Final Regulations on Allocating Asset Sale Purchase Prices

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Title:
Final Regulations on Allocating Asset Sale Purchase Prices
Date:
April 1, 2001
Area(s) of Practice:
Corporate Law

In asset purchase and sale transactions, the purchase price must be allocated into seven categories when reported to the IRS according to new final regulations effective after March 16, 2001. Prior to the issuance of these regulations, certain purchasers and sellers of assets were required to allocate the purchase price for such assets into 5 categories. The IRS has now increased the number of categories to which the purchase price must be allocated to 7 categories, which are as follows:

  • Class I: Cash and cash equivalents;
  • Class II: Actively traded personal property, certificates of deposit, and foreign currency;
  • Class III: Accounts receivable, mortgages, and credit card receivables arising in the ordinary course of business;
  • Class IV: Stock in trade of the taxpayer or other property of a kind that would properly be included in inventory if on hand at the close of the tax year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its business or trade;
  • Class V: All assets not in the other classes;
  • Class VI: All intangibles except goodwill or going concern value; and
  • Class VII: Goodwill and going concern value.