Form 8594: Asset Acquisition Statement Basics

Form 8594 is the Asset Acquisition Statement under section 1060 of the Internal Revenue Code. It reports how the consideration in a sale of a group of assets is allocated among those assets. The buyer and the seller each file one when the rules apply.

This post is general information from the form and its instructions (Rev. November 2021). It is not a valuation or a legal opinion.

When the form is required

The instructions say a purchaser or seller must file Form 8594 when the group of assets makes up a trade or business, and the buyer's basis in the assets is determined by the consideration paid. The form is attached to the income tax return for that year, such as Form 1040, Form 1065, Form 1120, or Form 1120-S.

The instructions also describe exceptions, including some partnership interest transfers. Read the exceptions before you decide the form does not apply.

Part I: the transaction

Part I asks you to check whether you are the purchaser or the seller. It asks for the name and identifying number of the other party, the address, the date of sale, and the total consideration.

Part II: the asset classes

Part II lists seven asset classes, from Class I to Class VII. For each class, you enter the aggregate fair market value and the amount of the consideration allocated to it. Class I is cash and general deposit accounts. Classes VI and VII are the intangibles, goodwill, and going concern value.

The instructions describe each class in more detail. Class II covers actively traded personal property, certificates of deposit, and foreign currency. Class III covers accounts receivable and certain debt instruments. Class IV is stock in trade and inventory. Class V covers other assets, such as land, vehicles, and equipment. Class VI covers section 197 intangibles, except goodwill and going concern value. Class VII is goodwill and going concern value.

How the consideration is allocated

The instructions set the order. Allocate the consideration to Class I first, then to Class II, Class III, Class IV, Class V, and Class VI in that order. Any remaining consideration goes to Class VII. Within each class, the instructions allocate the consideration among the assets in proportion to their fair market values.

The amount allocated to an asset, other than a Class VII asset, cannot be more than its fair market value. The instructions also explain how to reduce an allocation when the consideration changes.

Questions on the first page

Question 5 asks whether the buyer and seller set out an allocation in the sales contract or in another written document signed by both parties. If yes, the form asks whether the fair market values in that document match the amounts agreed. Question 6 asks whether the buyer also took a license, a covenant not to compete, a lease, an employment contract, or a management contract with the seller. If yes, attach a statement with the type of agreement and the maximum amount paid under it.

Part III: changes later

If the consideration changes after you file, use Part III for a supplemental statement. It shows the tax year and the form number used for the original statement, the allocation as previously reported, the increase or decrease, and the reason for the change.

Penalties

The instructions refer to section 6721 for penalties. If you do not file a correct Form 8594 by the due date of your return, penalties may apply. File a complete form on time.

Asset sales can also involve Form 4797 for business property. See Form 4797: Reporting Sales of Business Property. For general sale and exchange rules, see Sales, Exchanges, and Other Dispositions: The Basic Tax Rules. For real property exchanges, see Form 8824: Like-Kind Exchanges of Real Property.

Checklist

Confirm the sale is a group of assets that makes up a trade or business.
Agree on an allocation in writing, and sign it, if you can.
Value each asset class using the instructions.
Attach the form to the return for the year of the sale.
File a supplemental statement if the consideration changes.

This is general information only. It is not tax advice for your situation.

Sources: Sources: IRS, Form 8594, Asset Acquisition Statement Under Section 1060 (Rev. November 2021) and Instructions for Form 8594 (Rev. November 2021) (https://www.irs.gov/pub/irs-pdf/f8594.pdf; https://www.irs.gov/pub/irs-pdf/i8594.pdf) This is general information, not advice about your specific return.

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