U.S. Individual Income Tax Return

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Instructions for Form 8594

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Instructions for Form 8594

Department of the Treasury
Internal Revenue Service

(Rev. December 2008)
(For use with the February 2006 revision of Form 8594)
Asset Acquisition Statement Under Section 1060
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
Purpose of Form
Both the seller and purchaser of a group
of assets that makes up a trade or
business must use Form 8594 to report
such a sale if goodwill or going concern
value attaches, or could attach, to such
assets and if the purchaser’s basis in the
assets is determined only by the amount
paid for the assets.
Form 8594 must also be filed if the
purchaser or seller is amending an
original or a previously filed supplemental
Form 8594 because of an increase or
decrease in the purchaser’s cost of the
assets or the amount realized by the
seller.

Who Must File
Generally, both the purchaser and seller
must file Form 8594 and attach it to their
income tax returns (Forms 1040, 1041,
1065, 1120, 1120S, etc.) when there is a
transfer of a group of assets that make up
a trade or business (defined below) 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.
If the purchaser or seller is a controlled
foreign corporation (CFC), each U.S.
shareholder should attach Form 8594 to
its Form 5471.
Exceptions. You are not required to file
Form 8594 if any of the following apply.
• A group of assets that makes up a
trade or business is exchanged for
like-kind property in a transaction to which
section 1031 applies. If section 1031 does
not apply to all the assets transferred,
however, Form 8594 is required for the
part of the group of assets to which
section 1031 does not apply. For
information about such a transaction, see
Regulations sections 1.1031(j)-1(b) and
1.1060-1(b)(8).
• A partnership interest is transferred.
See Regulations section 1.755-1(d) for
special reporting requirements. However,
the purchase of a partnership interest that
is treated for federal income tax purposes
as a purchase of partnership assets,
which constitute a trade or business, is
subject to section 1060. In this case, the
purchaser must file Form 8594. See Rev.

Rul. 99-6, 1999-6, I.R.B. 6, available at
http://www.irs.gov/pub/irs-irbs/
irb99-06.pdf.

When To File
Generally, attach Form 8594 to your
income tax return for the year in which the
sale date occurred.
If the amount allocated to any asset is
increased or decreased after the year in
which the sale occurs, the seller and/or
purchaser (whoever is affected) must
complete Parts I and III of Form 8594 and
attach the form to the income tax return
for the year in which the increase or
decrease is taken into account.

Penalties
If you do not file a correct Form 8594 by
the due date of your return and you
cannot show reasonable cause, you may
be subject to penalties. See sections
6721 through 6724.

Definitions
Trade or business. A group of assets
makes up a trade or business if goodwill
or going concern value could under any
circumstances attach to such assets. A
group of assets can also qualify as a
trade or business if it qualifies as an
active trade or business under section
355 (relating to distributions of stock in
controlled corporations).
Factors to consider in determining
whether goodwill or going concern value
could attach include:
• The presence of any section 197 or
other intangible assets (but the transfer of
such an asset in the absence of other
assets will not be a trade or business);
• Any excess of the total paid for the
assets over the aggregate book value of
the assets (other than goodwill or going
concern value) as shown in the
purchaser’s financial accounting books
and records; or
• A license, a lease agreement, a
covenant not to compete, a management
contract, an employment contract, or
other similar agreements between
purchaser and seller (or managers,
directors, owners, or employees of the
seller).
Consideration. The purchaser’s
consideration is the cost of the assets.
The seller’s consideration is the amount
realized.
Fair market value. Fair market value is
the gross fair market value unreduced by
mortgages, liens, pledges, or other
liabilities. However, for determining the
Cat. No. 29292S

