Buying or Selling Business Assets – Remember to File IRS Form 8594 & Avoid Future Headaches

05/21/2014|John R. Dundon II, EA|Asset Classification, Business Structure

A complication

The US tax law requires both the seller and purchaser of a group of assets that makes up a trade or business to file IRS Form 8594 to report the sale when there is a transfer of a group of assets that makes up a trade or business and the purchaser’s basis in such assets is determined wholly by the amount paid for the assets. This applies whether the group of assets constitutes a trade or business in the hands of the seller, the purchaser, or both.

Lessons learned

To properly defend yourself, IRS Form 8594can and should be amended if corrections are needed.
The key to note here is that all parties involved in a transaction of business assets should agree to exactly how this form is prepared AS PART OF THE TRANSACTION.
If the purchaser or seller is a controlled foreign corporation (CFC), each U.S. shareholder should attach Form 8594 to Form 5471.

Two Exceptions to the filing requirement

1. When a group of assets that makes up a trade or business is exchanged for like-kind property in a transaction to which section1031 applies. For information about such a transaction, see Regulations sections 1.1031(j)-1(b) and 1.1060-1(b)(8).

2. When a partnership interest is transferred. See Regulations section 1.755-1(d) for special reporting requirements. However, the purchase of a partnership interest treated for federal income tax purposes as a purchase of partnership assets, which constitute a trade or business, is subject to section 1060.