Often times when a physician group sells their practice, they will also sell their “personal goodwill” as a result of entering into an employment contract and a non-compete agreement with the new owners.

In order to avoid double-taxation, the physicians personally (not a c-corp asset) sell their personal goodwill and this oftentimes requires a formal valuation for income tax purposes (see  U.S. Tax Court case, Martin Ice Cream Co. v. Commissioner, 110 T.C. 189 (1998)). Valuing nebulous things, like goodwill and other intangible assets can be a little sticky and confusing.  A physician’s practice is comprised of tangible and intangible assets.  The tangible stuff consists of cash, accounts receivable, furniture, fixtures, and equipment. The remaining assets are considered “intangible assets”.  Some intangible assets are identifiable, such as medical records, trade-name, workforce-in-place, CON, contracts, etc.  However, the remaining intangible assets are referred to as “goodwill”. But the challenge is distinguishing between enterprise goodwill vs personal goodwill.  One of the most common methods appraisers use to estimate the value of a physician’s professional/personal goodwill is by determining the medical practice value with and without a non-compete in place.  The difference in the two values implies the value of a non-compete agreement which is the essence of personal goodwill.  This computation involves lots of assumptions and estimates that must be reasonable and well thought out. 

For more details on this, feel free to reach out to me.