Discussion:Goodwill Amortization Seller Financed Contract

When I went to college for accounting and taxes, goodwill could not be amortized, and I haven't had to deal with goodwill until 1/1/04, so I was ignorant to the fact that goodwill can now be amortized (beginning in 1993, if I've read Sec. 197 correctly).

My question is: Will there be any problem with amending the 2004 and 2005 returns to deduct the goodwill amortization? Or is it too late to amend those years?

Why couldn't you amend 04 & 05? It's not too late for that. What did you do w/ the portion you allocated to goodwill?

Well, when researching this, I thought I read something about you only have six months to make the election to amortize goodwill, but I was in the middle of other things and couldn't concentrate very well, with clients coming in and out constantly all day.  :)

The portion I allocated to goodwill is just an entry on the balance sheet for goodwill at $81,674.

You state that he purchased his Dad's 1/2 share of the partnership...does that mean they filed a 1065 prior thereto or that his dad was a partner in a partnership?

If the first, then in 2004, there was a liquidation of the p'ship with son and dad each receiving an undivided interest in the assets...then son purchased Dad's interest in the assets. Purchase price should be allocated on 8594 among the various asset classes up to the assets FMV...anything left over is good will. I believe son now has new assets to depreciate, meaning new lives, elections, etc.

Curious how paying for "ending equity" would generate goodwill, unless assets were worth less than carrying value.

I know that I screwed it all up at the beginning of 2004, but since all of the assets had been fully depreciated, including the building and the equipment, I filled out Form 8308 (not 8594).

I only made journal entries to zero out the partners' capital accounts, with an offsetting CR entry of $39,326 to the loan payable to his Dad for his Dad's ending capital balance and recorded the balance of $81,674 to Goodwill DR and a loan payable CR to his Dad for the same amount. I left the rest of the balance sheet items the same as they were at 12/31/03.

Can I just fix this mess by amortizing the Goodwill of $81,674 for 15 years beginning with 2004?

my two cents...

I think I've been reporting the selling partner's gain correctly on Form 6252 and Sch B for the amount he received in excess of his basis in the partnership.

I remember when I asked them back in Jan 2004 what the buying partner was buying, they didn't have any breakdown of the FMV of the assets, and because I didn't know any better (after researching it for quite awhile on the web and in books), I just carried over the balance sheet items (fully depreciated assets) to the buying partner and added Goodwill for the difference (instead of starting depreciation on the assets at the FMV).

The other day, I asked the buying partner if he had a breakdown of what he paid his dad for. He said no. At this time, he's not aware that I screwed this up. In my mind, if I just start amortizing goodwill beginning at 1/1/04 for 15 years, this would come out about the same if I depreciated a building for 39 years and equipment for 7 years. Nope! It wouldn't come out the same, not if the building has to be depreciated over 39 years. Hmmm...guess I'd better talk to him again and get his opinion of what everything was worth three years ago, but I already know he will tell me he has no idea.

Guess I'll worry about this tomorrow.

Thanks again for your help.