seller’s gain or loss, generally, the fair
market value of any property is not less
than any nonrecourse debt to which the
property is subject.
Classes of assets. The following
definitions are the classifications for
deemed or actual asset acquisitions.
Class I assets are cash and general
deposit accounts (including savings and
checking accounts) other than certificates
of deposit held in banks, savings and loan
associations, and other depository
institutions.
Class II assets are actively traded
personal property within the meaning of
section 1092(d)(1) and Regulations
section 1.1092(d)-1 (determined without
regard to section 1092(d)(3)). In addition,
Class II assets include certificates of
deposit and foreign currency even if they
are not actively traded personal property.
Class II assets do not include stock of
target affiliates, whether or not actively
traded, other than actively traded stock
described in section 1504(a)(4).
Examples of Class II assets include U.S.
government securities and publicly traded
stock.
Class III assets are assets that the
taxpayer marks-to-market at least
annually for federal income tax purposes
and debt instruments (including accounts
receivable). However, Class III assets do
not include:
• Debt instruments issued by persons
related at the beginning of the day
following the acquisition date to the target
under section 267(b) or 707;
• Contingent debt instruments subject to
Regulations sections 1.1275-4 and
1.483-4, or section 988, unless the
instrument is subject to the noncontingent
bond method of Regulations section
1.1275-4(b) or is described in Regulations
section 1.988-2(b)(2)(i)(B)(2); and
• Debt instruments convertible into the
stock of the issuer or other property.
Class IV assets are stock in trade of
the taxpayer or other property of a kind
that would properly be included in the
inventory of the taxpayer if on hand at the
close of the taxable year, or property held
by the taxpayer primarily for sale to
customers in the ordinary course of its
trade or business.
Class V assets are all assets other
than Class I, II, III, IV, VI, and VII assets.
Note. Furniture and fixtures, buildings,
land, vehicles, and equipment, which
constitute all or part of a trade or business

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Instructions for Form 8594

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(defined earlier) are generally Class V
assets.
Class VI assets are all section 197
intangibles (as defined in section 197)
except goodwill and going concern value.
Section 197 intangibles include:
• Workforce in place;
• Business books and records, operating
systems, or any other information base,
process, design, pattern, know-how,
formula, or similar item;
• Any customer-based intangible;
• Any supplier-based intangible;
• Any license, permit, or other right
granted by a government unit;
• Any covenant not to compete entered
into in connection with the acquisition of
an interest in a trade or a business; and
• Any franchise, trademark, or trade
name (however, see exception below for
certain professional sports franchises).
See section 197 (d) for more
information.
The term “section 197 intangible” does
not include any of the following:
• An interest in a corporation,
partnership, trust, or estate;
• Interests under certain financial
contracts;
• Interests in land;
• Certain computer software;
• Certain separately acquired interests in
films, sound recordings, video tapes,
books, or other similar property;
• Interests under leases of tangible
property;
• Certain separately acquired rights to
receive tangible property or services;
• Certain separately acquired interests in
patents or copyrights;
• Interests under indebtedness;
• Professional sports franchises acquired
before October 23, 2004; and
• Certain transactions costs.
See section 197(e) for more
information.
Class VII assets are goodwill and
going concern value (whether or not the
goodwill or going concern value qualifies
as a section 197 intangible).
Allocation of consideration. An
allocation of the purchase price must be
made to determine the purchaser’s basis
in each acquired asset and the seller’s
gain or loss on the transfer of each asset.
Use the residual method for the allocation
of the sales price among the amortizable
section 197 intangibles and other assets
transferred. See Regulations section
1.1060-1(c). The amount allocated to an
asset, other than a Class VII asset,
cannot exceed its fair market value on the
purchase date. The amount you can
allocate to an asset also is subject to any
applicable limits under the Internal
Revenue Code or general principles of
tax law.
Consideration should be allocated as
follows.
1. Reduce the consideration by the
amount of Class I assets transferred.
2. Allocate the remaining
consideration to Class II assets, then to

