Form 8594, the Asset Acquisition Statement Under Section 1060, is the IRS form used to report the sale or purchase of a group of assets that make up a trade or business when goodwill or going-concern value attaches. It records how the total purchase price is allocated across seven asset classes. Both the buyer and the seller file it with their federal income tax returns for the year of the sale, and their allocations are supposed to match.

Who files Form 8594 — the buyer, the seller, or both?

Both. In an asset purchase, the buyer and the seller each attach Form 8594 to their own federal income tax return for the year the sale closes. The two forms should report the same total consideration and the same allocation across the seven asset classes. Filing inconsistent allocations is one of the most reliable ways to invite IRS scrutiny of the deal.

What are the seven asset classes on Form 8594?

Class I is cash and general deposit accounts. Class II is actively traded personal property and certificates of deposit. Class III is accounts receivable and certain debt instruments. Class IV is inventory and stock in trade. Class V is all other tangible assets not in another class — furniture, fixtures, equipment, land, and buildings. Class VI is Section 197 intangibles other than goodwill, such as customer lists, covenants not to compete, trademarks, and licenses. Class VII is goodwill and going-concern value. The purchase price is allocated to the classes in order, with goodwill absorbing the residual.

What happens if the buyer and seller allocations don't match?

Mismatched Form 8594 filings are a common audit trigger. The IRS cross-checks the buyer's and seller's forms; when the allocations diverge, it signals that one party is reporting the deal in a way that minimizes its own tax at the other's expense. The practical fix is to agree on the allocation in the purchase agreement itself, so both sides file identical numbers. If a dispute arises later, the agreed allocation in the contract is what governs.

How does purchase price allocation affect my taxes?

The allocation decides the character of each party's gain or cost. For the seller, amounts allocated to equipment can trigger depreciation recapture taxed at ordinary rates, inventory is ordinary income, and goodwill is generally capital gain — so sellers prefer goodwill. For the buyer, equipment (Class V) and short-lived intangibles recover quickly through depreciation, while goodwill (Class VII) amortizes over 15 years — so buyers prefer faster-recovery classes. The two sides have opposing incentives but must file a single consistent allocation.

Form 8594: The Asset Acquisition Statement Explained (With the Seven Asset Classes)

Key Insight

Form 8594, the Asset Acquisition Statement Under Section 1060, is the IRS form that records how a business's purchase price is allocated across seven asset classes in an asset sale. Both the buyer and the seller file it with their federal tax returns for the year of the sale, and the two filings are supposed to report the same allocation. The seven classes run in order: Class I cash, Class II actively traded property, Class III accounts receivable, Class IV inventory, Class V other tangible assets (equipment, furniture, real estate), Class VI Section 197 intangibles other than goodwill (customer lists, non-competes, trademarks), and Class VII goodwill and going-concern value, which absorbs the residual.

The allocation is not a formality — it decides how much tax each side pays. Sellers prefer dollars allocated to goodwill (capital-gain treatment) and away from equipment (depreciation recapture taxed as ordinary income) and inventory (ordinary income). Buyers prefer dollars allocated to equipment and short-lived intangibles, which recover quickly through depreciation, rather than to goodwill, which amortizes over fifteen years. Because their incentives collide but their forms must match, the allocation should be negotiated and fixed in the purchase agreement itself. Mismatched buyer and seller filings are a well-known IRS audit trigger.

What Form 8594 is, and when it applies

Form 8594 applies to an asset sale of a trade or business — the structure most small business acquisitions use — when goodwill or going-concern value attaches to the transaction. It does not apply to a stock or membership-interest purchase, where the buyer acquires the entity itself rather than its assets.

The form's job is narrow but consequential: it tells the IRS how the single agreed purchase price is split across the categories of assets being sold. That split governs the tax consequences for both sides, which is why the IRS requires both the buyer and the seller to file the form and to report consistent numbers.

If you are working through the deal documents at closing, Form 8594 belongs alongside the asset purchase agreement and the closing balance sheet. Our free due diligence request list and LOI template cover the documents that come before it.

The seven asset classes

Section 1060 requires the price to be allocated to seven classes in order, using the "residual method": you fill each class up to its fair market value, starting at Class I, and whatever is left over lands in Class VII as goodwill.

Class	What it covers	Typical SMB deal
I	Cash and general deposit accounts	Usually $0 — asset deals are typically cash-free
II	Actively traded personal property, CDs, securities	Rare in Main Street deals
III	Accounts receivable, mark-to-market assets, debt instruments	Sometimes excluded; sometimes a real number
IV	Inventory and stock in trade	Allocated at cost; ordinary income to the seller
V	All other tangible assets — furniture, fixtures, equipment, vehicles, land, buildings	Often the largest tangible bucket
VI	Section 197 intangibles other than goodwill — customer lists, covenants not to compete, trademarks, licenses, software	Where the negotiation gets interesting
VII	Goodwill and going-concern value	The residual — absorbs whatever is left

The mechanical point that trips up first-time buyers: goodwill is not chosen, it is what's left. You assign fair market value to Classes I through VI, and the remainder of the purchase price is goodwill by definition.

