Putting Everything Together and Closing the Transaction

Page 3

Furniture, Fixtures & Equipment
- Usually, this item will have the most allocated to it. As of this writing, these assets can be depreciated over a 5 year period.

Inventory and Supplies - This item can usually be written off in the first year therefore should be given the most consideration.

Customer Lists - Courts in recent years have allowed some buyers to deduct the value of customer lists, where an allocation was made in the purchase agreement as to the agreed value of each customer being acquired, and any such customers are subsequently lost. That aside, customer lists are written off over a 15 year period.

Covenant Not To Compete - Obtaining such a covenant from the seller can be an important negotiating point for non-tax reasons, as well. For tax purposes, the courts will usually uphold a reasonable value for such a covenant agreed to by the parties. Note that you can deduct or amortize the cost of the covenant over 15 years, regardless of the period of the covenant. Also, the courts have held that if the parties don't agree in the contract of sale that such a covenant has a particular value, then it is considered to have NO value for tax purposes, In other words, YOU LOSE, tax-wise, if you fail to include a purchase price allocation in the agreement of sale.

Other Intangible Assets - The courts have upheld similar tax treatment for buyers (and possibly with potentially beneficial capital gains treatment to the seller as well) for purchase price allocations to various other types of intangible assets. The tax life is 15 years as well.

Employment Contracts or Consulting Agreements - Often, the seller may agree to stay on, either as an employee or consultant to the buyer. The purchase price may include some type of remuneration.