Who can make a 338 election?

A Section 338(h)(10) election may be made for a target corporation if a purchasing corporation has made a qualified stock purchase (QSP) of a target corporation from a selling consolidated group, a selling affiliate (as defined in Treasury Regulations § 1.338(h)(10)-1(b)(3)), or S-corporation shareholders.

Can an S Corp make a 338 election?

The U.S. Tax Code allows buyers and sellers of the stock of an S corporation to make a section 338(h)(10) election so that a qualified stock purchase will be treated as a deemed asset purchase2 for federal income tax purposes.

Can an LLC make a 338 election?

These investors will often want the investment entity to be a pass-through entity for tax purposes, so that future operating and liquidation profits will be subject to only one level of tax, rather than two. However, an LLC taxed as a partnership is not eligible to make a 338(h)(10) election.

Why might a parent corporation make a sec 338 election after acquiring a target corporation’s stock?

A. The acquiring parent corporation might make a Sec. 338 election if it desires to use the tax attributes of the target corporation in the year the reorganization takes place. ​ However, the election should not be made when the target corporation does not have any beneficial tax attributes.

How does section 338 election work?

It’s known as a Section 338 election. Under Sec. 338 of the Internal Revenue Code, a corporate buyer and the target company can jointly elect to treat a stock purchase/sale transaction as an asset purchase/sale transaction for federal income tax purposes. 338 election only affects the tax treatment.

Can an individual make a 338 H 10 election?

Limitations of 338(h)(10) election The buyer and seller (all stockholders) must jointly make the election – it cannot be unilaterally made by one side. Buyer must be a corporation making a QSP – at least 80 percent of the seller’s stock needs to be acquired by the buyer.

Is goodwill subject to built in gains tax?

OPTION 1 – Eliminate Goodwill: The BIG tax does not apply to goodwill if you don’t sell your S Corporation during the 5 year built-in gains penalty period. First, let’s define “Goodwill.” Goodwill is the excess value paid for the business over the net identifiable tangible and intangible assets.

Can I sell my S corporation?

Business owners have two choices: They can either sell the stock the S corporation, or they can sell the assets of the corporation, keeping the existing corporate structure intact. For the S corporation owner, the simplest way to structure a transaction is through a stock sale.

Does an LLC get a step up in basis at death?

Investment assets are normally better owned by an LLC because of the fact that there is a step up in basis upon the death of one of the members for tax purposes and any liens or debts on the operating assets (like a mortgage on real estate) are added to the basis of the individual owner which allows for more deductions …

What are the major consequences of a section 338 g election?

For federal income tax purposes, a Sec. 338(g) election made on a foreign target results in a step-up in the target’s assets’ bases, eliminates historic earnings and profits (E&P), and ends the target’s tax year.

How does a 338 h )( 10 election work?

A section 338(h)(10) election refers to an election under section 338(h)(10) of the federal tax code. If various conditions are met, the election allows the parties in a sale of stock of a corporation to treat the transaction for federal income tax purposes as if it had been structured as an asset sale.

How do I avoid built-in gains tax?

1031 like-kind exchange can also be an effective device to avoid the recognition of built-in gains. A tax-deferred, like-kind exchange of an asset does not trigger the built-in gain inherent in that asset, except to the extent of boot received in the exchange.

When was Section 338 added to the tax code?

Basics of Section 338. The United States Congress enacted Section 338 in 1982 to allow taxpayers to treat certain qualified stock purchasesStock AcquisitionIn a stock acquisition, the individual shareholder(s) sell their interest in the company to a buyer.

What is an asset deal in Section 338?

In a regular Section 338 election, two levels of tax are imposed: one on the shareholders upon their sale of the target stock and the other on the deemed asset sale by the target corporation (“Old Target”). Asset Deal An asset deal occurs when a buyer is interested in purchasing the operating assets of a business instead of stock shares.

Who is a qualified stock purchase under Section 338?

However, Regulation Section 1.338(h)(10)-1(c) permits corporations making a qualified stock purchase (QSP) of a target S corporation to make an election under Section 338(h)(10) jointly with the S corporation shareholders Shareholder A shareholder can be a person, company, or organization that holds stock(s) in a given company.

Why do sellers like the 338 ( h ) ( 10 ) structure?

Because a 338 (h) (10) transaction is still a stock sale for legal purposes (other than for tax treatment), all contracts and licenses that would otherwise need to go through the assignment process in an asset deal are transferred uninterrupted as with a traditional stock transaction. Why do sellers like it?