Class III, IV, V, and VI assets in that
order. Within each class, allocate the
remaining consideration to the class
assets in proportion to their fair market
values on the purchase date.
3. Allocate consideration to Class VII
assets.
If an asset in one of the classifications
described above can be included in more
than one class, choose the lower
numbered class (e.g., if an asset could be
included in Class III or IV, choose Class
III).
Reallocation after an increase or
decrease in consideration. If an
increase or decrease in consideration that
must be taken into account to
redetermine the seller’s amount realized
on the sale, or the purchaser’s cost basis
in the assets, occurs after the purchase
date, the seller and/or purchaser must
allocate the increase or decrease among
the assets. If the increase or decrease
occurs in the same tax year as the
purchase date, consider the increase or
decrease to have occurred on the
purchase date. If the increase or
decrease occurs after the tax year of the
purchase date, consider it in the tax year
in which it occurs.
For an increase or decrease related to
a patent, copyright, etc., see Specific
Allocation, later.
Allocation of increase. Allocate an
increase in consideration as described
under Allocation of consideration. If an
asset has been disposed of, depreciated,
amortized, or depleted by the purchaser
before the increase occurs, any amount
allocated to that asset by the purchaser
must be properly taken into account
under principles of tax law applicable
when part of the cost of an asset (not
previously reflected in its basis) is paid
after the asset has been disposed of,
depreciated, amortized, or depleted.
Allocation of decrease. Allocate a
decrease in consideration as follows.
1. Reduce the amount previously
allocated to Class VII assets.
2. Reduce the amount previously
allocated to Class VI assets, then to
Class V, IV, III, and II assets in that order.
Within each class, allocate the decrease
among the class assets in proportion to
their fair market values on the purchase
date.
You cannot decrease the amount
allocated to an asset below zero. If an
asset has a basis of zero at the time the
decrease is taken into account because it
has been disposed of, depreciated,
amortized, or depleted by the purchaser
under section 1060, the decrease in
consideration allocable to such asset
must be properly taken into account
under the principles of tax law applicable
when the cost of an asset (previously
reflected in basis) is reduced after the
asset has been disposed of, depreciated,
amortized, or depleted. An asset is
considered to have been disposed of to

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the extent the decrease allocated to it
would reduce its basis below zero.
Patents, copyrights, and similar
property. You must make a specific
allocation (defined below) if an increase
or decrease in consideration is the result
of a contingency that directly relates to
income produced by a particular
intangible asset, such as a patent, a
secret process, or a copyright, and the
increase or decrease is related only to
such asset and not to other assets. If the
specific allocation rule does not apply,
make an allocation of any increase or
decrease as you would for any other
assets as described under Allocation of
increase and Allocation of decrease.
Specific allocation. Limited to the fair
market value of the asset, any increase or
decrease in consideration is allocated first
specifically to the patent, copyright, or
similar property to which the increase or
decrease relates, and then to the other
assets in the order described under
Allocation of increase and Allocation of
decrease. For purposes of applying the
fair market value limit to the patent,
copyright, or similar property, the fair
market value of such asset is
redetermined when the increase or
decrease is taken into account by
considering only the reasons for the
increase or decrease. The fair market
values of the other assets are not
redetermined.

Specific Instructions
For an original statement, complete Parts
I and II. For a Supplemental Statement,
complete Parts I and III.
Enter your name and taxpayer
identification number (TIN) at the top of
the form. Then check the box for
purchaser or seller.

Part I—General Information
Line 1. Enter the name, address, and
TIN of the other party to the transaction
(purchaser or seller). You are required to
enter the TIN of the other party. If the
other party is an individual or sole
proprietor, enter the social security
number. If the other party is a corporation,
partnership, or other entity, enter the
employer identification number.
Line 2. Enter the date on which the sale
of the assets occurred.
Line 3. Enter the total consideration
transferred for the assets.

Part II—Original Statement of
Assets Transferred
Line 4. For a particular class of assets,
enter the total fair market value of all the
assets in the class and the total allocation
of the sales price. For Classes VI and VII,
enter the total fair market value of Class
VI and Class VII combined, and the total
portion of the sales price allocated to
Class VI and Class VII combined.

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Instructions for Form 8594

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Line 6. This line must be completed by
the purchaser and the seller. To
determine the maximum consideration to
be paid, assume that any contingencies
specified in the agreement are met and
that the consideration paid is the highest
amount possible. If you cannot determine
the maximum consideration, state how

the consideration will be computed and
the payment period.

Part III—Supplemental
Statement
Complete Part III and file a new Form
8594 for each year that an increase or
decrease in consideration occurs. See
Reallocation after an increase or

decrease in consideration, on page 2, and
When To File, on page 1. Give the
reason(s) for the increase or decrease in
allocation. Also, enter the tax year(s) and
form number with which the original and
any supplemental statements were filed.
For example, enter “2006 Form 1040.”

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their
contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete and file this tax form will vary depending on individual circumstances. The estimated burden for
individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the
instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 hr.

Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 hr., 34 min.

Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 hr., 52 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be
happy to hear from you. You can write to the IRS at the address listed in the instructions for the tax return with which this form is
filed.

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