Thursday, July 3, 2014
The recent tax court holding in Bross Trucking, Inc. v. Commissioner, T.C., No. 7710-11, T.C. Memo 2014-107, highlights that personal goodwill is an item of property having economic value and may be inadvertently transferred to younger generations.
In the aforementioned case, Chester Bross formed a solely owned trucking company known as Bross Trucking in 1982. The company was later investigated by government agencies overseeing the trucking business. Fearing he would be forced to shut down, Chester and his three sons met with an attorney to plan a new course of action. Chesters sons subsequently formed a new trucking agency, LWK Trucking, which provided a broad range of services to Bross Trucking. According to the IRS, Bross Trucking distributed intangible assets, principally in the form of goodwill, to Chester, and Chester in made a gift of goodwill to his three sons, who then used the intangible asset in their new company. The IRS assessed gift taxes and penalties on Chester for $1.7 million for the 2004 tax year.
The Tax Court found there was no substantial corporate goodwill to be distributed to Chester. The Court said the business was the “antithesis of goodwill” due to its regulatory infractions, impending suspension, and negative attention. Chester’s personal goodwill persisted as a personal asset separate from the corporation. The Court found that LWK Trucking’s employees created their own goodwill.
See Debra Doyle, Gift of Personal Goodwill, Wealth Management, July 2, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.