Purchase Price Allocation (IRS Form 8594 Framework)

Purchase Price Allocation (IRS Form 8594)

Transaction Information

Part 1. Total Consideration Calculation

1.1 Cash and Cash Equivalents Paid

1.2 Deferred and Contingent Consideration

1.3 Assumed Liabilities

Only liabilities assumed that are properly includible in amount realized for tax purposes.

1.4 Acquisition-Related Costs Capitalized

☐ Buyer's acquisition costs capitalized into basis: $[____________]
☐ Seller's selling costs reduce amount realized: $[____________]

1.5 Total Consideration (Amount Realized)

Total: $[____________]

Part 2. Residual Method Allocation (IRC § 1060)

The amount realized is allocated among the seven asset classes in the order below. Each class absorbs consideration up to its fair market value; any remaining consideration after Class VI is allocated to Class VII (goodwill and going concern).

Class I — Cash and General Deposit Accounts

Class II — Actively Traded Personal Property, CDs, Foreign Currency

Class III — Debt Instruments and Accounts Receivable

Class IV — Inventory

Class V — All Other Assets Not in Classes I–IV, VI, VII

Class VI — § 197 Intangibles (Other Than Goodwill and Going Concern)

Class VII — Goodwill and Going Concern Value (Residual)

Class VII = Total Consideration − (Class I + II + III + IV + V + VI) = $[____________]

Summary Allocation Table

Part 3. Tax Considerations by Class

3.1 Buyer Perspective (Recovery Period)

3.2 Seller Perspective (Character of Gain)

3.3 Typical Tension Points

Part 4. Form 8594 Filing Checklist

☐ Form 8594 prepared for Buyer
☐ Form 8594 prepared for Seller with identical Class I–VII totals
☐ Part I completed: identification, date, total sales price, character of agreement
☐ Part II completed: asset class allocation
☐ Part III completed if supplemental (post-closing adjustment or reallocation)
☐ Signed by taxpayer or authorized representative
☐ Attached to federal income tax return for the year of closing
☐ State filings reviewed for separate allocation requirements
☐ Supporting appraisals retained in file

Part 5. Post-Closing Adjustments

5.1 Events Triggering Supplemental Form 8594

☐ Working capital / purchase price adjustment
☐ Earn-out / contingent consideration paid (vs. estimated)
☐ Indemnification payment reducing sale price
☐ Assumption of additional liabilities
☐ Reallocation due to revaluation

5.2 Reporting

Supplemental Form 8594 with Part III attached to the return for the year of the adjustment.

Part 6. Agreed Allocation Certification

Pursuant to Section [____] of the Purchase Agreement, the parties agree that the allocation set forth in this schedule is binding and will be reported consistently on each party's Form 8594 and federal and state income tax returns. Neither party will take a contrary position except as required by law.

Buyer:

By: [________________________________]

Name: [________________________________]

Title: [________________________________]

Date: [__/__/____]

Seller:

By: [________________________________]

Name: [________________________________]

Title: [________________________________]

Date: [__/__/____]

Sources and References

• 26 U.S.C. § 1060 — https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapO-partIV-sec1060
• 26 U.S.C. § 197 — https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapB-partVI-sec197
• 26 U.S.C. § 338 — https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapC-partII-subpartB-sec338
• 26 U.S.C. § 1012 — https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapO-partII-sec1012
• IRS Form 8594 — https://www.irs.gov/forms-pubs/about-form-8594
• Treasury Regulation § 1.1060-1 (residual method)
• Treasury Regulation § 1.338-6 (§ 338 allocation)