Reporting Sale of Business Goodwill and Form 4797?

Question

I have a client who purchased a business on June 2006 for $100,000 ($40,000 Goodwill, $20,000 Equipment, $30,000 Leasehold Improvements, $10,000 Inventory). The client chose to sell the business on August 2007 for $120,000 with all of the gain being assigned to Goodwill. The Goodwill, along with the business was purchased after 8/10/1993 but was not amortized over 15 years life. Is it still considered section 197 intangible asset even though no amortization took place?

I have been trying to do a research on the internet regarding reporting gains on sale of goodwill, but the internet floats a lot of mixed answers. I am aware that the Goodwill portion is to be reported on Form 4797, but I've been getting mixed responses on which part (I, II, III) to include the gain.

Please share your knowledge regarding the matter of where to report on Form 4797, and an explanation as to why it is reported there. Thank you so much in advance.

Answer 1

1.  The goodwill needed to be amortized.  You may be able to go back and amend 2006 if the 2007 tax return hasn't been done yet.

2.  Purchased goodwill is 1245 property.  You show the sale of that in part III.