Stepped Up Tax Basis on the Share Purchase of a C-Corp
July 26, 2024
by a searcher from Carnegie Mellon University - Tepper School of Business in Jersey City, NJ, USA
I'm looking to structure a share purchase deal (need to keep contracts and licenses) and would like to step up the tax basis to get the advantages of an asset sale. The target is a c-corp.
I'm trying to wrap my head around the various Section 338 elections. My understanding is that the 338(h)(10) election can be used for S-corps. Are there other elections that are specific to the purchase of a c-corp? How does the F-reorg fit into this?
from University of Miami in New York, NY, USA
There’s no reason you can’t use an asset sale in order to get an assignment of contracts and licenses. Most licenses are in personam and an acquiror is required to obtain their own license, typically as a condition of closing and financing. That said, your situation may very well be different.
Note that a 338(h)(10) election may be used for both S corporations, and C corporations, however there are some limitations with regard to the use of C corporations. Another option is the election available under 336(e). The acquiror under 338(h)(10) must be a single domestic corporation or consolidated corporate group. Individuals, entities treated as partnerships or are disregarded, corporations, or any combination thereof, can be an acquiror under §336(e).
I would be happy to walk you through all of this, and work with you to develop an appropriate strategy for your acquisition.
You can reach me at: (###-###-#### , and redacted
from The University of Chicago in Chicago, IL, USA
2) Keep in mind that even in Stock, contracts DO NOT automatically transfer. Very often there is a change of control provision in the contracts,
3) Contract transfers are often more difficult in an Asset purchase. If change control is absent, then make sure that you may have the risk of talking to customer before closing which seller may not approve, and you may not want.
4) Seller will have double tax in C Asset transaction. Either seller pays, or you, or it is shared. However, such tax liability is manageable if the price is close to seller tax basis of the assets, or some portion of the price is allocated outside the C Corp.