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Abstract: 

While many acquisitions of S corporations or corporate subsidiaries typically are structured in a way that generally would be eligible for a Section 338(h)(10) election, in some situations Section 336(e) will be an attractive alternative. The final regulations under Section 336(e) allow sellers of certain domestic corporations, including subchapter S banks and other S corporations, to make an irrevocable unilateral election to treat the sale of the corporation’s stock as a deemed sale of the corporation’s underlying assets, assuming certain requirements are met. Previously, this asset sale treatment was available only under the provisions of Section 338(h)(10), which not only required the formal consent of both the buyer and the seller but also restricted noncorporate purchasers and certain corporate purchasers from taking advantage of this potentially favorable tax treatment.

Keywords: IRC Sec. 336(e) election, IRC Sec. 338(h)(10) election, M&A transactions, target subsidiary, S corporation target, non-corporate purchasers

Affiliations:  1: Crowe Horwath LLP; 2: Crowe Horwath LLP.