What is a 338 tax election?
An Internal Revenue Code (IRC) Section 338 election is often advantageous for buyers in corporate acquisitions. Sec. 338 permits a corporation that makes a “qualified stock purchase” of another corporation to elect to treat such acquisition as an asset rather than a share acquisition for federal tax purposes.
What is a section 338 h )( 10 election?
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.
What are the major consequences of a section 338 g election?
A purchaser making a Sec. 338(g) election obtains numerous benefits in the international context. 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 do I make a section 338 g election?
To make a 338(g) election for a target corporation, the purchasing corporation must acquire the target’s stock in a qualified stock purchase (QSP).
When can you make a 338 g election?
Foreign targets are not eligible for the 338(h)(10) election, but are eligible for the 338(g) election. Any Section 338 election must be made by the fifteenth day of the ninth month after the month in which 80% control of the target is acquired (within 8.5 months).
How does a 338 g election work?
For a domestic corporate buyer of the stock of a foreign corporation, an election under section 338(g) has been a longstanding tax planning tool that permits the buyer to treat the transaction as an asset purchase for U.S. federal income tax purposes.
How does a Section 338 h )( 10 election differ from a section 338 g election?
A Section 338(h)(10) election is much more common than a Section 338(g) election because the 338(g) election results in two levels of tax, whereas a 338(h)(10) election results in only one.
What is a qualified stock purchase?
—A qualified stock purchase is the purchase of at least 80% of the total voting power and value of the stock of a corporation by another corporation during a 12-month acquisition period.
Does the buyer or seller make a 338 election?
The buyer and seller (all stockholders) must jointly make the election – it cannot be unilaterally made by one side. For legal purposes, a 338(h)(10) election remains a stock sale despite being deemed an asset sale for tax purposes.
What is the difference between a 338 g and 338 h )( 10 election?
Why might a parent corporation make a sec 338 election after acquiring a target corporation’s stock when would such an election not be advisable?
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.
What are the major consequences of a section 338 h )( 10 election?
A selling S corporation shareholder may also be negatively impacted when agreeing to a Section 338(h)(10) election by the presence of an entity-level state tax that could be avoided for a straight stock sale. If this is the case, the purchase price should be further grossed-up to account for the additional tax.
Who can make 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. For legal purposes, a 338(h)(10) election remains a stock sale despite being deemed an asset sale for tax purposes.
Why might a parent corporation make a sec 338 election after acquiring a target corporation’s stock?
The acquiring parent corporation might make a Sec. 338 election if it desires to not step-up the basis of the target corporation’s assets since this could create additional tax and few corporations would want to pay the tax currently.
How does a 338 h )( 10 election affect a seller?
The buyer and the seller jointly make a 338(h)(10) election. With this election, the buyer purchases the stock, which allows the target company to maintain non-transferrable assets (e.g. contracts) and remain a separate entity from a legal standpoint.
What is a qualified stock purchase 338?
Under section 338, a corporation making a qualified stock purchase can elect to treat the corporation whose stock is being purchased (target corporation) as having sold all of its assets on the acquisition date at fair market value.
Can an individual buyer make a 338 H 10 election?
What is better a stock sale or asset sale?
Tax Rates. Generally, a stock sale is better for the seller and an asset sale is better for the buyer. In a stock sale, the seller can realize the gain on their business at preferred capital gains tax rates. In an asset sale, any gains are exposed to the seller’s ordinary income tax rate on certain assets.
What is the tax for selling stock?
Meanwhile, stocks that are held for at least a year and a day before being sold are subject to long-term capital gains taxes, which come in at a much more favorable rate. Long-term capital gains taxes amount to 0% for lower earners, 15% for moderate to high earners, and 20% for the ultra wealthy.
Are stock deals taxable?
The other major determinant is the form of consideration (cash vs. stock) paid by the acquirer to the seller(s). If the consideration is mostly cash or debt, the deal is likely to be taxable.
What is a section 338 election for stock?
These elections treat a stock acquisition as an asset acquisition for federal income tax purposes. A Section 338 election is useful when the buyer has a good business reason to acquire stock rather than assets (e.g., difficulty in re-assigning licenses or permits), but the buyer still wants the tax benefits of an asset acquisition.
Can A S corporation purchase an asset under Section 338?
S Corporations and Section 338 (h) (10) If the target is an S corporation and a stock purchase is desired for non-tax reasons, but an asset purchase is desired for tax reasons, it is necessary for the target S corporation’s shareholders and the acquiring corporation to agree to make an election under Section 338 (h) (10).
What is section 338A of the Securities Act of 1954?
A prior section 338, act Aug. 16, 1954, ch. 736, 68A Stat. 107, made reference to a special rule relating to the effect on earnings and profits of certain distributions in partial liquidation in section 312 (e), prior to repeal by Pub. L. 97–248, § 222 (e) (4). 2018—Subsec. (h) (3) (A) (iii).