Sale of business - equip and contract

[JenMO]

Client sold business-old equipment and contract with company on an installment basis. He says equipment depreciated out, sold on the open market would not bring much. The contract that came with the business is worth more. Do I sell equipment at salvage basis? Don't know what the new owners will value it. The contract is an intangible asset. Is that like goodwill or blue sky? The equipment would all be taxable in the current year, and the contract would be a gain subject to capital gains treatment. Am I correct on this? My client feels the contract is worth a lot more than the equipment. Equipment isn't worth anything without the contract to put it into use. Is it up to him to break the sale down? Any guidance would be appreciated.

[taxmandan]

Sold the biz, didn't bother with the details.

The sale contract should have allocated the sales price to the assets. But since they probably didn't bother with the essential details of selling a business you may have to urge him along in arriving at value allocation. I would urge him to get with the buyer and work out an agreement on the allocation. Buyer will try to put most value on the equipment and little on the intangibles, seller will try to do the opposite. Form 8594 is used to show the details on the tax return. The IRS will compare the two returns and they must match or the IRS will be contacting them for clarification.