Personal versus Enterprise Goodwill
This chapter presents the tax implications of personal versus enterprise goodwill in the sale of a business or practice, a summary of the two landmark tax cases involving personal versus enterprise goodwill, definitions of goodwill, how to distinguish personal from enterprise goodwill, and an excerpt from a report allocating goodwill, personal and enterprise, for tax purposes.
There are far more cases distinguishing personal versus enterprise goodwill in the family law courts than in the Tax Court because, in most states, in case of a marital dissolution, enterprise goodwill is part of the marital estate, while personal goodwill is not. (See BVR's Guide to Personal versus Enterprise Goodwill, Portland, OR, Business Valuation Resources, 2010.)
Definitions of Goodwill
There are many definitions of goodwill, all of which revolve around attracting patronage to the business.1 Having said that, the separation of enterprise versus personal goodwill depends on whether (or the extent to which) the customer comes to the business because of an element or elements that belong to the enterprise or because of the individual.
Black's Law Dictionary defines goodwill as “favorable consideration shown by the purchasing public to goods or services known to emanate from a particular source.”
A good test of whether the goodwill is enterprise goodwill would be whether it would continue to exist if the practitioner or individual were not present. ...