Larry Howard v. United States

MEMORANDUM

Dr. Larry E. Howard and Joan M. How ard (jointly, the “Taxpayers”) appeal the district court’s grant of summary judgment in favor of the United States on their claim for a refund of a tax deficiency and interest payment. The Taxpayers maintain that the goodwill proceeds from the sale of Dr. Howard’s dental practice were personal assets subject to federal income taxation as long-term capital gain. The government contends that the goodwill proceeds belonged to Dr. Howard’s professional service corporation (the “Howard Corporation”), which the Internal Revenue Service properly recharacterized as a dividend payment. We have jurisdiction under 28 U.S.C. § 1291 , and we review the district court’s grant of summary judgment de novo. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996).

Goodwill “is the sum total of those imponderable qualities which attract the custom of a business, — what brings patronage to the business.” Grace Brothers v. Comm’r, 173 F.2d 170, 175-76 (9th Cir.1949). For purposes of federal income taxation, the goodwill of a professional practice may attach to both the professional as well as the practice. See, e.g., Schilbach v. Comm’r, 62 T.C.M. (CCH)…