Everything Together and Closing the Transaction
- A buyer and seller can agree to allocate part of the purchase price to
the option granted by the seller on a piece of real estate or adjacent or
supplemental land that is not being sold in the transaction but for which
the buyer can purchase in the future. If a value is assigned to this option,
its value can be written off over the life of the option.
New tax regulations require that, whenever a business is bought or sold,
both buyer and seller must file Form 8594 with the IRS reporting certain
information about the purchase price allocation. Remember, if there is a
purchase price allocation in the sale agreement, include a provision that
requires both parties to report the transaction the same way for tax purposes,
in accordance with the agreed purchase price allocation. Penalties for failure
to file this form can be significant. The information on the two Forms 8594
should be identical, or you will both be inviting IRS audit.