In Larry E. Howard v. United States , filed Aug. 29, the 9th U.S. Circuit Court of Appeals upheld the summary judgment decision of the U.S. District Court for the Eastern District of Washington denying a dentist’s claim that the portion of the purchase price allocated to goodwill upon the sale of his dental practice represented a long-term capital gain of a personal asset.
Rather, the court, in an unpublished opinion, sustained the position of the Internal Revenue Service that the goodwill in question belonged to the professional corporation and the sale proceeds allocable to that goodwill were taxable as a dividend to the dentist-shareholder. The Howard case highlights the issues concerning the existence and ownership of goodwill in the context of a professional service business and how the disposition of such goodwill should be taxed at either the corporate or shareholder level.
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