What is section 338 election?
- Section 338 allows corporations to treat a qualified stock purchase as an acquisition of the target corporation’s assets.
- Applies to purchases made within a 12-month period.
When can section 338 election be made?
- Only after acquiring control of another corporation.
What is a qualified stock purchase?
- Acquiring 80% or more of the target’s stock within a 12-month timeframe.
What happens after the election?
- The target is treated as if:
- It sold all assets at fair market value (on the acquisition date).
- It becomes a new corporation (new target) that purchases the assets (the next day).
- The target must file a final tax return, reporting gains or losses from the deemed asset sale.
How to make a section 338 election?
- File Form 8023 by the 15th day of the 9th month after the acquisition date.
- File the target’s final tax return by the 15th day of the 3rd month after the acquisition.
- Attach Form 8883 (Asset Allocation Statement) to the tax return.
What is IRS Form 8023?
- Who files: Purchasing corporation, Target corporation, Common parent of purchasing corporation, Shareholders of the target corporation.
- Timeline: File by the 15th day of the 9th month after the acquisition date.
- Mode of communication: Electronic Fax or Physical Mail (limited to the form and related attachments).
- Information: Includes acquisition transaction details and parties involved.
- Election: Choose to elect under subsection g / h (10)
- Signatures: Requires authorized signatories of purchasing and target corporation; and shareholders of target corporation.
What is IRS Form 8883?
- Who files: Target corporation, shareholders of the target corporation, new target corporation.
- Purpose:
- Reports asset classes (e.g., tangible, intangible, goodwill).
- Allocates the purchase price across asset classes based on purchase price allocation report. This includes cash, inventory, fixed assets, intangibles, etc.
- States the fair market value of acquired assets.
- Timeline: Attach to the target’s final tax return.
Section 338 Election simplifies tax treatment by converting stock purchases into asset acquisitions, but timely filing and accurate reporting are critical.
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