Purchase Price Allocation for an Asset Purchase with No Physical Assets

May 02, 2024

by a searcher from University of Minnesota - Twin Cities Campus in Marysville, WA, USA

Hi all! I'm approaching closing for the asset purchase of a business with no physical assets (it's all goodwill and IP) and am working on the purchase price allocation. As far as I can tell, the only three items that should end up on the allocation are goodwill, IP, and the covenant not to compete.

This is my first acquisition, so I'm curious if there's a standard purchase price allocation form or format that I should use, or if I literally just write three bullet points and their respective allocations on a Word doc and have both me and the seller sign it (I imagine something in the middle is most appropriate).

Any guidance you could provide for this first-time searcher would be greatly appreciated!

Reply by a professional
from University of Miami in New York, NY, USA

Happy to help - you need to allocate the purchase price on IRS Form 8594, and while I’d say you should consult with a CPA, as a tax attorney (though not yet your attorney), your assumption that there are very little assets to itemize is incorrect. You have, among others I’m sure, goodwill, IP (broken out and itemized), customer contracts, client lists, office supplies, equipment (computers, phones, etc.), trade secrets not subject to IP, know how, etc.

there may be limited physical assets, but your list of intangibles needs to be more comprehensive. Having done asset purchases for 20 years, I’d be happy to help.

https://calendly.com/petigara-law-group/meeting-with-vishal-petigara

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

^redacted‌ answer is correct. I would go further as follows. I am assuming you are not a public company.
a) IP tax benefit is same as GW tax benefit. So. unless you have a reason (emotional, optics or otherwise), why waste money trying to get IP valuation or risk justifying it?
b) On this point talk to you attorney. Why assign any $ to non-compete? Assign same to GW. NC brings no incremental tax benefit. By assigning a fixed $ to NC, you are capping your recourse amount if seller breaches NC. There is a better way to craft the English in the APA on this.

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