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Inventory of electrical fixtures $ 30,000 $ 50,000
Store buildings 80,000 100,000
Land 40,000 100,000
Equipment: 7-year recovery period 30,000 50,000
Equipment: 5-year recovery period
Mr. Johnson indicates that a total purchase price of $1,000,000 in
cash is warranted for
the business because of its high profitability and strategic locations
and Able has agreed
that the business is worth $1,000,000. Despite the fact that both parties
attribute the
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