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 Seller recognizes gain or loss on an
asset-by-asset basis
- amount of gain or
loss
- ordinary vs capital
Buyer determines its basis in the acquired assets
on
an asset-by-asset basis Buyer recognizes gain if it acquires the assets in exchange for appreciated
property, other than its own stock IRS generally respects the parties allocation of the total price paid
among the acquired assets If assets constitute a trade or business
(an applicable asset acquisition) No individual asset can be treated as purchased
for more than its fair market
value Excess
of the purchase price over
the aggregate fair market value of the acquired assets represents goodwill or going concern value
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Goodwill is eligible for 180-month (15-year) amortization
(per Omnibus Revenue Reconciliation Act of 1993) Previously, goodwill was nonamortizable for tax
purposes,
which often led sellers to enter into deductible covenants not to compete
with buyers If the owner of 10% or more, by value, of an entity transfers an
interest in that entity, and enters into an employment contract, covenant
not to compete, royalty or lease agreement or other agreement with the
transferee, then the transferor and transferee must file an information
return with the IRS An asset purchase is a complicated way to sell a trade or
business, compared with a sale of stock Section 338(h)(10) election can be an alternative:
a sale of stock is treated as
a sale of the underlying corporate assets, with the opportunity for buyer to
step up their tax basis
Related Topics SEC_CODE_REF_0090001192884
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