Tax Implications - General Guidelines

(AS OF JANUARY 2001, FEDERAL TAXES ONLY; STATE TAXES ADDITIONAL)

STOCK SALES

Value placed on Stock:

1. Seller: Capital gains tax rate (currently at 15%) for stock held more than one year
2. Buyer: No write off; must accept assets at current book value (i.e., existing depreciation schedule)

Value placed on Covenant Not to Compete:

1. Seller: Ordinary income to recipient (is considered personal to seller / principal)
2. Buyer: Amortize value over 15 years

Value placed on Training / Consulting Agreement:

1. Seller: Ordinary income to recipient
2. Buyer: Expense out as paid

Non-Stock ("asset") Sales

Value placed on Tangible Personal Property (trade fixtures, furniture, equipment):

1. Seller: If held more than one year, the gains in excess of depreciation are long-term capital gain; otherwise ordinary income
2. Buyer: Established basis, depreciate per IRS schedules

Value placed on Premise Lease savings (if the lease is at below market rent, it is an intangible asset):

1. Seller: If held for more than one year, is long-term capital gain
2. Buyer: Amortize value over 15 years

Value placed on Covenant Not to Compete (include time and distance of covenant):

1. Seller: Ordinary income as received
2. Buyer: Amortize over 15 years

Value placed on Training/Consultation (include schedule of time, hours, etc.):

1. Seller: Ordinary income as received
2. Buyer: Expense out as paid

Value placed on Registered Vehicles (do not include in Tangible Personal Property above:)

1. Seller: If held more than one year, the gains in excess of depreciation are long-term capital gain; otherwise ordinary income
2. Buyer: Established basis, depreciate per IRS schedules

Value placed on Liquor License (include license type and number; is an intangible asset):

1. Seller: If held for more than one year, is long-term capital gain
2. Buyer: Amortize over 15 years

Value placed on Customer List:

1. Seller: Ordinary income as received
2. Buyer: Amortize over 15 years

Value placed on Goodwill:

1. Seller: If held for more than one year, is long-term capital gain
2. Buyer: Amortize over 15 years

Value placed on Buildings:

1. Seller: If held more than one year, the gains in excess of depreciation are long-term capital gain; otherwise ordinary income
2. Buyer: Establishes basis, depreciate per IRS schedules

Value placed on Land:

1. Seller: If held more than one year, the gains in excess of depreciation are long-term capital gain, otherwise ordinary income
2. Buyer: No immediate tax impacts

Value placed on Inventory:

1. Seller: Ordinary income, to the extent that is over basis
2. Buyer: Treated as "cost of goods sold" upon sale of products