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Non-Deductible Stock Purchase 80% Converted to Deductible Goodwill Purchase

Case Conclusion Date: 12.31.2012

Practice Area: Mergers & Acquisitions

Outcome: Buyer saves an estimated $120,000 in taxes over 15 years.

Description: I represented Buyer. Seller was a partial owner in a dental corporation, and the original corporation stockholder agreement required that stock be sold, but not specifying personal goodwill as part of the sale. Payments for stock are not tax-deductible expenses. By adding the sale of personal goodwill to the stockholder agreement, and allocating 80% of the price to that goodwill, Buyer can now deduct 80% (rather than 0%) of the purchase price. Since stock and goodwill are both eligible for capital gains treatment, Seller remained in the same tax position as before and did not object.

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