Introduction
Buying a business's assets rarely means reporting one lump-sum price. The IRS expects the consideration to be split across seven asset classes, and that split drives the buyer's tax basis and the seller's gain or loss.
This guide is for Australian businesses, foreign investors, and other cross-border parties in a US asset acquisition. Form 8594 is a US federal tax form.
Whether it applies depends on your deal structure and the IRS instructions for the relevant year. The current IRS-posted version is the November 2021 revision, so always confirm nothing newer has replaced it.
Key Takeaways
- Form 8594 generally applies to an acquisition of assets forming a trade or business, not an ordinary stock sale.
- Consideration is allocated through Classes I to VII using the residual method.
- Total consideration includes notes, assumed liabilities, and later adjustments.
- Buyer and seller should reconcile their allocations before filing.
What Is Form 8594 and When Is It Required?
What Form 8594 reports
Form 8594, Asset Acquisition Statement Under Section 1060, reports the total consideration and how it is allocated among the transferred asset classes. It also reports later adjustments.
Both sides rely on the numbers. The buyer sets tax basis in the acquired assets. The seller calculates gain or loss and its character (ordinary, capital, or section 1231).
When a transaction may fall under Section 1060
An "applicable asset acquisition" is a direct or indirect transfer of assets that make up a trade or business, where the buyer's basis is determined wholly by the consideration paid. The business test in Reg. 1.1060-1(b)(2) is met if either of these applies:
- The assets are an active trade or business under section 355.
- Goodwill or going-concern value could attach to the assets under any circumstances.
That second limb is broad. A partial business-unit sale can qualify, and related transfers are aggregated.
Several situations need separate analysis:
- Stock sales: a share transfer is not itself a section 1060 transaction. Section 338 deemed asset sales are reported on Form 8883.
- Partnership interests: generally excluded, but an interest purchase treated federally as a purchase of business assets can require the buyer to file (the instructions cite Rev. Rul. 99-6).
- Section 1031 exchanges: Form 8594 is still required for the portion not covered by section 1031.
Filing timing and parties
Buyer and seller generally each attach Form 8594 to their income tax return for the year of sale. That could be Form 1040, 1065, 1120, or 1120-S. Confirm the instructions for the relevant tax year before filing.
The instructions warn of penalties for failing to file a correct form by the return due date without reasonable cause.
How Section 1060 Allocates Purchase Price Across the Seven Asset Classes
The residual method and allocation order
Reg. 1.1060-1(c) applies the rules in Regs. 1.338-6 and 1.338-7. Consideration is reduced by Class I, then allocated sequentially through Classes II, III, IV, V, VI, and VII. Within a class, relative fair market values (FMVs) apply. Every class except VII is capped at FMV, and Class VII takes the residual.
FMV is measured gross. Mortgages, liens, and other liabilities do not reduce it.
Classes I through IV
| Class | What it covers |
|---|---|
| I | Cash and general deposit accounts, including savings and cheque accounts (not certificates of deposit) |
| II | Actively traded personal property, certificates of deposit, foreign currency, US Government securities, publicly traded shares |
| III | Assets marked to market at least annually, and debt instruments including accounts receivable |
| IV | Inventory and property held primarily for sale to customers in the ordinary course |
Some instruments are carved out, such as certain related-party, contingent, and convertible debt, and certain affiliated shares. Check the exact class against the current form and instructions. Reconcile working capital, receivables, and inventory to the purchase agreement and accounting records.
Classes V through VII
| Class | What it covers |
|---|---|
| V | Assets outside the other six classes, generally land, buildings, furniture, fixtures, vehicles, and equipment |
| VI | Section 197 intangibles other than goodwill and going-concern value |
| VII | Goodwill and going-concern value, whether or not they qualify as section 197 intangibles |
Class VI includes workforce, know-how, customer and supplier intangibles, government licences and permits, qualifying non-competes, franchises, trademarks, and trade names.
The form combines Classes VI and VII on one line, but the legal definitions stay separate. Class VII is what remains after the earlier classes are filled to their FMV caps. Acquired intangibles are treated differently from self-created ones, so check eligibility for each category.
For a worked illustration, Publication 537 shows a US$220,000 total selling price with US$18,500 of residual goodwill. It is an IRS example, not a market benchmark.
How to Complete and File Form 8594 Step by Step
Step 1: Confirm the transaction and parties
Start with the signed agreement. Confirm it is an asset acquisition under section 1060. Then collect legal names, addresses, taxpayer identification numbers, the acquisition date, and the tax year for each party.
Step 2: Determine total consideration
The buyer's consideration is its acquisition cost. The seller's is the amount realised. Add up:
- Cash paid at closing
- Notes and deferred payments
- Shares or other property
- Assumed liabilities
- Earn-outs and escrow amounts
Do not count an assumed liability twice if the stated price already includes it. Regulation 1.1060-1 gives an illustration: US$3,000 cash plus US$1,000 of assumed liabilities gives US$4,000 of consideration. Contingent liabilities need their own analysis.
Step 3: Establish fair-market values and allocate
Support each value with evidence. Useful sources include:
- An independent valuation or appraisal
- The fixed-asset register
- Inventory records and a receivables analysis
- Intellectual-property documentation
- Comparable transaction data
Step 4: Complete the form's original-statement sections
Use the form for the correct year, not an old image. For an original statement, complete Parts I and II:
- Heading and Part I: identify the buyer and seller, the other party's name, ID number, and address, the sale date, and total consideration.
- Part II, line 4: enter aggregate FMV, the actual Class I amount, and the allocation of sales price for each class.
- Line 5: state whether a signed written allocation exists and whether the reported FMVs agree with it.
- Line 6: disclose specified licence, non-compete, lease, employment, or management arrangements with the seller, attaching the agreement type and maximum consideration (excluding interest).
