Need Form 8594 Help

[ericleve]

I have an individual tax client who bought a small diner in 2007. He says the contract he signed with the seller does not break out how the purchase price was allocated, just that the total purchase price was 50k. I am trying to allocate the purchase price to the assets he purchased but am a little confused.

First of all, 50k seems like a lot for this small place (it is a "valentine box" diner that seats 10 people). The appraised value of the building is only $3500.

The other tangible assets purchased with the diner are minimal, just a few pots and pans and a cooler.

I am thinking some amounts should be allocated to goodwill and for the use of the name, this diner has been a mainstay in our city for many years.

How do I allocate between the tangible assets and the intangibles if the seller's contract is silent on these issues?

[Roland Slugg]

How do I allocate between the tangible assets and the intangibles if the seller's contract is silent on these issues?

Ask the buyer to make reasonable estimates of the FMV of each asset acquired, and allocate that much of the $50k to each. Allocate the rest to goodwill and amortize it over 15 years. I assume there was no non-compete covenant or you would have mentioned it, but if there was, allocate part of the purchase price to it, too.