§1060 — Title 26 Internal Revenue Code | U.S. Code

Summary

When a buyer purchases the assets of a trade or business and the buyer's basis in those assets is set entirely by what was paid, special allocation rules decide both the buyer's basis in each asset and the seller's gain or loss. Both sides must report to the IRS how much of the price was allocated to section 197 intangibles, such as goodwill, plus any later changes to that amount. If someone who owns 10 percent or more of a business sells their interest and at the same time signs an employment contract, a covenant not to compete, a royalty or lease deal, or a similar agreement with the buyer, special rules apply to that arrangement too. Similar treatment applies to certain partnership distributions and transfers, and failing to file the required return can trigger a penalty.

Title 26, §1060

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of any applicable asset acquisition, for purposes of determining both—

(1)the transferee’s basis in such assets, and

(2)the gain or loss of the transferor with respect to such acquisition,

(b)Under regulations, the transferor and transferee in an applicable asset acquisition shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary the following information:

(1)The amount of the consideration received for the assets which is allocated to section 197 intangibles.

(2)Any modification of the amount described in paragraph (1).

(3)Any other information with respect to other assets transferred in such acquisition as the Secretary deems necessary to carry out the provisions of this section.

(c)For purposes of this section, the term “applicable asset acquisition” means any transfer (whether directly or indirectly)—

(1)of assets which constitute a trade or business, and

(2)with respect to which the transferee’s basis in such assets is determined wholly by reference to the consideration paid for such assets.

(d)In the case of a distribution of partnership property or a transfer of an interest in a partnership—

(1)the rules of subsection (a) shall apply but only for purposes of determining the value of section 197 intangibles for purposes of applying section 755, and

(2)if section 755 applies, such distribution or transfer (as the case may be) shall be treated as an applicable asset acquisition for purposes of subsection (b).

(e)(1)If—

(A)a person who is a 10-percent owner with respect to any entity transfers an interest in such entity, and

(B)in connection with such transfer, such owner (or a related person) enters into an employment contract, covenant not to compete, royalty or lease agreement, or other agreement with the transferee,

(2)For purposes of this subsection—

(A)The term “10-percent owner” means, with respect to any entity, any person who holds 10 percent or more (by value) of the interests in such entity immediately before the transfer.

(B)section 318 shall apply in determining ownership of stock in a corporation. Similar principles shall apply in determining the ownership of interests in any other entity.

(3)For purposes of this subsection, the term “related person” means any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the 10-percent owner.

(f)For provisions relating to penalties for failure to file a return required by this section, see section 6721.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 1060 was renumbered section 1063 of this title.

Amendments

1993—Subsec. (b)(1). Pub. L. 103–66, § 13261(e)(1), substituted “section 197 intangibles” for “goodwill or going concern value”. Subsec. (d)(1). Pub. L. 103–66, § 13261(e)(2), substituted “section 197 intangibles” for “goodwill or going concern value (or similar items)”. 1990—Subsec. (a). Pub. L. 101–508, § 11323(a), inserted at end “If in connection with an applicable asset acquisition, the transferee and transferor agree in writing as to the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferee and transferor unless the Secretary determines that such allocation (or fair market value) is not appropriate.” Subsecs. (e), (f). Pub. L. 101–508, § 11323(b)(1), added subsec. (e) and redesignated former subsec. (e) as (f). 1988—Subsec. (b)(3). Pub. L. 100–647, § 1006(h)(1), substituted “deems” for “may find”. Subsec. (d). Pub. L. 100–647, § 1006(h)(2), added subsec. (d). Subsec. (e). Pub. L. 100–647, § 1006(h)(3)(B), added subsec. (e).

Statutory Notes and Related Subsidiaries

Effective Date

of 1993 AmendmentAmendment by Pub. L. 103–66 applicable, except as otherwise provided, with respect to property acquired after Aug. 10, 1993, see section 13261(g) of Pub. L. 103–66, set out as an

Effective Date

note under section 197 of this title.

Effective Date

of 1990 AmendmentAmendment by Pub. L. 101–508 applicable to acquisitions after Oct. 9, 1990, but not applicable to any acquisition pursuant to a written binding contract in effect on Oct. 9, 1990, and at all times thereafter before such acquisition, see section 11323(d) of Pub. L. 101–508, set out as a note under section 338 of this title.

Effective Date

of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date

of 1986 Amendment Pub. L. 99–514, title VI, § 641(c), Oct. 22, 1986, 100 Stat. 2283, provided that: “The

Amendments

made by this section [enacting this section and renumbering former section 1060 of this title as section 1061] shall apply to any acquisition of assets after

May 6, 1986, unless such acquisition is pursuant to a binding contract which was in effect on

May 6, 1986, and at all times thereafter.”

§1060 Special Allocation Rules for Certain Asset Acquisitions

Summary

Title 26, §1060

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

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