For line 6, maximum consideration assumes all contingencies are met.
Step 5: File, reconcile, and retain records
Compare buyer and seller statements before filing, then attach each to its own return. Keep the purchase agreement, valuation workpapers, closing statement, liability schedules, and final allocation schedule. The IRS property records guidance says to hold them until the limitation period expires for the year of disposal.
How Purchase Agreements, Assumed Liabilities, and Later Changes Affect the Allocation
Start with the contract, not only the cash paid
Cash at closing is rarely the whole story. Separate these items:
- Cash transferred at closing
- The contract's gross or net price
- Debt assumed by the buyer
- Debt paid from the seller's proceeds
- Liabilities the seller keeps
The funds-flow statement, payoff letters, lender releases, and closing statement show which liabilities belong in total consideration and which are already in the stated price.
Build a document-based allocation file
Reconcile the asset purchase agreement and any amendments with the related schedules:
- Transferred and excluded assets
- Assumed liabilities
- Inventory, receivables, and equipment
- IP, working capital, escrow, and seller notes
Section 1060(a) binds both parties to a written allocation or agreed FMV unless the Treasury determines it inappropriate. The Commissioner can still challenge an allocation, and a party can only disavow it on grounds such as mistake, fraud, or duress under the Danielson standard.
In Peco Foods, The Tax Adviser reports that the taxpayer was held to agreed allocations for two plant acquisitions. A later cost-segregation study seeking extra depreciation failed in Tax Court.
Negotiate the allocation before signing, not after.
Address contingent and post-closing consideration
Earn-outs, working-capital true-ups, escrow releases, disputed obligations, and indemnities can change the original allocation. A supplemental statement on Parts I and III is generally filed for the year the adjustment is taken into account. Decreases reduce Class VII first, then earlier classes, and no class can fall below zero.
Document the reason, amount, timing, and affected classes for every change. Keep this separate from instalment-sale timing.
Form 6252 addresses when gain is reported, not allocation reporting. Depreciation recapture is recognised in the sale year, and inventory cannot use instalment reporting.
Carry the allocation through the tax returns
- Buyer: asset-basis schedule, depreciation and amortisation records, inventory accounting, intangible schedules.
- Seller: asset disposition schedules, gain or loss, recapture analysis, and the entity or owner returns.
Tax Consequences, Common Errors, and When to Seek Assistance
Buyer and seller consequences
Buyer effects:
- Allocation sets basis. Eligible property can be depreciated, but land cannot.
- Qualifying acquired section 197 intangibles are generally amortised over 15 years from the acquisition month. A shorter non-compete term does not shorten this.
- Section 179 applies to qualifying purchased property, subject to limits. IRS Topic 704 describes a 100% bonus allowance for qualified property acquired and placed in service after 19 January 2025.
Seller effects:
- Inventory and unrealised receivables produce ordinary income.
- Capital assets produce capital gain or loss.
- Business property held over a year falls under section 1231.
- Section 1245 recapture is ordinary income and is not deferred under the installment method.
Common mistakes to identify before filing
- Misclassifying an asset or the transaction
- Omitting assumed liabilities or non-cash consideration
- Double-counting debt, or using FMVs net of debt
- Allocating unsupported value to goodwill
- Buyer and seller schedules that do not match
- Overlooking a partial business transfer or a line 6 arrangement
- Ignoring post-closing adjustments
- Trying to rewrite an agreed allocation later
Cross-border review and service relevance
Australian parties should coordinate US federal reporting with Australian, state, local, entity-level, and accounting considerations. Treaty rules appear in the 1982 US-Australia treaty as amended by the 2001 Protocol. Article 7 covers business profits and Article 13 covers gains.
FIRPTA withholding can apply when a foreign transferor disposes of a US real property interest, but foreign buyer status alone is not the trigger.
On the Australian side, the foreign income tax offset requires foreign tax to be correctly imposed under foreign law and consistent with the treaty, with records to support it.
If the allocation is complex, the parties disagree, or Australian and US rules interact, seek a professional review before filing. VJM Global serves 250+ Australian businesses and 500+ American business owners. Its cross-border tax compliance and accounting team can review the allocation, supporting records, and related filings. It also published "International Tax Planning Strategies for 2025" on 23 May 2025, covering treaty benefits and foreign tax credits.
Frequently Asked Questions
Who must file Form 8594 and when is it required?
Generally both buyer and seller file when they transfer or acquire assets constituting a trade or business, and the buyer's basis depends wholly on consideration paid. Each attaches it to its return for the sale year. Check the current IRS Form 8594 instructions before filing.
What are the instructions for completing and filing Form 8594?
Confirm the transaction, calculate total consideration, and allocate it across the classes. Complete the current form, reconcile both parties' statements, and attach it to each return.
What is purchase price allocation (PPA) and how is it done for an acquisition reported on Form 8594?
PPA divides consideration among the transferred assets to set the buyer's basis and the seller's gain or loss. It uses the section 1060 classes, FMV support, and the residual method.
What asset classes does Form 8594 use under Section 1060, and what belongs in each class?
Class I is cash; Class II is actively traded property; Class III is accounts receivable; Class IV is inventory; and Class V is other tangible assets. Class VI covers section 197 intangibles, and Class VII is goodwill. See the class table above and the IRS instructions.
What is Section 1060 (a '1060 transaction') and how does it relate to Form 8594?
Section 1060 governs acquisitions of assets constituting a trade or business. It sets the allocation framework and requires the consistency that Form 8594 reports.
What are the differences between Forms 8594 and 8883?
Form 8594 reports section 1060 asset acquisitions. Form 8883 reports deemed asset sales under a section 338 election, filed by old and new target. Confirm which applies to your structure.
