Discussion:Worthless Customer List

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Discussion Forum Index --> Basic Tax Questions --> Worthless Customer List


Discussion Forum Index --> Tax Questions --> Worthless Customer List

Porterj5 (talk|edits) said:

23 September 2010
I have a new client who bought out a partner a few years back and as part of the buy out purchased a customer list which is being amortized. All customers on that list are no longer clients and the asset is worthless. I do not believe that we can dispose of this but would like some advice on if there is a way. Currently it has a tax basis of $35,000.

Gfisher (talk|edits) said:

23 September 2010
I haven't looked this up, but I would certainly force the rest of the amortization (the way you do with loan costs when the loan is paid off) in the current year because the asset is worthless - eg, ABANDONED.

Harry Boscoe (talk|edits) said:

23 September 2010
Is this customer list a Section 197 intangible? IIRC, you're not allowed to "write off" any remaining basis in a Section 197 intangible until all the intangible assets acquired/created in the same transaction are *all* gone. Somebody oughta look this up... I'm in the refrigerator.

Porterj5 (talk|edits) said:

23 September 2010
Yes it is a section 197 intangible. This appears to be the only asset acquired in the transaction so I think I am fine on that part.

Tax Writer (talk|edits) said:

23 September 2010
I agree with GFisher. If an intangible asset can be written off in the year it is abandoned or becomes worthless.

Porterj5 (talk|edits) said:

23 September 2010
Can you refer me to a citation for this? I would rather be able to reference something in my notes when making a $35,000 write-off.

Doug M (talk|edits) said:

23 September 2010
Agree with Harry. As long as you have one active customer, nothing can be written off (with the exception of the 15 year annual depreciation)

Sunset Fuel Company is the cite. Back in the day before Section 197 became law, companies were trying to write off that portion of the goodwill that represented the lost customer, or the customer that was no longer a client. Tax Court said no-go. I can tell you the name of the attorney who tried the case, but I no longer have the TC cite.

Doug M (talk|edits) said:

23 September 2010
Here is the Sunset Fuel Co. cite

http://ftp.resource.org/courts.gov/c/F2/550/550.F2d.548.74-2979.html

Pink Pearl (talk|edits) said:

23 September 2010
I think that if you have more than one type of 197 property on books you have purchased and are amortizing then you have to adjust/get rid of all 197 properties before you write off the customer list. it's late and i'm tired so take that with what it is.

Porterj5 (talk|edits) said:

25 September 2010
So if I am understanding this correctly, if in fact no customers remain with the client and no other intangibles were involved in the purchase, we can dispose of the Customer List as a worthless asset.

The case Doug provided seems to indicate that when only part of the customer list becomes worthless, no loss is allowed. Since in our situation ever customer on the list is no longer a customer of my client, we can take a loss for the remaining basis instead of amortizing it.

Please let me know if I am missing something.

Kevinh5 (talk|edits) said:

25 September 2010
James, I believe that the client must have NO customers, not just no customers from the list, in order to write off the balance.

Kbairtax (talk|edits) said:

25 September 2010
Here's a good article I found on the topic. It seems to say that if there were no other intangibles purchased with the client list then a deduction can be taken. It addresses the problem with when does an intangible become worthless by suggesting that Goodwill Impairment Test of SFAS No. 142 be used.

The article does have code cites that may give you more of a clue.

http://www.accountingweb.com/blogs/briggsie/barefoot-accountant/can-you-deduct-worthless-goodwill-your-tax-return-internal-revenu

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