Learn what to watch for in business sales and acquisitions

When you guide clients through a business purchase or sale, the tax implications can be just as critical as the deal itself. Missteps in how a transaction is structured could lead to higher tax liabilities or lost planning opportunities.

With the right strategies, you can reduce tax burdens and deliver real value during your client’s major financial event.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.    

Q: What is the difference between a stock sale and an asset sale?
A: In a stock sale, the buyer acquires the entity itself, so assets and liabilities remain on the company’s books, and the employer identification number (EIN) usually stays the same. In an asset sale, the buyer picks specific assets to purchase and gets a new, stepped-up basis (allocated under §1060), while the seller recognizes gain or loss on the assets sold. This choice drives tax character, basis and post-closing reporting.

Q: What should a tax pro request first when a client informs them they sold their business?
A: Confirm whether the deal was an asset or stock sale, then obtain the purchase agreement or term sheet. Gather the most recent tax return, depreciation schedules, fixed-asset ledger, capitalization table or ownership list, basis records, accounts payable (AP) and accounts receivable (AR), debt schedules, and key contracts, such as leases and customer agreements. These items will govern the basis, allocations, timing and elections.

Q: Should an attorney draft or review the purchase agreement?
A: Yes. The purchase agreement is a legal document that controls what is being sold and how consideration is to be paid, along with the tax clauses and elections. Tax professionals interpret the contract for reporting, but an attorney should prepare or review it.

Q: What does §1060 require, and when is Form 8594, Asset Acquisition Statement Under Section 1060, filed?
A: Section 1060 requires the use of the residual method for business asset acquisitions. Allocate total consideration in order across seven asset classes, with any remainder to goodwill and going-concern value. The buyer uses the agreed allocation to establish their new basis, while the seller uses it to compute gain or loss. Both parties must report the identical allocation by filing Form 8594 with their respective tax returns. Ensure the allocation reconciles to the books and reflects what actually transferred.

To learn more about business sales and acquisitions, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.