Section 338 Election: Stock Deal With Asset-Deal Tax Treatment
A Section 338 election starts with a stock purchase but can create deemed asset-sale and asset-purchase consequences for tax purposes.
Stock acquisition
Legally, the buyer acquires stock and the target corporation remains the same legal entity.
Deemed asset treatment
With a qualifying election, tax law treats the transaction as though the old target sold its assets and a new target purchased those assets at a new tax basis.
Planning tradeoff
A basis step-up can create future depreciation or amortization benefits, while the deemed asset sale can create current tax costs at the target level.
Exam strategy
Separate legal form from tax treatment. The transaction can remain a stock deal legally while being treated more like an asset deal for federal tax purposes.
The takeaway
Section 338 can convert the tax consequences of a qualifying stock acquisition into deemed asset-sale and asset-purchase treatment.
Related Summit resources
FAQ
Is the legal transaction still a stock acquisition?
Yes.
Can the election create a new tax basis in target assets?
Yes.
Can the deemed asset sale create current tax cost?
Yes.