IRS Form 8594 walkthrough (Asset Acquisition Statement under IRC Section 1060)

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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, 1120-S, etc.) when there is a transfer of a group of assets that makes 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 IRS.gov/pub/irs-irbs/irb99-06.pdf.

[@user-sn3vg9ew8v]

Hi Forrest, first of all great video!
I do have a question left, for the Aggregate fair market value and the allocation of sales price columns in Part II, what is the difference between both of them?
I know you kept it simple for the explanation but when are those 2 different?
I'm working on a stock purchase, so a deferred liability will be created with the assets write-up.
My main question is around Class V Fix Assets, the carrying book value differs from the tax basis, which one should I take into consideration?
Let's say book value of Fix assets is $10, tax basis is $8, and I get an appraiser who revalues them at $12
Should I just consider $8 (tax basis) and then do a write up for $12 (revaluation), and calculate deferred liability out of the $4?
Or am I completely wrong here?

[@teachmepersonalfinance2169]

I'm not sure that I can give you a precise answer, as this can become pretty tricky. Here are a couple of thoughts.
1. If you're still working on the terms of a purchase, you and the other party have some flexibility on how to treat certain assets during the purchase. Having gone through a seven-figure exit myself, I would strongly encourage you to work with a broker or accountant that has relevant experience in your business, and who can help classify business assets in a manner that is compliant and which provides the most tax advantage.
2. The instructions contain guidance on how to allocate sales price:
Consideration should be allocated as follows.
-Reduce the consideration by the amount of Class I assets transferred.
-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.
-Allocate consideration to Class VII assets.
3. I'm not sure I understand the last question. Are the prices listed for these assets the prices of , or the prices and values of in your stock purchase?

[@user-sn3vg9ew8v]

@@teachmepersonalfinance2169 Thank you for your response and sorry if my questions were kinda confusing
I think i understand most of it now, I'm just not sure yet how to treat liabilities here..
Do I include liabilities in each asset class? For example if we're absorbing accrued expenses, would I include those as a negative in one of the classes?
So that Goodwill ends up being the increase in equity right?

[@teachmepersonalfinance2169]

@@user-sn3vg9ew8v I would say this, based on the form instructions:
Fair market value is the gross fair market value unreduced by mortgages, liens, pledges, or other liabilities.
A liability that was incurred as a result of the acquisition of the property is disregarded to the extent that such liability was not taken into account in determining the basis in such property.
Goodwill generally is considered to be includible in the amount paid in excess of book value.
However, you should discuss specifics with your tax advisor.