For tax efficiency, sellers want a stock sale (capital gains tax rate, clean legal transfer) and buyers want an asset purchase (depreciation tax shield, step-up in basis).
A 338(h)(10) tax selection can provide the best of both worlds. It's a stock purchase where the buyer gets similar tax write-off benefits to an asset purchase (incl. amortizing goodwill).
338(h)(10) eligibility requirements:
• Target is an S-Corp or subsidiary carveout
• Buyer is a C-Corp
• Acquire at least 80% of the stock
• File Form 8023 within the post-closing deadline (~9 months)
Note: This is a complex legal/technical tax election, some states make it less worthwhile (NJ/CA), so confer with counsel, particularly around grossing up for depreciation recapture for the seller.
