Benefits of 338(h)(10) transactions

Focusing on the deal value is not enough to fully evaluate a possible acquisition of your company; structure plays an important role in determining how much actually gets deposited into your account versus how much is paid in taxes. Buyers prefer to structure an asset sale, while sellers prefer the stock sale, solely based on the tax basis applied to each side.

The benefit of a 338(h)(10) election is the tax advantage of being treated as a stock sale for the seller and an asset sale for the buyer. In other words, the best of both worlds for both sides. The double taxation of an asset sale is eliminated for the seller and the acquirer can depreciate the full price as in an asset sale, sheltering some of those tax payments. There are a few restrictions: the seller has to be a S-Corp and the buyer has to be a C-Corp based in the USA. Keep this election in mind when structuring a transaction, and refer to your attorneys and tax advisors for counsel during this very important moment in the history of your company.

Posted by , Associate on 7 September 2011
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