The IRS defines goodwill as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.” IRS Publication 535: Business Expenses, Ch. 9, Cat. No.15065Z.
The American Society of Appraisers defines goodwill as: “that intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.” And as “that intangible asset arising as a result of elements such as name, reputation, customer loyalty, location, products, and related factors not separately identified and quantified.”
Goodwill, however, can be separated into personal and business (enterprise) goodwill. Unlike enterprise goodwill, personal goodwill is the intrinsic value of services of a specific and identifiable person to a business.
The distinction between personal and enterprise goodwill is important insofar as: (a) saving taxes in the sale of businesses; and (b) dividing assets in a marriage.
In divorces, … Read More