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excess payment to be for goodwill, Able would prefer that the
$600,000 excess amount
be designated as a 5-year covenant not to compete so that he can
amortize the excess over
a 5-year period.
You are a tax consultant for Able who has been asked to make
recommendations as to
the structuring of the purchase agreement and the amounts to be
assigned to individual
assets. Prepare a client memo to reflect your recommendations.
Tax Strategy Problem I13-65
Russ has never recognized any Sec. 1231 gains or losses. In
December 2006, Russ is considering
the sale of two Sec. 1231 assets. The sale of one asset will result in
a $20,000 Sec.
1231 gain while the sale of the other asset will result in a $20,000
Sec. 1231 loss. Russ has
no other capital or Sec. 1231 gains and losses in 2006 and does not
expect to have any
other capital or Sec. 1231 gains and losses in 2006. He is aware
that it might be advantageous
to recognize the Sec. 1231 gain and the Sec. 1231 loss in different
tax years.
However, he does not know whether he should recognize the Sec.
1231 gain in 2006 and
the Sec. 1231 loss in 2007 or vice versa. His marginal tax rate for
each year is expected to
be 33%. Advise the taxpayer with respect to these two
alternatives:
a. Recognize the $20,000 Sec. 1231 loss in 2006 and the $20,000
Sec. 1231 gain in 2007.
b. Recognize the $20,000 Sec. 1231 gain in 2006 and the $20,000
Sec. 1231 loss in 2007.
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ACC 547 Week 3 Individual Assignment Problem 67 (Ch.
5), 66 (Ch. 6), 81 (Ch. 8)