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.
The seller and the buyer each use Form 8594 to allocate the assets among seven asset categories. 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.
Form 8594 doesn't need to be completed 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.
Form 8594 consists of three parts:
- Part I - Part I provides information about the other party to the transaction, as well as the transaction's date and total sales price.
- Part II - In Part II, for each class you'll enter the fair market value of each of the seven asset categories transferred as well as how much of the purchase price is being allocated to that asset category. 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 categories.
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 categories.
- 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: