Martin Ice Cream

Practice Areas:

• Business Law
• Contracts
• Limited Liability Companies
• Petroleum Marketing Practices Act
• Real Estate
• Tax Increment Financing

Martin Ice Cream

When a subchapter C corporation sells assets it is possible that a double taxation occurs, first at the corporate level and then at the taxpayer level. The C corporation pays tax on its gain, if any, and the shareholders pay tax when the net proceeds are distributed. In a case known as the Martin Ice Cream Case, the taxpayer/shareholder was able to avoid some of the corporate level tax by joining the transaction as a party and selling personal goodwill. The taxpayer was able to convince the Tax Court that his personal efforts were critical to the future success of the company and had separate value outside the company. Sellers of C corporations should consider a similar structure when planning a divesture. While it does not always work as a tax strategy, when it does, the tax savings can be significant.