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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28092
Experience:  Taxes, Immigration, Labor Relations
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Asset Purchase agreement fees and taxes

Customer Question

I would like to know what types of taxes or fees approximately would be associated with a simple Asset Purchase agreement of goods worth $1.6 million and Intellectual Property of a corporation all for the sale price of $300,000. This is all in California.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.
Hi and welcome to Just Answer!

If you are selling assets not shares of your C-corporation...

 

Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information.

The sale price for used equipment and fixtures should be fair market values of these assets - on which both the buyer and the seller agreed - not book values.

The buyer and seller should each attach Form 8594 - http://www.irs.gov/pub/irs-pdf/f8594.pdf to their federal income tax return for the year in which the sale occurred. See also instructions - http://www.irs.gov/pub/irs-pdf/i8594.pdf

 

When sold, these assets must be classified as capital assets, depreciable property, real property, intangible property (including goodwill, non-compete agreement, patents, franchise, trademark, trade name), or property held for sale (inventory or stock in trade).

The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in long term gain or ordinary loss. The sale of inventory results in ordinary income or loss.

 

The sale of real property or depreciable property used in the business and held longer than 1 year results in long term gain or ordinary loss. The sale of inventory results in ordinary income or loss.

Self-created assets generally do not qualify for long term capital gain treatment.

 

To estimate your possible tax liability - you need to do following;

(1) list all your business assets

(2) assign the sale price to each asset

(3) determine the basis for each asset

Some gain will be taxed as long term capital gain and some as ordinary income

 

Let me know if you need help with estimations.

Customer: replied 4 years ago.
Thank you for your response however I did not see any information addressed about fees like title transfer or anything like that with respect to the intellectual property. You provided detailed breakdown of taxes on merchandise but there was nothing abour intellectual property per my original question.

Thank yoo.
Expert:  Lev replied 4 years ago.

I am not sure if you have a title for the intellectual property - that is not a real or a personal property (such as a car) for which the title is required.

As such - there is no any special fee (or taxes) specifically for transfer.

If you are a seller - you will pay taxes on the gain.

If you are a buyer - there is no tax liability for you - but generally - you will amortize the cost over 15 years.

Unless you have a very special type of an intellectual property that requires titling ... there is no title and there is no any additional fee.

 

If you want - please provide what type of the intellectual property do you have and I will verify - otherwise - I do not see any additional tax liability besides income taxes.