Discussion of Sections 338 and 338 Election of the Internal Revenue Research Proposal

Discussion of Sections 338 and 338 Election of the Internal Revenue Code - Research Proposal shellUnder Section 338, if a purchasing connection acquires 80 percent or more of the stock of the target corporation in a equal stock purchase then the option in Section 338 may be done to treat the stock purchase as an asset purchase. This election must be not later than the fifteenth day of the ninth month, after the month in which the acquisition date occurs. If however the purchasing corporation decides not to or fails to make such an election, then it will be a carryover base of operations in the targets assets. Such an election in Section 338 will benefit or have an economic value to the purchasing corporation only if the present value of future tax savings resulting from the step-up in basis of the targets assets exceeds the current tax cost of such a step-up. As explained by Silverman, in order to achieve this basis step-up, the target corporation must recognize the full gain or loss inherent in its assets.