Purchase Price Allocation & Taxes (Form 8594) in M&A
How the price is allocated among the assets — reported on IRS Form 8594 — changes the tax bill for both buyer and seller.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
In an asset deal, the purchase price is allocated among classes of assets, which determines the buyer’s future depreciation/amortization and the character of the seller’s gain. The allocation is reported to the IRS on Form 8594 under Section 1060.
Buyer and seller often have opposite tax incentives, so the allocation — and any tax elections and indemnities — should be addressed in the agreement, not left to the tax return.
Topics to check
An "applicable asset acquisition" requires both parties to allocate the price among asset classes under Section 1060 and file Form 8594, generally consistently. The allocation affects the buyer’s basis (and future deductions) and whether the seller has ordinary income or capital gain.
Watch for a clause letting one party set the allocation in its sole discretion; the allocation should be agreed, and both sides should file consistently.
IRS — About Form 8594In a stock deal, a Section 338(h)(10) or 336(e) election can treat the transaction as an asset sale for tax purposes, giving the buyer a basis step-up. These elections are technical, must be made jointly (338(h)(10)), and have eligibility requirements.
Confirm the agreement addresses any elections, who bears the tax cost or benefit, and cooperation on tax filings.
26 U.S.C. § 1060 (Cornell LII)Address who pays transfer and sales taxes on the asset transfer, how taxes for the period straddling closing are allocated, and the scope of the seller’s tax indemnity for pre-closing taxes (often a fundamental rep with longer survival).
Tax indemnity and the survival of tax reps frequently differ from the general indemnity package, so read them together.
Key takeaways
- Asset deals require a Section 1060 allocation reported on IRS Form 8594.
- The allocation should be agreed, with both sides filing consistently.
- A 338(h)(10)/336(e) election can treat a stock sale as an asset sale for tax.
- Address transfer taxes, straddle-period taxes, and the seller’s tax indemnity.
- Tax reps and indemnity often have longer survival than general reps.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Tax allocation, elections, and indemnity are technical and change; consult a qualified tax advisor.
- Form 8594 and Section 1060/338 requirements should be confirmed against current IRS rules.
Frequently asked questions
What is IRS Form 8594?
The Asset Acquisition Statement that both the buyer and seller file in an applicable asset acquisition to report how the purchase price is allocated among classes of assets under Section 1060. The allocation affects each party’s taxes.
Why do buyer and seller fight over the allocation?
Because the allocation affects the buyer’s future depreciation/amortization and the character (ordinary vs capital) and timing of the seller’s gain. Their tax incentives often point in opposite directions, so the allocation is negotiated.
Who pays transfer taxes in an asset sale?
It is set by the contract and varies; the parties often split transfer and sales taxes or allocate them by custom. Confirm the allocation and how straddle-period taxes are handled, and consult a tax advisor.