I believe if it is not technically mandatory for buyer and seller to submit equal purchase price allocations on their respective Form 8594 following an acquisition -- but wondering what this opens each party up to? If its an auto red flag and will likely lead to audit of both sides? As the buyer, my allocation will more resemble reality, so if the IRS were to step in a determine their own allocation, I think it would reflect our allocation -- but again, wasn't sure if this was likely to trigger anything
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If the parties do not agree in writing, then they can do what they want, but should have documentation to support how they arrived at their allocation. When I represent buyers, I never want to agree to an allocation because it allows the buyer to use all available evidence to support the allocation, which could include valuations/appraisals, and other evidence an financial statement auditor may rely on for financial statements purposes. On the other hand, when I represent sellers, we always want to agree to an allocation so that we can reasonably manage how much ordinary income is recognized.
Historically the IRS has not matched Form 8594’s, however, the IRS now has an active compliance campaign on Form 8594 and Form 8883 to address non-filers and for those whose forms are inconsistent with the other party’s reporting the transaction.
Technically, buyer and seller Form 8594’s should never match. A few examples of why Form 8594’s will not match include, but not limited to transaction costs (buyer and seller are different), contingent liabilities, and earnouts / deferred purchase price. I expect the IRS compliance campaign will result in changes to these forms in the future, but it may be many years off.
I did have one IRS audit in 2020 where the IRS compared the Form 8594’s and asked us to explain why they did not match. After talking with the buyer, turns out their tax advisor did not follow the purchase agreement. The buyer amended their return to match and the IRS audit was closed with no change.
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