Section 338(h)(10) election

Section 338(h)(10) election
An election to treat a stock acquisition of the target corporation generally as an asset acquisition for US federal income tax purposes. A buyer may want to make this election if they would receive a stepped-up basis in the target corporation's assets (i.e., if the buyer's cost basis in target's assets would exceed the carryover basis they would otherwise take in a stock acquisition).
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.
A QSP is the "purchase" (as defined in IRC § 338(h)(3)) of at least 80% of the total voting power and value of the stock of a corporation by another corporation in a transaction (or series of transactions) during a 12-month acquisition period. Certain preferred stock (as described in IRC § 1504(a)(4)) is not included in computing voting power or value.
A Section 338(h)(10) election is jointly made by the purchasing corporation and the common parent of the selling consolidated group (or the selling affiliate or S-corporation shareholder(s)). If the target is an S-corporation, all of the target's shareholders (including shareholders who do not sell target stock in the QSP) must make the election.
If a Section 338(h)(10) election is made, the stock purchase is ignored for tax purposes; instead the target corporation generally is treated as making a deemed sale of its assets and then liquidating. The tax treatment to the target shareholders generally is consistent with sale and liquidation treatment.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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