What Is Form 8883, Asset Allocation Statement?

Form 8883, “Asset Allocation Statement Under Section 338,” is a tax document used in corporate acquisitions and filed with the Internal Revenue Service (IRS). It is completed by both the purchasing corporation and the selling shareholders of a target corporation. The form’s purpose is to report the allocation of the business’s total purchase price across the various assets that were part of the transaction. This process is required when a Section 338 election is made, ensuring that both the buyer and seller report the deal to the IRS in a consistent manner for tax purposes.

When Form 8883 is Required

The requirement to file Form 8883 is triggered by a Section 338 election. This election is used when a corporation purchases a controlling stock interest in another company, the “target,” but wishes to treat the transaction as a purchase of the target’s assets for federal tax purposes. This approach allows the buyer to get a “step-up” in the tax basis of the acquired assets, which can lead to greater depreciation deductions in the future. The form is exclusively for these deemed asset purchases following a qualified stock purchase.

There are two primary types of these elections that require filing Form 8883. A Section 338(g) election is made unilaterally by the purchasing corporation. The second type is a Section 338(h)(10) election, which is a joint election made by both the purchaser and the sellers of the target corporation. A Section 338(h)(10) election is typically available when the target is an S corporation or a subsidiary member of a consolidated corporate group.

Required Information and Allocation Calculations

Completing Form 8883 requires gathering specific details from the transaction and performing a structured calculation to allocate the purchase price.

General Information

The form requires foundational identifying information for all parties. This includes the full legal names, current mailing addresses, and taxpayer identification numbers (TINs) for the purchasing corporation, the selling entity, and the target corporation. The acquisition date, which is the specific date on which the controlling stock interest was acquired, must also be included.

Purchase Price Calculation

A key part of the form is determining the total purchase price. For the purchaser, this figure is the Adjusted Grossed-Up Basis (AGUB). The AGUB starts with the grossed-up basis of the purchaser’s recently purchased stock and is adjusted for the liabilities of the new target corporation. For the seller, the corresponding figure is the Aggregate Deemed Sale Price (ADSP), which is calculated to determine the gain or loss the seller recognizes on the deemed sale of the target’s assets.

The Asset Classes and Residual Method

The IRS mandates a specific methodology for allocating the purchase price known as the “residual method.” This method categorizes all business assets into seven distinct classes. The allocation process works sequentially, where the total purchase price is first applied to the assets in Class I, then to Class II, and so on. Any amount of the purchase price that remains after allocating to the first six classes is assigned to Class VII.

The seven asset classes are structured from most to least liquid:

• Class I: Cash and general deposit accounts, such as savings and checking accounts.
• Class II: Actively traded personal property, certificates of deposit, and foreign currency.
• Class III: Assets that are marked-to-market for tax purposes and debt instruments, including accounts receivable.
• Class IV: Inventory or property held primarily for sale to customers.
• Class V: All assets that do not fit into the other classes, such as furniture, fixtures, buildings, land, and equipment.
• Class VI: Section 197 intangibles, except for goodwill and going concern value.
• Class VII: Goodwill and going concern value, which captures the residual value of the business.

Filing the Completed Form

Form 8883 is not a standalone document. It must be attached to the filer’s federal income tax return for the tax year in which the acquisition occurred. The purchaser attaches its completed Form 8883 to its corporate income tax return, such as Form 1120, and the seller attaches their version to their relevant tax return.

The deadline for filing Form 8883 is tied to the due date of the income tax return to which it is attached, including any extensions. For example, if a corporate tax return is due on April 15 but an extension is filed to October 15, then Form 8883 is also due by the extended October 15 deadline.

If the amount allocated to an asset changes after the initial filing, such as from a post-closing adjustment to the purchase price, the change must be reported. This is done by completing a supplemental Form 8883 and attaching it to the income tax return for the year in which the adjustment was made. This supplemental filing ensures that the tax basis of the asset is correctly updated.