Stepping up basis on stock/membership sale of LLC taxed as S corp?

September 22, 2025

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Boston, MA, USA

I'm considering purchasing 100% of the membership interest of a single-member LLC that is currently taxed as a S corp. My understanding is that 338(h)(10) cannot be used because the target is a LLC, regardless of the fact that it's taxed as a S Corp, while 754 only applies to LLCs that are taxed as partnerships. Is my understanding correct? Is there any way to step up basis at sale? The seller has agreed to make the necessary elections to have the stock sale taxed as an asset purchase, but is there a mechanism to do so?

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi Anon, depending on the circumstances, you have a few options. You can make elections under 336(e) or 338(h###-###-#### your understanding of 338(h)(10) isn't quite right from the information you've shared. Alternatively, you can have the seller undergo an F-reorganization prior to the closing. The advantage of an F-reorganization is that you are left with a single member LLC taxed as a disregarded entity (or partnership depending on structure), which is more flexible than an S-corporation. F-reorganizations also protect against the risk of a blown S-election. But they're wonky and hard to explain to sellers, making them a tougher ask. I hope that helps. Let me know if you want to discuss in greater detail. Feel free to reach out at redacted

Reply by a professional
from Harvard University in Lynbrook, NY 11563, USA

Your options are basically what ^redacted‌ said, though I’d guess you probably can’t make a 338(h)(10), so you can either make a 336(e) election, do an F reorg, or if you’re not worried about seller tax exposure, just have the seller convert their S corp to an LLC. redacted if you want to discuss.

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