TAX QUESTION: EQUITY ROLLOVER WHEN MAKING A 338(H)(10) ELECTION

Does anyone know how much equity a seller can roll over in a transaction that is treated as an asset sale for tax purposes via an 338(H)(10) election. I understand it is 20%, but I’m not sure how the 20% is calculated.

Example: Assume $10M purchase price financed with $6M of Debt and $4M of preferred equity. In this example, the preferred equity has a 60% participation in common (preferred equity investors own 60%).


How do you calculate the 20% rollover limit for 338(H)(10) purposes?

  1. Is it 20% of the purchase price = $2M, or
  2. Is it 20% of the preferred equity value = $0.8M, or
  3. Is it the value of the preferred stock that corresponds to a 20% stake on a fully diluted basis (e.. 20% of fully diluted target equity = $1.33M


share: