Installment sales

[imjulier]

Hey there-

Here's a good off-season question for you glutons for punishment.

Given that the LT Cap Gains rate may change after 2010, would you recommend doing an installment sale in 2009 or would you elect to not treat as installment sale because tax rate may change after 2 years (5 years of payments)?

Also, if installment sale used, how are non-tangibles reported (goodwill amortized over 15 years with 8 years of amortization claimed)? Would the reporting be same as for equipment with recapture amounts taxed in current year at ordinary rates and gain spread over the installment period?

Thanks much for any insight.

Julie

[kcjenkins]

Given the current political situation, I'd tend to advise not using installment method unless it's really necessary, and lock in the current low cap gains rate. But it's not always possible, if there is not enough cash to pay the tax, or not wise if there is serious doubt as to collectibility of the note over time. You just have to consider all the factors pro and con, and then inform the client and make him make the decision.

That is important, because no matter which way you go, it could be wrong, depending on factors not known at this time. So you want to make sure to take the time to go over it all with him, but make him make the final call.

As for the goodwill he purchased and was amortizing, when it's sold, here is what §197 says:

From §197

(f) SPECIAL RULES

(1) TREATMENT OF CERTAIN DISPOSITIONS, ETC.

(A) IN GENERAL If there is a disposition of any amortizable section 197 intangible acquired in a transaction or series of related transactions (or any such intangible becomes worthless) and one or more other amortizable section 197 intangibles acquired in such transaction or series of related transactions are retained--

(i) no loss shall be recognized by reason of such disposition (or such worthlessness), and

(ii) appropriate adjustments to the adjusted bases of such retained intangibles shall be made for any loss not recognized under clause (i).

So if there is a complete sale of all the purchased intangibles, it's just like any other sale of a capital asset.