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When to File Form 8594 - Asset Acquisition

When you decide it’s time to sell your company, you will have to sell the assets of your company to the prospective buyer. Based on the agreed purchase price between the buyer and seller, the purchase price needs to be allocated among the various asset categories. Upon the sale of a business, the group of assets that makes up the trade or business is transferred to the buyer. Both the purchaser and seller must file Form 8594, Asset Acquisition Statement Under Section 1060. The purpose of Form 8594 is to determine the treatment of the assets for tax purposes, establish the basis of the acquired assets for the purchaser, and the seller’s gains and losses from the asset transfer. 

The following outlines the necessary information reported on Form 8594. 

Walking Through Form 8594

Part I: General information 

  1. Name, tax identification number (employer identification number/social security number), and address of the other party 
  2. Date of sale  
  3. Total sales price (consideration) 

Part II: Original Statement of Assets Transferred 

The assets are categorized into one of seven specified classes2. The total fair market value and purchase price are allocated to each class of assets acquired. 

  • Class I: Cash and bank deposits (including checking and savings accounts) 
  • Class II: Actively traded personal property, certificates of deposit, foreign currency  
  • Class III: Accounts Receivable 
  • Class IV: Inventory, Stock in trade  
  • Class V: Other tangible property (Furniture and fixtures, buildings, equipment, etc.) excluded from Class I, II, III, IV, VI, and VII assets  
  • Class VI: Section 197 intangibles (patent, copyright, covenant not to compete, etc.) except goodwill and going concern value  
  • Class VII: Goodwill and going concern value 

Part III: Supplemental Statement 

Any increase or decrease in consideration after the year in which the sale occurred must be reported in Part III by the affected party to reallocate the purchase price among the assets. The taxpayer must file Form 8594 in the year the change occurs.

This reallocation recalculates the seller’s amount realized from the sale or the purchaser's cost basis in the assets. An explanation for the increase or decrease in consideration must be provided. 

Exceptions to Filing:   

If any of the following is met, you are not required to file. 

  1. Transfer of partnership interest – Unless the transfer of partnership interest is treated as a purchase of partnership assets (Section 1060 rules apply).  
  1. Section 1031 Like-Kind exchange - Unless Section 1031 does not apply to all the assets transferred then Form 8594 is required for the portion of the group assets that are not eligible under Section 1031. 

Key Takeaways: 

  1. Both the purchaser and the seller must attach Form 8594 to their respective tax returns in the first year of the sale. 
  2. The allocation of the consideration paid determines the seller’s gain or loss and the depreciable or amortizable amount of the purchase price, if any, for the purchaser.  
  3. The IRS may impose penalties and fees for any inconsistencies between the purchaser's and seller's Form 8594. 

For more information, contact one of Evolved's tax experts.

1 Individual, Trust, Estate, Partnership, C-Corporation, S-Corporation, etc. 

2 If an asset falls under multiple categories, classify the asset in the lower numbered class. 

Evolved is a tax compliance and advisory firm with offices in New York City, Philadelphia and Stamford, serving clients nationally throughout the US.  We provide tax provision, private equity and venture capital services alongside advisory for high net-worth tax and family office tax. 

Aisan Wu
Author: Aisan Wu
Aisan is a certified public accountant who provides federal and state income tax compliance and advisory services for private equity and venture capital funds, and private equity portfolio companies.