Last year one of my clients with a sole proprietorship set up an LLC to handle a portion of his business. As he is the sole member, we treated it as a disregarded entity for all purposes and reported it on a second Schedule C in the client's personal 1040 return and related state & city returns.
This year, though, business developments (including the bankruptcy of the LLC's primary client) have caused him to discontinue most of the activity in the LLC.
One of his colleagues has offered to buy the LLC from him. There really isn't anything to sell, though, besides the name, since the LLC never had any assets besides cash (unless you count some letterhead stationery), so a 4797 would not be needed at any point. The LLC never had any employees or any form of payroll tax or related insurance expenses or obligations, nor any debt or other liabilities.
The question is, is there any point to making this transaction a sale if the idea is simply to give the colleague the name and any goodwill (in the practical, not accounting, sense) that may have accrued to it? Can my client simply close his LLC and his colleague set up his own LLC under the same name? It's probably important to note that the colleague is in a different state, which would obviate any regulations that might exist restricting the use of a business name by two entities in the same state. If the colleague were still to make a payment to my client in September for the "purchase" of the name, wouldn't that simply be treated as additional ordinary revenue to the original LLC which would be treated like any other client revenue received during this calendar year at the end of which the LLC would be closed?
Any insights would be welcome.