What is a 338h election?

What is a 338h election?

In simple terms, a 338(h)(10) is a tax election for a qualified stock purchase (QSP), which recharacterizes a stock purchase as an asset purchase for federal tax purposes. It remains a stock purchase for all other legal purposes, such as contracts and licensing (more on that later).

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.

Can S Corp make Section 338 H 10 election?

A Sec. 338(h)(10) election can be made only when 1) the target company is an S corporation, or 2) the acquiring corporation buys stock of the target company from one or more corporate shareholders of the target company.

Can an LLC use a 338 h )( 10 election?

338(h)(10) Election Restrcitions The buyer must be a corporation. It can be an S-corporation or a C-corporation. See our article on Choice of Entity to learn about a few basic differences between these two. It cannot be a partnership, LLC, etc.

How does Section 338 H 10 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.

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.

What is a major difference between Section 338 h )( 10 election and a section 336 E election?

While a Section 338(h)(10) election generally requires a single purchasing corporation acquire the target stock, a Section 336(e) election allows the taxpayer to aggregate all target stock sold, exchanged or distributed to different acquirers when determining whether the vote and value requirements are met.

When can you make a 338 h )( 10 election?

A Section 338(h)(10) election can be made when one corporation purchases the stock of another corporation, and the election must be made jointly by the buyer and the seller.

Who is eligible for a 338 h )( 10 election?

A section 338(h)(10) election is available only where the target corporation is a member of a U.S. consolidated tax group or is treated as an S corporation for federal income tax purposes.

Who pays tax in a 338 h )( 10 election?

Section 338(h)(10) Election In the acquisition of a subsidiary, the selling group, rather than the buyer, pays tax on the gain from the deemed sale of the target’s assets since the target owned by the selling group. As such, the 338(h)(10) election is made jointly by the buyer and seller.

Who pays the tax on a 338 g election?

Who files the 338 g election?

338(g) election is made unilaterally by the buyer and does not require the sellers’ consent.

How does a 338 h )( 10 election work?

When can a 338 h )( 10 election be made?

How do I file a 338 H 10 election?

For a section 338(h)(10) election for an S corporation target, attach Form 8883 to Form 1120S, U.S. Income Tax Return for an S Corporation. Old target (consolidated return). If the old target is the common parent of a consolidated group, attach Form 8883 to its final consolidated return ending on the acquisition date.

How does a 338 h )( 10 election affect a seller?

The entire point of a Section 338(h)(10) election is that allows a buyer (P) and seller (T) who engage in a stock sale to pretend they instead engaged in an asset purchase. This requires some creativity, beginning with the determination of the deemed purchase price of T’s assets.

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.

How does section 338 h )( 10 work?

Who can make a section 338 g election?

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.

When can a 338 g election be made?

An election under section 338 may be made for target after the acquisition of assets of the purchasing corporation by another corporation in a transaction described in section 381(a), provided that the purchasing corporation is considered for tax purposes as the purchaser of the target stock.