26 C.F.R. § 1.1060-1 Special Allocation Rules For Certain Asset Acquisitions

• Library: Code of Federal Regulations
• Edition: 2023
• Currency: Current through December 31, 2023
• Citation: 26 C.F.R. § 1.1060-1
• Year: 2023

(a) Scope -

(1) In general. This section prescribes rules relating to the requirements of section 1060, which, in the case of an applicable asset acquisition, requires the transferor (the seller) and the transferee (the purchaser) each to allocate the consideration paid or received in the transaction among the assets transferred in the same manner as amounts are allocated under section 338(b)(5) (relating to the allocation of adjusted grossed-up basis among the assets of the target corporation when a section 338 election is made). In the case of an applicable asset acquisition described in paragraph (b)(1) of this section, sellers and purchasers must allocate the consideration under the residual method as described in §§ 26undefined1.338-6 and 26undefined1.338-7 in order to determine respectively, the amount realized from, and the basis in, each of the transferred assets. For rules relating to distributions of partnership property or transfers of partnership interests which are subject to section 1060(d), see § 1.755-2T.

(2) Effective dates -(i) In general. The provisions of this section apply to any asset acquisition occurring after March 15, 2001. However, paragraphs (b)(9) and (c)(5) of this section apply only to applicable asset acquisitions occurring on or after April 10, 2006. A purchaser or a seller may make an irrevocable election to apply the rules in §§ 26undefined1.338-11 (including the applicable provisions in §§ 26undefined1.197-2(g)(5) 1.381(c)(22)-1, 846 and 1060) to an applicable asset acquisition occurring before April 10, 2006. Paragraph (a)(2)(ii) of this section describes the time and manner of the election for the purchaser and paragraph (a)(2)(iii) of this section prescribes the time and manner of the election for the seller. The seller may make the election to apply the regulations retroactively without regard to whether the purchaser also makes the election. For rules applicable to asset acquisitions on or before March 15, 2001, see § 1.1060-1T in effect before March 16, 2001 ( see26 CFR part 1 revised April 1, 2000). (ii) Time and manner of making the election for the purchaser. The purchaser may make an election described in this paragraph (a)(2) by attaching a statement to its original or amended income tax return for the taxable year that includes the applicable asset sale. The statement must be entitled "Election to Retroactively Apply the Rules in § 26undefined1.338-11 (Including the Applicable Provisions in §§ 26undefined1.197-2(g)(5) 1.381(c)(22)-1, 846 and 1060) to an Applicable Asset Acquisition Completed Before April 10, 2006" and must include the following information- (A) The name and E.I.N. for the purchaser and (B) The following declaration (or a substantially similar declaration): The purchaser has amended its income tax returns for the taxable year that includes the applicable asset acquisition and for all affected subsequent years to reflect the rules in § 26undefined1.338-11 (Including the Applicable Provisions in §§ 26undefined1.197-2(g)(5) 1.381(c)(22)-1,846 and 1060). (iii) Time and manner of making the election for the seller. The seller may make an election described in this paragraph (a)(2) by attaching a statement to its original or amended income tax return for the taxable year that includes the applicable asset sale. The statement must be entitled "Election to retroactively apply the rules in § 26undefined1.338-11 (including the applicable provisions in §§ 26undefined1.197-2(g)(5), 1.381(c)(22)-1, 846 and 1060) to an applicable asset acquisition completed before April 10, 2006" and must include the following information- (A) The name and E.I.N. for the seller; and (B) The following declaration (or a substantially similar declaration): The seller has amended its income tax returns for the taxable year that includes the applicable asset acquisition and for all affected subsequent years to reflect the rules in § 26undefined1.338-11 (including the applicable provisions in §§ 26undefined1.197-2(g)(5), 1.381(c)(22)-1, 846 and 1060).

(3) Outline of topics. In order to facilitate the use of this section, this paragraph (a)(3) lists the major paragraphs in this section as follows: (a) Scope. (1) In general. (2) Effective date. (3) Outline of topics. (b) Applicable asset acquisition. (1) In general. (2) Assets constituting a trade or business. (i) In general. (ii) Goodwill or going concern value. (iii) Factors indicating goodwill or going concern value. (3) Examples. (4) Asymmetrical transfers of assets. (5) Related transactions. (6) More than a single trade or business. (7) Covenant entered into by the seller. (8) Partial non-recognition exchanges. (9) Insurance business. (c) Allocation of consideration among assets under the residual method. (1) Consideration. (2) Allocation of consideration among assets. (3) Certain costs. (4) Effect of agreement between parties. (5) Insurance business. (d) Examples. (e) Reporting requirements. (1) Applicable asset acquisitions. (i) In general. (ii) Time and manner of reporting. (A) In general. (B) Additional reporting requirement. (C) Election described in § 26undefined1.338-6(c)(5). (2) Transfers of interests in partnerships.

(b) Applicable asset acquisition -

(1) In general. An applicable asset acquisition is any transfer, whether direct or indirect, of a group of assets if the assets transferred constitute a trade or business in the hands of either the seller or the purchaser and, except as provided in paragraph (b)(8) of this section, the purchaser's basis in the transferred assets is determined wholly by reference to the purchaser's consideration.

(2) Assets constituting a trade or business - (i) In general. For purposes of this section, a group of assets constitutes a trade or business if- (A) The use of such assets would constitute an active trade or business under section 355; or (B) Its character is such that goodwill or going concern value could under any circumstances attach to such group. (ii) Goodwill or going concern value. Goodwill is the value of a trade or business attributable to the expectancy of continued customer patronage. This expectancy may be due to the name or reputation of a trade or business or any other factor. Going concern value is the additional value that attaches to property because of its existence as an integral part of an ongoing business activity. Going concern value includes the value attributable to the ability of a trade or business (or a part of a trade or business) to continue functioning or generating income without interruption notwithstanding a change in ownership. It also includes the value that is attributable to the immediate use or availability of an acquired trade or business, such as, for example, the use of the revenues or net earnings that otherwise would not be received during any period if the acquired trade or business were not available or operational. (iii) Factors indicating goodwill or going concern value. In making the determination in this paragraph (b)(2), all the facts and circumstances surrounding the transaction are taken into account. Whether sufficient consideration is available to allocate to goodwill or going concern value after the residual method is applied is not relevant in determining whether goodwill or going concern value could attach to a group of assets. Factors to be considered include- (A) The presence of any intangible assets (whether or not those assets are section 197 intangibles) provided, however, that the transfer of such an asset in the absence of other assets will not be a trade or business for purposes of section 1060; (B) The existence of an excess of the total consideration over the aggregate book value of the tangible and intangible assets purchased (other than goodwill and going concern value) as shown in the financial accounting books and records of the purchaser; and (C)...