Business & farm

Some thoughts on your question:

• This is not a difficult area, and a CPA that couldn't help you is one you should avoid anyhow.  Unless they just told you that this was not a strong point of their practice.
• Keep in mind, that discussing this with the buyer's CPA is like using the same attorney in a divorce.  They can really only represent one person.  Buyer's and seller's have conflicting goals in these situations.
• Your purchase agreement should have spelled out exactly how the purchase price was to be allocated and by each class listed in the form 8594.  The agreement should have mirrored what will be reported on the form 8594.
• Once you have the purchase price allocated to the correct class, you then determine your gain or loss by subtracting your basis in the items in that respective class.  This will drive your ordinary or capital gain.
• Question 5 on the form 8594 specifically asks if there is a written and signed allocation
• Question 6 on the form 8594 specifically asks about the covenant not to compete and the consulting agreement.  Once again, requires specifics.
• You need to be careful on the allocated amount of personal goodwill.  Technically, this should have been a separate agreement.  This is a hot button for the IRS.
• You will have ordinary income in the areas of depreciation recapture, supplies (depending on how you accounted for them), and your consulting agreement at a minimum.  So these are the areas that the buyer wants to allocate more as these items will be depreciable over shorter lives for the fixed assets.
• The other item not discussed is whether you received the full purchase price; other than maybe the consulting component.  This can be critical as if you have an installment sale, all depreciation recapture is recognized in the year of sale.  This catches some sellers off guard as their initial proceeds may not cover the tax due on the depreciation recapture.
• If you get a comfortable feeling from the buyer's CPA, I might recommend that you just have him prepare your tax return.
• Your class breakdown looks reasonable, other that I don't believe any personal goodwill should be a part of the business purchase.  As "personal" is being used, this should be a separate agreement with a separately determined amount.