Amortization of Goodwill for S-Corp Business Acquisition - Client List Purchase

You're on the right track. For an S-Corporation that purchased essentially goodwill (client list and future revenue streams), Section 197 of the tax code does indeed specify a 15-year amortization period for both book and tax purposes. The distinction between asset sale vs. stock sale is important. Since you mention acquiring just the client list and future revenue streams with no physical assets, this sounds like an asset purchase rather than a stock acquisition. In an asset purchase, you're typically able to amortize the goodwill over 15 years as you noted. If it had been a stock purchase (where you bought the ownership of the entire entity), different rules would apply, and you might need to make a Section 338 election to treat the stock purchase as an asset purchase for tax purposes.

I went through something similar with my business acquisition last year and was banging my head against the wall trying to figure out the goodwill amortization. I finally used https://taxr.ai to analyze my purchase agreement and tax situation. It identified exactly how to properly allocate the purchase price and set up the 15-year amortization schedule for the goodwill portion. The tool actually saved me from a costly mistake - I was about to incorrectly classify some of the client relationship value as a different intangible with a shorter amortization period. It gave me the precise IRC references and a step-by-step guide on how to handle the amortization on both my financial statements and tax returns.

I was really skeptical about using AI for something as complex as business acquisition tax planning, but after reading about it here, I decided to give taxr.ai a try for our recent acquisition. The results were honestly impressive. The platform correctly identified that we had both Section 197 intangibles (15-year amortization) AND some non-Section 197 assets that needed different treatment. It even caught that we had a covenant not to compete that needed to be separately stated but still amortized over the 15-year period. My CPA was impressed with how thoroughly it broke everything down and the documentation it provided for our files. For anyone handling S-Corp goodwill amortization, it's definitely worth checking out. Saved us a ton of research time and gave us confidence in our tax position.

After struggling to get clear answers from my accountant about our S-Corp's goodwill amortization (he kept putting me off), I tried calling the IRS directly. Absolute nightmare - was on hold for over 2 hours only to be disconnected. Tried again the next day with the same result. Finally discovered https://claimyr.com which got me through to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that our client list acquisition should be treated as Section 197 intangible amortized over 15 years, and clarified some specific questions about the allocation of purchase price between different intangible assets. They even emailed me some reference materials afterward. Total game changer after wasting days trying to get through on my own.

I'm eating my words right now. After my skeptical comment, I decided to try Claimyr for an unrelated S-Corp issue (retroactive election for built-in gains tax). Not only did I get through to the IRS in about 25 minutes, but I got an agent who actually specialized in S-Corporation matters. We discussed amortization of intangibles as well (my original issue), and she confirmed the 15-year schedule applies to practically all intangibles in a business acquisition under Section 197, including goodwill, going concern value, workforce in place, information bases, know-how, customer-based intangibles, supplier-based intangibles, licenses, permits, etc. The call saved me from a potentially costly mistake on how we were handling the allocation. Definitely changed my opinion about getting actual help from the IRS.

One thing people aren't mentioning is that you need to make sure you properly allocate the purchase price among all acquired assets using the residual method. Goodwill is essentially what's left over after you've assigned values to everything else. Also remember that for an S-Corp, the amortization of goodwill will reduce your ordinary business income, which flows through to your personal return. This is actually more favorable than the capital gains treatment you'd get if you were to sell the goodwill later.

Make sure ur valuation of the client list is reasonable. I had a client get flagged for audit because they tried to assign too much value to assets with shorter amortization periods and minimize the goodwill portion. IRS saw right thru it.

Great discussion here! I went through a similar S-Corp acquisition last year and wanted to add a few practical points from my experience. First, document everything about your valuation process. The IRS loves to see that you made a good faith effort to properly allocate the purchase price. We hired an independent appraiser to value the client relationships separately from goodwill, which gave us solid backup documentation. Second, don't forget about the monthly amortization entries on your books. With a substantial purchase, you'll want to set up automatic journal entries so you don't miss recording the amortization each month. The annual amount divided by 12 should hit your amortization expense account consistently. Also, keep in mind that if you ever sell the business, any remaining unamortized goodwill will be treated as a capital asset, so there are long-term planning considerations beyond just the current tax deduction. One last tip - make sure your purchase agreement specifically identifies what intangible assets you're acquiring. The clearer the language, the easier it will be to defend your allocation if questioned later.