338 h 10 election?
Answer:
Section 338(H)(10) can be helpful when a corporation with tax losses is selling a wholly-owned subsidiary, when the corporation is owned by an ESOP, and may be helpful when an individual owner of an S-corporation is selling the corporation in a stock sale.
You need to be more specific to get a good answer, but generally a 338(h)(10) election allows a seller of an S corporation to treat a stock sale as though it were an asset sale. (This also works for consolidated corporations.) Thus, you will recognize gain on the difference between the S corporation's basis in the assets and the value received for them.
The article in the "source" below assumes you already know some stuff about taxation. Section III addresses S corporations.
In a section 338(H)(10) election, the buyer and the seller of a corporation jointly elect to treat the sale of the corporation as an asset sale instead of a stock sale for tax purposes. As such, the seller will be required to pay tax first recapturing any depreciation on assets sold, then on any gains on sale of assets sold by the corporation, then cpital gains on the after tax proceeds the corporation distributes to the seller. The buyer gets to write up all the assets to the price paid for them and start taking depreciation deductions on those assets for taxes.
The section 338(H)(10) can be helpful when a corporation with tax losses is selling a wholly-owned subsidiary, when the corporation is owned by an ESOP, and may be helpful when an individual owner of an S-corporation is selling the corporation in a stock sale.
In all other cases, the incremental tax paid by the seller approximately equals the incremental tax benefit of the buyer (from writing the assets up) and the seller should be paid more to compensate for the higher taxes. Net-net it is a wash.
The answers post by the user, for information only, BAnswer.com does not guarantee the right.
Other Questions and Answers: