Goodwill in Sale of Dental Practice (or physician practice)

One way to reduce double taxation on a corporate liquidation following an asset sale was highlighted in William Norwalk [ TC Memo 1998-279 (1998) ], where the Tax Court held that goodwill was not owned by the corporation because it did not have noncompete agreements with the shareholder/employees. Accordingly, the goodwill (in the form of client relationships) attached to the employees. In this recent case, the corporation did have a noncompete agreement with the shareholder/employee. Under these facts, the District Court held that "even if the goodwill had belonged to Dr. Howard personally, it likely would have little value, because Dr. Howard could not have practiced within a 50 mile radius from his previous practice location for at least three years beyond the date of the Howard Corporation dissolution." Therefore, the goodwill was an asset of Dr. Howard's corporation. Howard v. U.S. , 106 AFTR 2d 2010-XXXX (DC Wash.).

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