338(h)(10) Election

by a searcher from Boston University

1 week ago

Hello search funder! I have a business under LOI and we are pursuing a stock sale. The owner is hesitant about performing a 338h10 election because he feels that this would add complexity to the deal and generally there is a fear of the unknown. That being said I have never performed a 338h10 election and would love to speak with anyone who has used this election. Specifically, I am looking to understand how the process works (assigning asset values etc.) and any tools you used to "true up" the seller for any added tax liabilities.

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24 comments

professional from Villanova University - Villanova School of Business

^Searchfunder member‌ Hi, the choice between a §338(h)(10) election, a §336(e) election, or other tax elections depends on the corporate structure and tax classification of the business. We have experience with all of these structures and regularly work with accountants to quantify the impact on both parties. Since a §338(h)(10) election treats a stock sale as an asset sale for tax purposes, it typically benefits the buyer through a step-up in basis while increasing the seller’s tax liability. So we make sure to run the numbers with the accounting team to determine whether the tax savings outweigh the costs. In some cases, the benefit may be minimal depending on the asset mix and prior depreciation. If there’s a material impact, buyers and sellers often negotiate adjustments, such as a purchase price increase or other economic concessions. Happy to discuss how we approach legal structuring for these elections. You can schedule a consultation at deanstreetlaw.com/links.

5 days ago | like reply | 0 likes

searcher from Cornell University

Can be very complex. State tax rules can be an issue as well. Talk to a good lawyer and a CPA about the structure.

6 days ago | like reply | 0 likes

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