Use IRS Form 8594: Asset Acquisition Statement to Report the Sale of Your Business

If you’re buying or selling a business, you need to be familiar with IRS Form 8594: Asset Acquisition Statement Under Section 1060. It reports the sale of a business and assigns the purchase price to the acquired assets.

To fill out Form 8594, gather information about the sale, including the assets involved and their cost basis. Determine which assets are depreciated for tax purposes. This form ensures accurate reporting for maximum deductions.

Complete the Form 8594 example on this page. Read the instructions carefully. Understand the requirements for each section, including definitions of assets (real and personal), depreciation recapture calculation, and eligible assets for a stepped-up basis.

The Importance of Form 8594 and Section 1060

Form 8594 is required by the Internal Revenue Service (IRS) when a buyer and seller agree to allocate the purchase price of a business to specific assets. This is an important form because it affects the tax treatment of the transaction for both parties. The form is required for all asset acquisitions that fall under Section 1060 of the Internal Revenue Code.

If the purchase price is not allocated to specific assets, the buyer will not be able to depreciate or amortize the assets, and the seller may not be able to claim a loss on the sale of any assets that are subsequently disposed of. Failure to file the form can also result in penalties and interest charges.

Typical Contents for Form 8594

IRS Form 8594 is an important form that must be filed when a buyer and seller agree to allocate the purchase price of a business to specific assets. Failure to file the form can result in penalties and interest charges.

The form consists of three (3) parts and requires both the buyer and seller to provide their details on the form. If you’re planning to buy or sell a business, be sure to consult with a tax professional to ensure that you comply with all the necessary requirements.

Part I contains general information. This section requires you to provide the other party to the transaction, their identifying number, address, date of sale, and the total sale price of the asset involved in the transaction. The buyer must also indicate whether any of the assets are depreciable for tax purposes.

Part II contains the original statement of assets transferred. Separated into three columns, this section details the class of assets, the aggregate fair market value of each, and the allocation of the sales price. This table is followed by a few yes or no questions pertaining to the details of the sale.

Below are the definitions of each asset class:

Class I assets – cash and other depository institutions
Class II assets – actively traded personal property within the meaning of section 1092(d)-1, including certificates of deposit and foreign currency
Class III assets – assets a taxpayer markets to market at least annually for federal income tax purposes
Class IV assets – stock in trade of the taxpayer or other property of a kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax year
Class V assets – all other assets other than I, II, III, IV, VI, and VII
Class VI assets – section 197 intangible asset classes except goodwill
Class VII assets – goodwill and going concern value

Finally, Part III contains a supplemental statement that an individual must complete if amending an original or previously filed supplemental statement because of an increase or decrease in consideration.

Fair market value

A fair market value is the estimated amount for which an asset would be exchanged between a willing buyer and a willing seller in an arm’s length transaction, neither being under any compulsion to buy or sell. Fair market value should not be confused with the book value or net asset, as the former takes into account factors such as current demand and supply of similar assets.

Net asset value

The book value or net asset value is the total purchase price of the business less any liabilities assumed. This figure is used to allocate the purchase price among the assets acquired.

Cash in savings and loan associations

Cash and general deposit accounts such as savings and checking accounts (excluding certificates of deposits) held in banks, credit unions or other depository entities constitute Class I assets.

Purchases for federal income tax purposes

For federal income tax purposes, if you purchase a partnership interest that is treated as the acquisition of business assets, Section 1060 applies. To comply with this law, you must complete and submit Form 8594.

FAQ About Form 8594

When is Form 8594 required?

Form 8594, Asset Acquisition Statement Under Section 1060, is an Internal Revenue Service (IRS) form used to report the transfer of assets from a buyer and seller. This form must be filed when certain transfers are made as part of the purchase price of specific business assets.

When should I use Form 8594?

You should use Form 8594 if you are involved in the transfer of business assets between two parties. This may include when you sell your business or transfers all or a portion of its assets to another.

What information do I need to fill out Form 8594?

When filling out Form 8594, you will need to provide information about the transferor and transferee, as well as details about the transferred assets, like their fair market value and the adjusted basis on the date of transfer. You also need to provide information about any liabilities related to the transferred assets, such as how much each liability was assumed by each party at the time of transfer and its characterization under federal tax law.

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Form 8594 – Asset Acquisition Statement Under Section 1060 2021