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Information Reporting Requirements For Sale Of Business Outlined

SEP. 16, 1998

ILM 1998-478

DATED SEP. 16, 1998
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Cross-Reference
    003457
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    asset acquisition allocations
    brokers, returns
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2000-7320 (3 original pages)
  • Tax Analysts Electronic Citation
    2000 TNT 165-85
Citations: ILM 1998-478

                                             September 16, 1998

 

 

                            CC:DOM:IT&A:2

 

                     CHBradley -- SPR-107225-98

 

 

                       OFFICE OF CHIEF COUNSEL

 

                      INTERNAL REVENUE SERVICE

 

                             MEMORANDUM

 

 

                                 TO:

 

            Regional Technical Coordinator Western Region

 

 

                                FROM:

 

          Assistant Chief Counsel (Income Tax & Accounting)

 

 

                              SUBJECT:

 

                Technical Coordination Report 18,099

 

 

[1] This responds to the Technical Coordination Report submitted by George K. Nunziata of the Pacific Northwest District. Mr. Nunziata states that the Internal Revenue Code does not include an information reporting requirement for the sale of various asset components involved in the sale of a trade or business. Section 6045 of the Internal Revenue Code requires the filing of Form 1099-S to report the sale of real property, but, as Mr. Nunziata states, there is no similar reporting requirement for the sale of goodwill or a covenant not to complete.

[2] Rev. Rul. 55-79, 1955-1 C.B. 370, states that for federal income tax purposes, the sale of a going business operated as a sole proprietorship does not constitute the sale of a single asset, but is instead a sale of the individual assets comprising the business. Section 1060 and section 1.1060-1T(h) require the filing of an information return by both transferor and transferee in any applicable asset acquisition. An "applicable asset acquisition" is defined in section 1060(c) as any transfer (1) of assets which constitute a trade or business, and (2) with respect to which the transferee's basis in those assets is determined wholly by reference to the consideration paid for the assets. If goodwill or a going concern value could under any circumstances attach to the group of assets, the group constitutes a trade or business for purposes of section 1060 (section 1.1060-1T(b)(2)). Both seller and purchaser in an applicable asset acquisition must report information concerning the amount of consideration in the transaction and its allocation among the assets transferred. Each must file Form 8594, Asset Acquisition Statement Under Section 1060, with their respective income tax returns or returns of income for the taxable year that includes the purchase date.

[3] Very often, the sale of a trade or business that is operated as a sole proprietorship involves the sale of real property from which that trade or business had been operated. Section 6045(e) requires the filing of Form 1099-S for real estate transactions. Section 1.6045-4(b)(1) states that a "real estate transaction" is a transaction that consists in whole or in part of the sale or exchange of reportable real estate. Section 1.6045-4(b)(2) states that "reportable real estate" includes any inherently permanent structure, including any residential, commercial, or industrial building. Certain types of transactions and certain types of property are exempt from section 6045's reporting requirement; 1 but in general, the sale of real estate as part of the sale of a trade or business must be reported under the requirements of section 6045. We are not aware of any authority that holds that Form 8594 need not be filed merely because a Form 1099-S has been filed.

[4] Under section 6041, all persons engaged in a trade or business and making payment in the course of that trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in any taxable year must file an information return. 2 The form most commonly used for this purpose is Form 1099-MISC, which fully identifies both the payor and the recipient, and states the amount of income paid to the recipient. Neither the Code nor the regulations impose on the payor a duty to determine how much of the payment will be income to the payee, e.g., if inventory is being sold, the payor/buyer is not required to determine the payee/seller's basis in the inventory, to allocate a portion of the selling price to it, and to compute the payee's gain on the sale of the inventory. As a result, very often the sale of a sole proprietorship may not require the filing of Form 1099-MISC under section 6041. However, neither the Code nor the regulations exempt a transaction from the requirements to file Form 8594 merely because section 6041's information return requirements are not applicable to the transaction.

[5] We appreciate having the opportunity to consider Mr. Nunziata's comments and suggestions, and hope that this information will be helpful in these types of situations. If we may be of further help, please contact George Bradley of this office at 202-622-492-0.

                               By

 

                                   Robert A. Berkovsky

 

                                   Chief, Branch 2

 

FOOTNOTES

 

 

1 Transactions that are exempt are: a transaction that is not a sale or exchange, even if it involves reportable real estate; a transfer in full or partial satisfaction of any indebtedness secured by the property so transferred; and a transaction in which it can be determined with certainty that the total consideration in connection with the transaction is less than $600 in value, even if the transaction involves reportable real estate. Items of property that are exempt are: an interest in surface or subsurface natural resources, and crops, whether or not the crops are severed; burial plots and vaults; and a manufactured structure used as a dwelling that is manufactured and assembled at a location different from that where it is used, so long as the structure in not affixed to a foundation at the date of closing.

2 Section 6041 does not apply to payments that are within the scope of section 6042(a)(1), relating to dividends; section 6044(a)(1), relating to patronage dividends; section 6045, relating to brokers' transactions with customers; 6047(d), relating to pension plans of self-employed individuals; 6049(a), relating to interest; and section 6050N, relating to royalty payments. In addition, other types of transactions that are exempt from the reporting requirements of section 6041 are described in section 1.6041-3.

 

END OF FOOTNOTES
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Cross-Reference
    003457
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    asset acquisition allocations
    brokers, returns
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2000-7320 (3 original pages)
  • Tax Analysts Electronic Citation
    2000 TNT 165-85
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