreciated:

So Client acquired Federal Fishing License when acquiring the boat (commercial fishing) in 1992. An amount for the  Federal License was not separated at time of purchase. Was told by Client it was next to nothing.  Client has since sold boat with no tax basis (cost - acc dep), but still has licenses.

Now from that period going forward fishing licenses have been limited and as such the price for them has significantly increased.  Licenses are now allowed to be amortized over 15 years.

So how would you handle if your client sold his Federal Fishing License for $75,000 and one of his State Licenses for another $ 30,000?  The buyer will amortize over 15 years ; correct?  And then when he resells it , presumably for a gain, he will have both ordinary or recapture gain and capital gain.

Do you think it is far fetched to use a cost basis on the State license $ 14,000 (28 years @ $ 500 per year actual payment) so that the sale shows both capital gain and ordinary?  What other thoughts if it were your client?  

[sjrcpa]

Yes I do think that is far fetched. Your client already deducted all costs associated with acquiring and renewing the license and did not treat it as a capitalized cost.

[qbteachmt]

You sure want to make something out of something it's not.

A "per year actual payment" is expense and is more like a maintenance fee or renewal fee; not further investment, and it didn't do anything except give them the right to fish for that one year. That's why it isn't Basis.

You don't care that others will amortize their license.

You don't care to speculate that license values will be higher in the future. Look what has happened to the NYC taxi medallion marketplace.

"What other thoughts if it were your client?"

Point out they got full benefit of the expense all these years. Tell them how delighted you are that they made so much money on the sales, and of course that means paying taxes, and to be thankful it turned out that this was all worth something. After all, the marketplace rules could have simply retired any unrenewed license, opening up slots to issue new licenses where the licensing agency got the new rates and not creating a secondary marketplace at all.

It can always have been worse.