⬤ IRC §1060 Asset Acquisitions
IRS Form 8594: Asset Acquisition Statement Done Right.
Sold or purchased a business in an asset deal? Both parties must allocate the purchase price across seven asset classes and file Form 8594 with the IRS. Countsure builds the defensible valuation that backs every number on the form.
Statement
An IRS information return that tells the same story from two sides of the deal.
Form 8594 is the Asset Acquisition Statement the IRS uses to track how the purchase price of a business is split across its individual assets. It applies whenever the buyer’s tax basis is determined entirely by what they paid, and the bundle of assets transferred amounts to a going concern with goodwill potential.
Because the buyer and seller experience opposite tax outcomes on the same transaction depreciation and amortization on one side, ordinary income and capital gain on the other the IRS expects both filings to be reconcilable. Inconsistencies are flagged. Countsure exists to make sure the underlying allocation holds up
7
Asset classes the IRS requires you to allocate across
2
Parties who must file the buyer and the seller
§1060
The Internal Revenue Code section that governs the residual method
$0
The deductible value of a sloppy allocation in an IRS examination
Filed by Both Parties But for Very Different Reasons
return for the year of the transaction. The numbers should match. The motivations rarely do.
The Buyer
Building a tax basis they can depreciate and amortize.
Every dollar allocated to a depreciable asset class becomes a future tax deduction. The buyer’s incentive is to push value into Class V (equipment, fixtures) and Class IV (inventory) where recovery is faster, and away from Class VII goodwill, which amortizes over a long 15-year horizon.
- Establishes depreciable & amortizable basis
- Sets the foundation for future Section 197 amortization
- Drives cost-recovery deductions for years to come
The Seller
Reporting gain or loss across each asset class.
The seller’s allocation determines the character of the gain ordinary income on inventory and recaptured depreciation, capital gain on goodwill and most other intangibles. Where value lands on the form translates directly into the seller’s effective tax rate on the deal.
- Determines character of gain ordinary vs capital
- Drives depreciation recapture exposure on Class V assets
- Shapes the seller's after-tax proceeds from the sale
How the Purchase Price Gets Split In Order
sequentially. Whatever consideration remains lands in Class VII as goodwill and going concern value.
CLASS I
Cash & Deposits
The most liquid layer cash on hand and general-purpose bank deposits transferred with the business.
Checking · Savings · Petty cash
CLASS II
Actively Traded Securities & CDs
Marketable securities and certificates of deposit assets with readily ascertainable values from public markets.
Stocks · Bonds · CDs · Foreign currency
CLASS III
Accounts Receivable & Debt Instruments
Trade receivables, mortgages, and credit-card-style obligations that mark-to-market to face value or near it.
AR · Notes receivable · Mortgages held
CLASS IV
Stock-in-Trade & Inventory
Goods held for sale to customers in the ordinary course of business the working stock of the company.
Finished goods · WIP · Raw materials
CLASS V
Furniture, Fixtures, Equipment & Real Property
The tangible operating backbone vehicles, machinery, leasehold improvements, land, and buildings.
Machinery · Vehicles · Real estate · FFE
CLASS VI
Goodwill & Going Concern Value
The residual what’s left of the purchase price after every other class is filled. Captures reputation, expected earnings, and the value of a turn-key operation.
Brand equity · Customer loyalty · Earning power
CLASS VII
Section 197 Intangibles (excl. Goodwill)
Identifiable intangibles customer lists, workforce in place, non-competes, licenses, trademarks, and franchise rights.
Customer base · Brands · Patents · Non-competes
Three Parts. Two Statements. One Defensible Allocation.
contingent payments, or working-capital trueups Parts I and III become a Supplemental Statement filed for the year of change.
General Information
Identifies both parties and the deal.
Captures the counterparty’s name, address, and TIN (SSN for individuals or EIN for entities), the closing date of the asset transfer, and the total consideration paid for the assets the starting point for every allocation that follows.
