Discussion:Buying existing customers
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Discussion Forum Index --> Basic Tax Questions --> Buying existing customers
Discussion Forum Index --> Tax Questions --> Buying existing customers
| 17 August 2009 | |
| Can the cost of buying customers from another business be expensed? For example, Company A provides similar services as Company B. Company A wants to stop providing these services but continue with other services. Company B purchases the customers from Company A and will provide the same services for them in the future. Is the money paid to Company A an expense for Company B? | |
| 17 August 2009 | |
| intangibles are amortized, not expensed
Internal Revenue Code:Sec. 197. Amortization of goodwill and certain other intangibles | |
Harry Boscoe (talk|edits) said: | 17 August 2009 |
Does Section 197 amortization apply to the cost of an intangible that was purchased, but *not* as part of a trade or business? I've started to read the Code section several times and each time I just nod off.
FAMU, you should try the reading thing, too. It might answer your question. | |
| 17 August 2009 | |
| A customer list is treated the same as goodwill. If the customer list was purchased and has been amortized under §197, then the sale of the list is reported on Form 4797, as a §1245 asset. If the customer list was not purchased, but was instead created by the taxpayer, the sale of the list is reported on Schedule D as a capital asset.
taxbilly | |
Harry Boscoe (talk|edits) said: | 17 August 2009 |
| I thought we're talking about the purchaser, not the seller, and whether Section 197 applies. | |
| 17 August 2009 | |
| Yes...we are talking about the purchaser and it seems that Section 197 should apply if I am interpreting the code correctly. | |
Harry Boscoe (talk|edits) said: | 17 August 2009 |
| What I see in the Code is "when it's bought as part of the purchase of a business or a large part of a business" then the rules of Section 197 will apply to amortize the cost of an amortizable. But that's not the case here. | |
| 17 August 2009 | |
| the sale of a block of customers is sometimes referred to as a 'book of business', and I would think 197 would apply | |
| 17 August 2009 | |
| Thanks Kevin..this is how I'm understanding this as well. | |
Harry Boscoe (talk|edits) said: | 17 August 2009 |
I told you reading this Section puts me to sleep...
It looks like the "must be bought with or created along with the purchase of 'all or mostly all' the assets of a business" requirement is right there in the Code but it applies to "covenant not to compete" and a handful of other intangibles, but does not apply to "customer based intangibles" like the one we're discussing in this thread. I've always got room to learn something, and room to drink another PBR. Thank goodness they don't get in each other's way. Ha! | |
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