Purchase Price Allocation Issues When Buying a Business

Purchase Price Allocation Issues When Buying a Business

Filing of IRS Tax Form 8594: Asset Acquisition Statement

When buying or selling a business one of the most frequently neglected tax forms is IRS Tax Form 8594: Asset Acquisition Statement. Generally both the purchaser and the seller must complete Form 8594 and attach it to their income tax returns (Form 1040, 1041,1065,1120,1120S etc) when there is a sale or transfer of a group of assets that make up or comprise a trade or business. The purchase price or basis in such assets is solely determined by the amount paid or the assets (i.e., the purchase price). The form is required, whether the group of assets constitutes a trade or business in the hands of the purchaser, the seller or both.

Form 8594 is attached to a taxpayers (individual, corporate, partnership) and applies to a LLC, LLP, C Corporation, S Corporation, Trust, Partnership or Proprietorship. Form 8594 should be included in the tax year and as part of the tax return to which the sale or purchase occurred. For purposes of determining if Form 8594 is required you would look to see if the group of assets that make up a trade or business has any going concern value or if goodwill would be attached to such assets.

Form 8594/Asset Acquisition Statement is addressed under IRS tax code Section 1060. The form requires both the seller or the purchaser to complete the form listing the other parties full address and Federal Identification Number/EIN. The form also requires that the total purchase price be allocated between six different classes of assets. These classes over, for example, cash, inventory, fixed assets and intangibles. For the purchaser this allocation is critical to ensure that all items purchased are correctly identified and treated correctly. For example in President Clintons first tax act he passed while President
required intangibles, which are commonly referred to as going concern value or goodwill, to be amortized over fifteen years (these items are reflected on Section VI of Form 8594.

If you have not yet purchased a business and are considering doing so be sure to hire a CPA who can help you in the business evaluation process. Digging beyond the financials will enable you to see beyond what the numbers alone can tell. Studying manpower required, dependence levels on different products/customers, reviewing contracts and leases, and protecting intellectual property are all critical components of any wise evaluation process. To learn more http://www.hiscpa.com/accounting-checklist.html

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