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IRS Form 8594 Purchase Price Allocation in a Business Sale

Reviewed October 26, 2026 by the Raleigh Business Brokers Ltd team

In an asset sale the price is divided among everything sold, and both sides tell the IRS how. Raleigh Business Brokers Ltd explains the form and why the split matters.

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An attorney and a seller review a purchase agreement on a conference table with a calculator and a pen
Who files
Both the buyer and the seller, with their own tax returns for the sale year
Where
The Internal Revenue Service, attached to each side's federal return
When
With the federal income tax return for the year of the sale

Easy to miss: The buyer and the seller must report the same allocation. A mismatch invites questions from the IRS.

What the Form Does

When a buyer purchases the assets of a business that make up a going concern, both sides report how the price was divided.

That report is Form 8594, the Asset Acquisition Statement. It goes with each party's federal income tax return for the year of the sale.

The form does not set the split. The purchase agreement does. The form just records it.

The Seven Classes

The IRS sorts assets into classes, and the allocation fills them in order, from the most liquid to the least.

  • Cash and bank deposits
  • Actively traded securities and similar items
  • Accounts receivable and certain debt
  • Inventory
  • Equipment, vehicles, furniture and other assets not in another class
  • Intangibles such as customer lists, licenses and non-competes
  • Goodwill and going concern value, which takes whatever remains

Each class is limited by the fair market value of what it holds. Goodwill, the last class, usually gets the leftover price in a profitable company.

Why Sellers Care

Different classes are taxed differently. Part of the gain on equipment may be taxed at ordinary rates because of depreciation that was claimed, while goodwill is generally taxed at capital gain rates.

Buyers want the opposite: more price on equipment they can write off quickly.

The two sides' interests pull against each other, which is why the split gets negotiated. Your CPA should model it before you sign, because the cost of a bad split is real money.

Where Deals Go Wrong

  • Waiting until after closing to decide the split
  • Putting a number on the non-compete without understanding its tax effect on you
  • Leaving out a seller note or earnout, which changes the totals when paid
  • Filing different numbers than the buyer

If the price changes later, such as from an earnout payment or an adjustment, an additional form may be required. Keep the agreement and the schedule together.

What to Do Before You Sign

Add an allocation schedule to the purchase agreement, and have both sides agree to file consistently. Ask your CPA for the tax cost of two or three splits. An equipment list from your county property listing can help support the equipment figure.

The form only applies to asset sales. In a stock or membership interest sale the buyer takes the company, and you follow a different path. After an asset sale, see articles of dissolution for the entity.

This guide is general information, not tax or legal advice. The form and its rules are the IRS's, and they can change, so confirm the current instructions and your own situation with your CPA or attorney.

For the pricing side, read what your business is worth to a buyer, or start with a free valuation check.

Call (919) 555-0148