Stock Purchases Treated as Asset Acquisitions — Section 338 (Portfolio 788)

Description

Tax Management Portfolio, Stock Purchases Treated as Asset Acquisitions—Section 338, analyzes in detail the elections under §338(g) and §338(h)(10), available when a purchasing corporation makes a “qualified stock purchase” of a target corporation.  

If an election is made, “old” target is treated as selling all of its assets to itself as “new” target, and “new” target is treated as purchasing those assets. “New target” has a fresh start for most federal income tax purposes, including a fair market value basis in its assets.   

A §338(g) Election is made unilaterally by the purchasing corporation, generally results in double tax, and is rare except in acquisitions of foreign targets. Section 338(h)(10) Elections, on the other hand, are common. A §338(h)(10) Election is made jointly by the seller and purchaser and is available only when the target is a subsidiary member of the consolidated or affiliated group or is a S Corporation. A §338(h)(10) Election avoids the shareholder-level tax by treating the target as having liquidated following the deemed asset sale.

This Portfolio identifies the characteristics and qualifications of a stock purchase, the timing, and the acquisition date.  It discusses the 80 percent vote and value test, exceptions to purchases, redemptions from persons unrelated to the purchasing corporations, and related party transactions.

The authors look at the final regulations, Assumption Reinsurance Principles, and computing and allocating aggregate deemed sale price (ADSP) and adjusted grossed-up basis (AGUB).

Readers will find an introduction and background to the Consistency Rules along with the reasons for changes to the Rules and the legislative history of §338.  The mechanics of elections are also discussed.

Stock Purchases Treated as Asset Acquisitions—Section 338 allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
• Invaluable practice documents including tables, charts and lists
• Plain-English guidance from world-class experts
• Real-world and in-depth analysis that lets you explore various options
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more
• Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.