Original Asset Transfer Statement
The seven-class allocation itself.
Lists the aggregate fair market value of assets in each class and the portion of the purchase price assigned to that class. Both parties affirm the allocation reflects the highest consideration realistically achievable under the deal’s contingencies.
Supplemental Statement
For when the deal value moves.
Filed in any later year where the consideration is increased or decreased explaining the reason for the reallocation, identifying the original return and any prior supplements, and re-stating the affected asset-class amounts.
From Engagement to Audit-Ready Allocation.
appraisal you can defend in an examination. Here’s how a typical Countsure engagement runs.
Get the Allocation Wrong, and the Costs Compound.
Form 8594 is an information return but the allocation it reports flows straight into both parties’ tax positions for years. Three failure modes recur in IRS examinations.
Statutory Penalties
Under IRC §6721 and §6722, failure to file a correct information return can trigger penalties per form scaled by lateness and intent. Repeated or willful failures hit the higher tiers fast.
Mismatched Filings
When buyer and seller report different allocations, the IRS notices. The mismatch alone can elevate audit risk on both returns, and the party with the weaker support typically loses.
Reclassified Income
An unsupported allocation can be redrawn by an examiner reclassifying capital gain as ordinary income for the seller, or stripping depreciable basis from the buyer. The downstream tax hit eclipses any statutory penalty.
A Valuation Firm, Not a Filing Service.
The form is the easy part. The defensible appraisal underneath it is what survives an examination and that’s where we work.
USPAP & SSVS Compliant
Every appraisal follows Uniform Standards of Professional Appraisal Practice and AICPA SSVS-1 the standards examiners expect to see.
CPA-Led, In-House
Engagements are led by Parth Shah, CPA not handed off to a junior. The same hands that build the model sign the memorandum.
contemporaneous Memorandum
The deliverable isn't a one-page summar it's a documented memo with methodology, assumptions, and exhibits ready to drop behind your return.
Predictable Turnaround
Most engagements deliver in two to three weeks from data intake fast enough to align with closing timelines, careful enough to defend.
Frequently Asked Questions
Both the buyer and the seller in an applicable asset acquisition under IRC §1060 must file Form 8594 with their federal income tax return for the year the sale takes place whenever the assets transferred constitute a trade or business and the buyer’s basis is determined wholly by the purchase price.
Form 8594 is filed as an attachment to the income tax return for the tax year in which the asset sale closed. If consideration is later increased or decreased for instance, through earnouts or post-closing adjustments a Supplemental Form 8594 (Parts I and III) must be attached to the return for the year of the change.
The IRS does not technically require identical allocations, but mismatched filings are a well-known audit trigger. The most defensible approach is to negotiate and document the purchase price allocation in the purchase agreement itself, so both parties file consistent Form 8594s grounded in a single appraisal.
Under IRC §6721 and §6722, a failure to file a correct information return can trigger penalties per form, scaled by how late the correction is made and whether the failure is treated as intentional disregard. Beyond statutory penalties, an incorrect allocation can shift tax liability between ordinary income and capital gain, creating far larger downstream exposure.
The residual method, required by Treasury Regulations under IRC §1060, allocates the total purchase price to each asset class in sequence Class I first, then II, III, IV, V, VI at fair market value. Whatever consideration is left over is assigned to Class VII (goodwill and going concern value).
Countsure prepares the underlying purchase price allocation and valuation memorandum that supports each line of Form 8594. We work directly with your CPA or attorney so the form filed with your return is backed by a defensible appraisal under USPAP and SSVS standards.
Get Started
Back Your Form 8594 with a Defensible Allocation .
Tell us a little about the transaction buyer or seller, approximate deal size, and target closing date. A senior valuation team member responds within one business day. No obligation.
- Free initial scoping consultation
- Response within one business day
- Confidential under engagement
- CPA-led, USPAP & SSVS compliant deliverables
