Instructions for Filing IRS Form 8594

When a business is bought or sold, the transaction encompasses a collection of individual assets. The Internal Revenue Service requires a detailed accounting of this exchange through Form 8594, Asset Acquisition Statement Under Section 1060. This form is a reporting tool for both the buyer and the seller of a business, ensuring both parties report the transaction consistently for tax purposes. It documents how the total purchase price is divided among the various assets transferred during the sale, which is a key step in determining the tax implications for each party.

Determining if You Need to File Form 8594

The requirement to file Form 8594 is triggered by an “applicable asset acquisition.” This occurs when a group of assets that constitutes a trade or business is sold, and the buyer’s basis in those assets is determined by the price paid. A transfer of a trade or business is indicated by the presence of goodwill or the value of its ongoing operations, known as “going concern value.” If these intangible elements could exist, the filing requirement is met.

Both the purchaser and the seller are independently responsible for filing their own Form 8594 with the IRS. This applies whether the assets were considered a trade or business by the seller, the buyer, or both. The forms from both parties should mirror each other in how the purchase price is allocated to create consistency for the IRS.

There are situations where filing is not necessary. If the transaction is part of a like-kind exchange under Section 1031, Form 8594 may not be required for the portion of assets in that exchange. The transfer of a partnership interest also has its own distinct reporting rules, making this form inapplicable.

Information and Allocation Rules for Completion

To complete Form 8594, both the buyer and seller must gather the legal name, address, and Taxpayer Identification Number (TIN) for both parties. You will also need the sale date and the total consideration. Total consideration is the amount the purchaser paid, including cash, the fair market value of any other property or services exchanged, and any liabilities the buyer assumed from the seller.

The core of Form 8594 revolves around allocating the total purchase price across seven distinct asset classes. This process is governed by the “residual method” under the tax code. The allocation must follow this specific order:

• Class I: Cash and general deposit accounts.
• Class II: Certificates of deposit, U.S. government securities, and other actively traded personal property.
• Class III: Accounts receivable, mortgages, and certain credit card receivables.
• Class IV: A business’s inventory and property held primarily for sale to customers.
• Class V: All assets not listed in the other classes, which can include furniture, fixtures, buildings, land, and equipment.
• Class VI: Specific intangible assets like covenants not to compete.
• Class VII: Goodwill and going concern value, which is the last asset to which value is assigned.

The residual method dictates a specific order for this allocation. The total consideration is first reduced by the amount of Class I assets. The remaining consideration is then allocated to Class II assets up to their fair market value. This process continues sequentially through Classes III, IV, V, and VI. Any amount of the purchase price that remains after allocating value to the first six classes is assigned to Class VII.

Step-by-Step Guide to Completing the Form

With the allocation amounts determined, you can begin filling out the form. At the top, enter your name and TIN and check the box indicating if you are the purchaser or seller. For an initial filing related to the sale, you will complete Part I and Part II.

Part I of the form is for general information. On line 1, enter the name, address, and TIN of the other party to the transaction. Line 2 requires the date the asset sale occurred, and line 3 is where you report the total consideration paid for the assets.

In Part II, “Original Statement of Assets Transferred,” you will report the allocation figures. Line 4 is a table to enter the fair market value of the assets in Classes I through VI and the purchase price allocated to each. The buyer and seller are expected to agree on this allocation. Line 6 is for reporting the amount allocated to Class VII.

Part III, the “Supplemental Statement,” is not completed on the initial filing. This part is only used if the total consideration changes in a tax year after the original sale, which requires filing a new, supplemental form.

Filing Requirements and Procedures

The completed Form 8594 must be attached to your federal income tax return for the tax year in which the sale took place. It is filed alongside your Form 1040, Form 1120, or Form 1065. The due date for filing Form 8594 is the same as the due date for the income tax return to which it is attached.

The buyer and seller must ensure their allocated amounts in Part II of the form are identical. If the IRS receives two forms with mismatched allocations, it may trigger a review or audit. The agency could challenge the figures on one or both tax returns, potentially leading to adjustments in tax liability for either party.

If the purchase price is adjusted after the initial sale year, a supplemental filing is required. An increase or decrease in consideration, such as from a contingent payment, necessitates completing a new Form 8594. For this filing, you complete Part I with the original transaction details and Part III to report the reason for the change and the new allocation. This supplemental form is attached to the tax return for the year the adjustment occurred.