Discussion:Capital Asset Gain OR Ordinary Income
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Revision as of 23:05, 26 September 2006
Discussion Forum Index --> Tax Questions --> Capital Asset Gain OR Ordinary Income
DianeOffutt (talk|edits) said: | 26 September 2006 |
| I have a single-member LLC who is a auto broker. He designed a website a few years back that allows him to sell advertising space on it. He claims the maintenance of the website ($25 month) as an ordinary business expense against the advertising ordinary business revenue. He originally expensed the design of the website as it was minimal (under a few hundred dollars). He received an offer to sell the website for $35K and decided to accept it.
The question I am faced with: is the sale considered ordinary income subject to SE or is it a capital asset, subject to favorable tax treatment? My research has led me to a case MORRIS COHEN., 39 TC 886, the FINDINGS OF FACT stated….since the joint venture did not hold the 80 acres primarily for sale to customers in the ordinary course of trade or business, the profit from the sale of the property was considered long-term capital gain. Also, in VISION INFORMATION Services, LLC v. COMM., Cite as 96 AFTER 2d 2005-5807 (419 F.3d 554), 08/22/2005, Code Sec(s) 61; 1001;1221;1235;6226 Headnote 1. Gross income-ordinary income vs. capital gain…it states basically that the sale was a not really a sale it was more an arrangement with restricted rights in exchange for annual payments so payments were considered ordinary income. Since my client did not have this website listed as an inventory item; it, in and of itself was NOT for sale at any time during the past two years; it was always considered a company asset (although not recorded as such) that simply produced an ordinary business revenue stream. When my client accepted the offer to sell the website; the sale was a complete bona fide sale; my client giving up all rights to any future revenue. I feel these two facts will allow us to take the position it is truly a capital asset gain and take the favorable tax treatment and the $35K not be subject to SE. I would appreciate any and all feedback on this issue. Thank you, Diane Offutt Woodstock, Georgia 30189 | |
