The Treatment of Goodwill and Other Purchased Intangibles for Tax Purposes

Case Solution

Mary Margaret Frank
Darden School of Business ()

This technical note describes the effects of Section 197 of the Internal Revenue Code on goodwill and other intangible assets acquired in an acquisition. Compare the treatment of goodwill and other acquired intangible assets for tax and financial accounting purposes. The appendix also briefly explains the breakdown of the purchase price into various taxable asset transaction structures, the residual method, conditional payments, and recovery taxes. These tax laws affect current and future cash flows to the acquirer and target shareholders and, consequently, can affect the optimal price and structure of a transaction.

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