Why the allocation is a negotiation, not a formality

Because each class is taxed differently, the buyer and seller want the price pushed toward different classes.

The seller wants dollars in Class VII (goodwill), which is generally taxed at long-term capital-gain rates. The seller wants to avoid dollars in Class V equipment — to the extent the equipment was depreciated, the gain is depreciation recapture taxed as ordinary income — and in Class IV inventory, which is ordinary income.

The buyer wants the opposite. Dollars in Class V can be recovered quickly through depreciation (and often bonus depreciation or Section 179), and short-lived Class VI intangibles like a covenant not to compete amortize over their term. Dollars in Class VII goodwill are stuck amortizing over fifteen years — the slowest recovery on the form.

The buyer and the seller are pulling the same dollars in opposite directions — but they have to file one allocation, and it has to match. That tension is exactly why the allocation belongs in the purchase agreement, negotiated like any other term, not left to each party's tax preparer after closing.

CPA

CPA Take

The allocation is the one line on this form most buyers hand to their accountant after closing — and that's backwards. It's a negotiated term that moves real money between the parties. Settle it in the purchase agreement while you still have leverage, not on the tax return afterward.

A worked example: allocating a $1.2M purchase

Consider a service business bought for $1,200,000 in an asset deal, cash-free:

Class	Asset	Allocation
I	Cash	$0
IV	Inventory (at cost)	$80,000
V	Equipment, vehicles, FF&E	$220,000
VI	Customer list + 3-year non-compete	$150,000
VII	Goodwill (residual)	$750,000
	Total	$1,200,000

For the seller, $750,000 of capital-gain goodwill is the friendly part; the $220,000 of equipment may carry recapture taxed at ordinary rates, and the $80,000 of inventory is ordinary income. For the buyer, the $220,000 of equipment and the $150,000 of amortizable intangibles recover far faster than the $750,000 of 15-year goodwill — so the buyer would prefer to shift dollars from Class VII into Classes V and VI, within defensible fair-market-value limits.

Both parties file Form 8594 reporting this same table. If the buyer instead reported $400,000 of equipment and $570,000 of goodwill while the seller reported the numbers above, the mismatch is visible to the IRS the moment the two returns are cross-checked.

Filing mechanics and common mistakes

Both parties file Form 8594 with their federal income tax return for the year of sale — not a standalone filing.
Agree the allocation in the purchase agreement. The cleanest deals attach the allocation schedule as an exhibit so both 8594s are copied from the same source.
File an amended 8594 (a "supplemental statement") if the purchase price later changes — for example, an earnout payment or a post-closing working-capital adjustment.
Don't ignore the covenant not to compete. A non-compete is a Class VI intangible with its own tax character; burying it in goodwill is a common error.
Get a transaction CPA and attorney involved before signing. The allocation interacts with depreciation recapture, state tax, and your post-close cash flow — it is worth modeling, not guessing.

This is an overview, not tax advice. The right allocation depends on the specific assets, how they were depreciated, and both parties' tax positions — model it with a transaction CPA before you sign.

What is Form 8594 used for?

Form 8594 reports how the purchase price in an asset sale of a business is allocated across seven IRS asset classes. Both the buyer and seller file it so the IRS can confirm both sides are reporting the same allocation, which determines the tax character of each party's gain and cost.

Is Form 8594 required for every business sale?

No. Form 8594 is required for asset sales of a trade or business where goodwill or going-concern value attaches. It is not used for stock or membership-interest purchases, where the buyer acquires the entity itself rather than its individual assets.

Can the buyer and seller use different allocations on Form 8594?

They are not supposed to. The IRS expects matching allocations and cross-checks the two filings. The reliable practice is to negotiate the allocation into the purchase agreement so both Form 8594 filings report identical numbers; mismatches are a common audit trigger.

Where do customer lists and non-competes go on Form 8594?

Customer lists, covenants not to compete, trademarks, licenses, and software are Class VI — Section 197 intangibles other than goodwill. They are distinct from Class VII goodwill, and a covenant not to compete in particular has its own amortization and tax treatment that should not be lumped into goodwill.

Form 8594: The Asset Acquisition Statement Explained (With the Seven Asset Classes)

What Form 8594 is, and when it applies

The seven asset classes

Why the allocation is a negotiation, not a formality

A worked example: allocating a $1.2M purchase

Filing mechanics and common mistakes

Avery Hastings, CPA

Sources

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What Form 8594 is, and when it applies

The seven asset classes

Why the allocation is a negotiation, not a formality

A worked example: allocating a $1.2M purchase

Filing mechanics and common mistakes

Avery Hastings, CPA

Sources

Keep Reading

Subscribe to Acquidex updates.

Subscribe to
Acquidex updates.