Allocating the price in an asset sale: Form 8594 and the seven classes

In an asset sale, the buyer and seller each file IRS Form 8594 with their income tax returns, allocating the purchase price across seven asset classes, from cash (Class I) to goodwill and going concern value (Class VII). Company data shows up mainly in Class VI, which covers section 197 intangibles other than goodwill; the IRS lists business books and records, information bases and know-how and customer-based intangibles among them. How the price is split affects both sides’ taxes, so it is usually negotiated in the purchase agreement.

The seven classes

Class	What it covers (IRS)
I	Cash and general deposit accounts
II	Actively traded personal property, such as US government securities and publicly traded stock, plus certificates of deposit and foreign currency
III	Assets the taxpayer marks to market at least annually, and certain debt instruments such as accounts receivable
IV	Stock in trade, inventory-type property and property held mainly for sale to customers
V	All assets not in another class; furniture and fixtures, buildings, land, vehicles and equipment are generally Class V
VI	Section 197 intangibles except goodwill and going concern value: workforce in place, business books and records, information bases, know-how, customer- and supplier-based intangibles, licences and permits, non-competes
VII	Goodwill and going concern value

Where data and records fit

• Business books and records, operating systems and information bases are section 197 intangibles the IRS names in Class VI. That is where an archive of operational records sits.
• Customer lists and relationships are customer-based intangibles, also Class VI.
• Processes and know-how are named too; your tax adviser decides the final classification and values.
• Records you must keep (tax, payroll, I-9s) usually stay with the seller, or are copied for the seller, under the agreement.

A licence before or alongside a sale

Some owners license de-identified copies of operational records to AI developers before or alongside a sale. That changes what the buyer is getting, so disclose it in the deal and agree it with the buyer and your advisers. See data as an asset when you sell your business.