Sale of a Business

[Snaggletooth]

Trying to remember the form # in my old age -- for buyer and seller of commercial business to lock in goodwill for the IRS...

Is there a dollar thresshold beneath which reporting is not required?

One of my clients is selling a proprietorship/convenience store.

[S T]

Form

Form 8594

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.

Sandy

[Snaggletooth]

Resistance

Thanks for jump-starting my brain Sandy.

I am expecting resistance from my client, but have only mentioned it to him casually thus far. Anyone have experience "breaking the bad news" to people who have to file 8594s?

From his perspective, he would gladly pay the $50 failure-to-penalty than pay an appraiser. He is negotiating around $750,000 and I would say the value of property/assets would be only half that.

Any guess as to what would happen if the buyer's 8594 doesn't agree with the seller?

[S T]

Closing

I have had my client (buyer or seller) agree with the other party and have sent the form to complete prior to the transaction closing. The other way is if you have a business escrow - and escrow separates on the Closing Settlement Statement.

It will Separate out the Business Equipment as usually there is the Resale Tax Due (Sales Tax)

Sandy

[Snaggletooth]

Downsides

The buyer will obviously want as little as possible to be goodwill, and tangible assets maximized. What are the possible downsides to the seller if tangible assets are maximized?

[ChEAr$]

The buyer will obviously want as little as possible to be goodwill, and tangible assets maximized. What are the possible downsides to the seller if tangible assets are maximized?

I don't see how tangible assets could be "maximized." After all, inventory is always
sold at cost, or even at a discount, and fixed assets are sold at fair market value.
anything over and above should be specified as to the nature of the intangible,
e.g. goodwill, customer list, etc.

I've never heard of IRS in an audit actually challenging any allocations, but I suppose a
really aggressive RA who is well educated on the subject could challenge any unreasonable
allocations.

[Nashville]

Maximizing Property

I don't see how tangible assets could be "maximized." After all, inventory is always sold at cost, or even at a discount, and fixed assets are sold at fair market value.

Harlan, you just said the magic word "Fair Market Value." This could be subject to wide variations, and "beauty is in the eye of the beholder." A building could be worth $300,000 or $500,000 depending on who you talk to. If a licensed appraiser is called in, these wide swings are minimized but even then, there are "conservative" and "liberal" appraisers.

So far, neither the seller nor the commercial real estate agent know anything about Form 8594. That surprises me about the commercial real estate agent since this is supposed to be filed any time a business (with going concern) is sold. Makes me think that the practical filings and compliance with Form 8594 is not very widespread.

The seller is leaning toward just risking the $50 penalty and bailing out of this. Of course, this might mean losing his tax preparer too, but I also need to know whether I'm the only guy for 500 miles around who is insisting on a 8594. Sorry, purists, but this is the real world we live in, and I have been known to let things slide if they are too ridiculous, stilted, or counterproductive. I believe many more of us do and don't admit it. However, I don't remember dodging a direct requirement.

[JG EA]

How about telling your client the reason you strongly feel the need to file this form is that it is your job to protect your client from the IRS and also preserve his transaction when everyone else has forgotten the facts way back in 2009.

[ChEAr$]

Also

that form 8594, 8..xxxx, whatever it is, is part and parcel of a correct tax return which we
are obligated to sign, attesting to ... thisandthat, etc, you know the drill.

So, I, too , would lose a client.
not that I'd miss him, of course. (grin

[S T]

Agree

I would say I agree with Harlan- print off directions, etc it is an obligation of both buyer and seller, not one-sided. Accountants, and preparer's on both sides of the transaction have an obligation.

However, I wonder, can you? (since it seems that real estate might be part of the issue)

Separate the Real Estate as "not" part of Class V if sold to a separate entity apart and aside from the "actual business" transaction. Maybe self rental rules on the buyer's part ?

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

Sandy