We are engaged to acquire an LLC and the owner insists on a stock transaction.
We want to elect Section 338(H)(10) to treat the deal as an asset purchase.
Seller says fine but if there is any tax impact on the seller for an 338 (H)(10) election, they are going to want an adjustment in price to offset the their tax impact.
Some folks are saying this is standard. Can I get a second (and 3rd, and 4th, and 5th, etc.) opinion?
Section 338(H)(10)
by a searcher
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I am assuming LLC taxed as S, and that you are OK with Asset purchase.
Almost all seller's advisors (I don't know why but typically it is the attorney, not the accountant) advise on Stock sale for tax reasons and legal reason. You need to find out who is advising him/her.
In most cases tax delta is small between Asset and Stock in S Corp relative to the purchase price. As mentioned by above Ron and Robert, depreciation recapture is the main reason for tax delta. That can be mitigated if you have flexibility to purchase price allocation. Just like seller, you are probably getting the advise of BIG benefits of step-up, which is not true.
If you overcome tax argument and seller still insists on Stock, then you have different problem.
I can help you do quick math (no strings) before engaging top guns like Robert. Feel free to contact --@----.com###-###-#### .
I would be interested to know why Seller is insisting on a stock sale, because if the concerns are purely financial, the 338(h)(10) election might be a non-starter. Probably best to dig into the Seller's rationale and bottom dollar concerns before hiring outside help. On a somewhat-related note, be sure you are aware of the legal consequences of a stock sale, as it is significantly different than an asset sale.