§1060 Special Allocation Rules for Certain Asset Acquisitions

Summary

When a buyer buys the assets of a business and the buyer’s tax basis is set only by what was paid, the total price must be split among the assets the same way the tax rules do for certain stock purchases (see section 338(b)(5)). If buyer and seller sign a written allocation or agree on asset values, that deal binds both of them unless the IRS says it is wrong. The buyer and seller must give the IRS information the IRS requires, including how much of the price was assigned to section 197 intangibles, any changes to that amount, and any other details needed. An "applicable asset acquisition" means a transfer of assets that make up a trade or business where the buyer’s basis comes entirely from the purchase price. Using section 1031 for part of the assets does not stop this rule. Special partnership transfers use these allocation rules to value section 197 intangibles for section 755, and if section 755 applies those transfers must be reported like other applicable asset acquisitions. If a person who owns 10 percent or more transfers an interest and then, in connection with that transfer, enters an employment, noncompete, royalty, lease, or similar deal with the buyer, both must give the IRS whatever information it requires. “10-percent owner” means someone with 10% or more by value right before the transfer; rules like section 318 and the related-person rules in sections 267(b) and 707(b)(1) apply. Penalties for not filing are under section 6721.