When is Form 8594 required?
When a business is sold, both the seller and the buyer are generally required to complete Form 8594, Asset Acquisition Statement Under Section 1060, and attach it to their respective tax returns in the year of transfer if (a) goodwill or going concern value attaches, or could attach, to such assets, and (b) the purchaser's basis in the assets is determined only by the amount paid for the assets.
Going concern value is the additional value that attaches to property because the property is an integral part of an ongoing business activity. It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership.
Goodwill is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.
The seller and the buyer each use Form 8594 to allocate the assets among seven asset classes. Allocation is based on the fair market value. By allocating the assets, the seller is able to calculate any tax due on the sale, and the buyer is able to correctly determine the basis of the assets.
When is Form 8594 not required?
Form 8594 doesn't need to be completed if the assets do not include goodwill or going concern value. It isn't needed if the purchase was a like-kind exchange, although it would need to be completed for any assets transferred separately from the like-kind exchange.
It also doesn't need to be completed for the sale of a partnership interest, except that the purchaser would have to complete the form if for federal income tax purposes the purchase is treated as a purchase of partnership assets, which constitute a trade or business.
Parts of Form 8594
Form 8594 consists of three parts:
- Part I - In Part I you provide information about the other party to the transaction, as well as the transaction's date and total sales price.
- Part II - In Part II, you'll enter the fair market value of each of the seven asset classes transferred as well as how much of the purchase price is being allocated to that asset class. There are also two yes/no questions regarding the allocations and the legal obligations on each party.
- Part III - Part III is completed if you are amending a previous submission. This would be needed if there was an increase or decrease in the buyer's cost of the assets or the amount realized by the seller.
Before attempting to complete the form, read its instructions to familiarize yourself with the seven asset classes.
Completing Form 8594 in TaxSlayer Pro
From the Main Menu of the tax return (Form 1040) select:
- Miscellaneous Forms
- Forms 4810, 8082, 8275, 8594, etc.
- Form 8594 - Asset Acquisition Statement
- Type - Indicate if this taxpayer is the purchaser or the seller.
- Other Name - Enter the name and TIN of the other taxpayer.
- Address - Enter the address of the other taxpayer.
- Date of Sale - Enter the date of the sale.
- Total Sales Price (Consideration) - Enter the total sales price.
- Part II - Original Statement of Assets Transferred - For each class, enter the aggregate fair market value and total sales price allocated to that class. (See the instructions for information about what assets go into each class.) The sum of the sales price column should equal the total sales price previously entered.
- Purchaser & Seller Provide for Allocation of Sales Price - If the contract provides for how the sales price is allocated among the assets, answer the question Yes. If yes, also answer the second question regarding whether or not the allocations in the contract were followed in your entries for each of the seven classes.
- Purchaser Purchased License Not to Compete with Seller - If the purchaser also purchased a license or a covenant not to compete, or entered into a lease agreement, employment contract, management contract, or similar arrangement with the seller, answer the question Yes. If yes, in the Description window that opens describe (a) the type of agreement and (b) the maximum amount of consideration (not including interest) paid or to be paid under the agreement.
- Part III - Supplemental Statement - Complete this part if you're amending a previous submission.
Note: This is a brief guide on preparing Form 8594 in the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information: