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

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

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.

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