Purchase Price Allocations
Purchase price allocations usually cannot be changed later.
A US appeals court refused to let a poultry company that bought two poultry processing plants in Mississippi, and agreed with the sellers to schedules showing how the parties intended to allocate the purchase price, revise the allocations. It said section 1060(a) of the US tax code binds the parties to the original allocation unless the IRS agrees to a change. The buyer is depreciating one of the poultry processing plants over 39 years on a straight-line basis on the theory that the plant is a building. It is depreciating the other plant partly over seven years and partly over 15 years on the theory that the plant is equipment. It tried retroactively to treat the first plant also as equipment. The IRS objected. The appeals court said the US tax code provision binding the buyer and seller to the same purchase price allocations is important for preventing the government from being whipsawed by inconsistent treatment.
The case is PECO Foods, Inc. v. Commissioner. The appeals court released its decision in July.