Why Class V dominates plant files
Class V holds furniture, fixtures, and equipment. A shop with late-model cells has a large Class V number if the allocation follows fair market value of the list. Buyers like depreciation. Sellers on a C-corp asset sale feel the ordinary-income bite. The deal-side 8594 page walks the classes.
The IRS page on Form 8594 is the primary source for who must file (Source: IRS). This glossary will not invent a rate.
What the form is not
It is not an SBA credit box. 7(a) still caps standard change-of-ownership at $5 million regardless of how you split Class V and Class VII (Source: SBA). It is not a BizBuySell multiple. The 2.75x SDE median is an earnings print, not an allocation (Source: BizBuySell).
An M&E appraisal informs the iron. Inventory methods inform Class IV. Residual goodwill is Class VII. Do not plug “whatever is left” until the other classes are honest.
| Class | Typical plant contents | Usual tension |
|---|---|---|
| IV | Inventory | Book vs physical |
| V | Machinery and equipment | Buyer basis vs seller tax |
| VI | Intangibles except goodwill | Non-compete, licenses |
| VII | Goodwill and going concern | Residual |
When do both sides file?
On an applicable asset acquisition. A plain stock purchase often does not use 8594 unless an election treats it as an asset deal. A CPA decides. Jason Taken is a business broker.
How manufacturers should negotiate the classes before the APA is frozen
Put a draft allocation in the letter if Class V will move real dollars. Buyers who wait until the week of close to demand a step-up are asking for a walk. Sellers who refuse any Class V number that matches the appraisal are asking for a mismatch the IRS can see. The asset purchase agreement should attach the same exhibit both sides will file.
Inventory methods matter for Class IV. A book number that ignores excess-and-obsolete will not match the peg. Do not let 8594 and the true-up tell two stories about the same steel.
Goodwill is residual. It is not a plug you pick because it “feels like a brand.” If the iron is old and the earnings are real, Class VII can still be large. If the iron is new and the earnings are thin, Class V can dominate. The appraisal informs. The CPA allocates. The glossary only names the form.
Isolation
The glossary names the form. The FAQ holds the question. Educational information only. Counsel and a CPA own the return.
When the iron is heavy enough that Class V will move six figures of tax, book a confidential intro call.
Residuals that look like goodwill and are not
A non-compete that should be Class VI. A license that should be Class VI. Software that should have been in Class V with the cell. If you dump everything leftover into Class VII, you have not allocated. You have surrendered. Have the CPA and the appraiser in the same week, not in different months.
Appraisers write premises. CPAs write classes. A continued-use FMV that is higher than the residual the seller will accept is a negotiation, not a math error. Get both people on a call before the APA exhibit is frozen. A CIM can flag that Class V will move real dollars without publishing a draft allocation. Purchase price allocation with heavy equipment is the playbook. A CPA owns the form. After the iron is heavy enough to move tax, a confidential intro call is the conversion path.
What Form 8594 is not
It is not the asset purchase agreement. It is not an SBA credit box. 7(a) still caps standard change-of-ownership at $5 million regardless of how you split Class V and Class VII (Source: SBA). It is not a BizBuySell multiple. The 2.75x SDE median is an earnings print, not an allocation (Source: BizBuySell). A plain stock purchase often does not use 8594 unless an election treats it as an asset deal.
How it shows up: both sides file the same seven-class allocation. Class V is the usual plant fight. Residual goodwill is Class VII, not a shrug. Put a draft allocation in the letter if Class V will move real dollars. The deal-side 8594 page walks the classes. The IRS page is the primary source for who must file (Source: IRS).