If you are in the process of
buying or selling a company, you may want to review the recent tax case Peco
Foods v. Commissioner, TC Memo 2012-18. This case dealt with a
proposed reallocation of asset values by the purchaser from a
broad classification and large dollar value allocation of asset
types (e.g. 26 categories of class types) contained in the sales
agreement, which was then followed by subsequent cost studies by the
purchaser after closing. The subsequent cost segregation study allocated the 26
class groups into over 300 sub-asset groups; thus creating smaller, more
specific groupings with shortened tax lives for depreciation purposes. The
Tax Court ruled that the cost segregation study would be disregarded and the
previously negotiated groupings contained in the sales agreement would be
binding. This resulted in less annual depreciation deductions by the
purchaser on the front end. What lesson is to be learned from this case? LOOK
AT THE COST SEGREGATION STUDY PRIOR TO CLOSING, which should be followed
by the negotiated acceptance by the buyer and seller to treat the
study as acceptable by both sides and made part of the sales agreement .
I would suggest, for example, that the 300 sub-asset groups be attached to
Form 8594, which is an IRS form that reports the acquisition and sale by
the respective parties in the year of sale. If you have questions, please contact Richard Bell, CPA 501.753.9700 or e-mail richard.bell@bellandcompany.net a link to a copy of the case is below.
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