Selling assets of my company, can I treat as capital gains tax at 15%?


5

I've been approached by people wanting to buy the assets (not stock) of my company (single member llc) which consist primarily of

  • my mobile app
  • its source code
  • the server code that supports the app and users
  • the database that runs the server and has considerable value on its
    own

How can I treat this sale for tax purposes? Can I treat it as a capital gain and if I created those assets more than 1 year ago, can I treat as a long term capital gain?

(In previous years my single member llc has been treated as a disregarded entity, so I report it as part of my personal taxes)

Sales LLC Tax

asked Feb 12 '12 at 10:39
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Kirk
26 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • Which country is your business registered in? Which country are you a tax resident of? – Todofixthis 8 years ago
  • I'm in the US. LLC is founded in Connecticut. – Kirk 8 years ago
  • Any updates on this? A friend is facing a similar situation. – David 2 years ago

3 Answers


1

I found this with a google search - not sure it applies

VISION INFORMATION SERVICES, L.L.C. v. COMM., 96 AFTR 2d 2005-5807
(419 F.3d 554), Code Sec(s) 1001; 1221; 1235; 61; 6226; 7491, (CA6),
08/22/2005 In order to qualify for capital gain treatment for tax
purposes under § 1235 however, the sale must be of "all substantial
rights" to the trade secret or know-how. The term "all substantial
rights" has been defined as all rights "which are of value at the
time" of the transfer. 26 C.F.R. § 1.1235-2(b). Thus, where the rights
granted are limited in geographic scope or to a specific field of use,
the transfer is not a sale of a capital asset under § 1235 absent a
showing of no commercial value to the rights in other geographic areas
or other fields of use. We have held that the term "all substantial
rights" means that "the transfer must cover all practical
fields-of-use for the invention." Fawick v. Comm'r , 436 F.2d 655, 662
[27 AFTR 2d 71-381] (6th Cir. 1971); see also Mros v. Comm'r, 493 F.2d
813, 816 [33 AFTR 2d 74-996] (9th Cir. 1974) (holding that a transfer
was not a capital asset sale where the patent had potential value in
other fields not subject to the transfer agreement). In Fawick, we
concluded that because the transfer of rights to a patent was to one
specific industry and the patents had known value outside that one
industry, the transaction failed to qualify as a sale of a capital
asset under § 1235. Fawick, 436 F.2d at 663.

Also, look up "Goodwill" and IRS

Good luck - it is not cut and dried. It would be easier if you sold the company, then you could value the goodwill, etc.

answered Mar 22 '12 at 03:50
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Tim J
8,346 points

0

No, in your case you are making a sale of a product or service.

"Assets" are considered by the IRS to be large-ticket physical things like desks, computers, etc that cost over $500. When you sell those, it's normally at a loss due to depreciation.

"Capital Gains" taxes are from the sale of something of investment-grade...your service/product isn't that either.

You're going to count this as a sale and when you deduct your business expenses to figure whether you made a profit or not in your business, then add other income, you'll pay the rate of whatever tax bracket you fall into.

answered Mar 22 '12 at 02:33
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Paige
129 points
  • I would doubt that - it sounds like he is transferring the rights. Basicalyl someone wants the content of his llc, but not the legal form (also due to liability issues - you are liable for stuff showing up later). This is not uncommon and normally the LLC then ceases as it has nothing internally. This IS an asset sale. – Net Tecture 8 years ago
  • @Paige - Do you have references or citations for this? Your answer does not sound correct to me. – Tim J 8 years ago
  • @NetTecture He is selling something he created, his own IP. He could treat it as a project and sell/transfer rights to his IP if that is what is in the agreement of sale. You might be thinking of 'intangible asset', which is fine and between him and the buyer. He didn't indicate he has a patent or trademark that he is selling, it's probably copyright. See IRS website, Form 1040 and Section 174, 1221 of tax code. He needs to speak with an accountant to make sure he treats this sale and fills the forms in correctly. – Paige 8 years ago

0

You're talking about the taxation of intangibles, which is a complicated subject tax-wise. See chapters 2 and 3 of IRS Publication 544 at http://www.irs.gov/publications/p544/ch02.html (replace the 02 with 03 for chapter 3).

answered May 21 '12 at 09:56
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Chris Fulmer
2,849 points

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