Internal Revenue Service
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 Rev. Rul. 70-45

1970-1 C.B. 17

Section 61

Section 1221

IRS Headnote

A partial transfer of goodwill may be made by a professional man upon admission of partners to his practice; Revenue Rulings 57-480, 60-301, 64-235 modified.

Full Text

Rev. Rul. 70-45

The Internal Revenue Service has reconsidered Revenue Ruling 64-235, C.B. 1964-2, 18, which relates to whether payments received by a professional man upon the admission of partners to his practice represent consideration for the relinquishment of his right to a portion of the future earnings of the practice. That ruling is based upon the premise that although the facts of a particular case might support a transfer of goodwill by a professional man where he sold his entire practice, he could not, as a matter of law, make a partial transfer of goodwill when admitting partners to share in his practice.

Upon reconsideration, it is held that the question whether there has been a partial transfer of goodwill or merely an anticipatory assignment of future earnings of the practice will be treated as a question of fact. Denton J. Rees, et ux. v. United States, 187 F. Supp. 924 (1960), affirmed per curiam 295 F. 2d 817 (1961); Hoyt Butler v. Commissioner, 46 T.C. 280 (1966). However, transactions purporting to make a partial transfer of goodwill will be carefully scrutinized to assure that goodwill in fact exists and that the consideration allocated to goodwill actually represents payment therefor.

Revenue Ruling 64-235, C.B. 1964-2, 18, Revenue Ruling 57-480, C.B. 1957-2, 47, and Revenue Ruling 60-301, C.B. 1960-2, 15, are hereby modified to remove the implication that, as a matter of law, a professional man cannot make a partial transfer of goodwill upon admission of partners to his practice.