Rev. Rul. 55-79

For Federal income tax purposes, the sale of a going business operated as a sole proprietorship does not constitute the sale of a single asset. Such a sale constitutes a sale of the individual assets comprising the business. For the purpose of determining whether the gain on the sale of a particular asset is to be included in gross income as an item of ordinary income or whether it is to be treated as gain from the sale of a capital asset, all of the individual assets sold must first be classified as to (1) capital assets as defined in section 117(a) of the Internal Revenue Code of 1939, (2) property used in trade or business as defined in section 117(j) of the Code, and (3) other property not coming within the provisions of section 117(a) or section 117(j) of the Code as, for example, stock in trade or inventory. For this purpose, records maintained with respect to the business, as well as intangible assets such as goodwill, constitute capital assets. See Ensley Bank & Trust Co. v. United States , 154 Fed.(2d) 968, certiorari denied, 329 U.S. 732. This is not intended to include records that are in fact inventory or stock in trade. The selling price must be allocated among all the assets sold according to the respective relative values thereof, for example, according to the ratio of the value of each individual asset to the sum total of the values of all the assets sold. See C. D. Johnson Lumber Corp. v. Commissioner , 12 T.C. 348, acquiescence, C.B. 1950-2, 3. Separate computations must be made of the gain or loss with respect to each asset sold, and the gain or loss in each case must be treated in accordance with the classification of such asset, as described above. See Aaron F. Williams v. McGowan , 152 Fed.(2d) 570; Ernest A. Watson v. Commissioner , 345 U.S. 544, Ct. D. 1760, C.B. 1953-1, 179