Section 338(h)(10)
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Definition
Joint buyer-seller tax election that treats a legal stock purchase as an asset purchase for federal income tax purposes. The buyer gets a step-up in the tax basis of acquired assets (creating tax-deductible D&A on the write-ups — real cash tax savings), while the seller is taxed only once at the corporate level (no shareholder-level second tax). Available primarily for subsidiary sales by C-Corp parents and for S-Corp targets. The PV of the buyer's tax benefits typically allows the buyer to pay a higher headline price, producing a ``win-win'' relative to a plain stock sale.
Section 338(h)(10) in plain English
When one company buys another, there are two ways to do it on paper — buy the company's shares, or buy its individual assets — and each is taxed very differently. Section 338(h)(10) is a tax election both sides agree to that lets a share purchase be TREATED as an asset purchase, giving the buyer a valuable perk: it can 'reset' the recorded value of the assets higher and then deduct that higher value over time, which shrinks its future tax bills (real cash saved). Meanwhile the seller avoids being taxed twice on the same profit. Because the buyer pockets those tax savings, it can usually afford to offer the seller a bit more money — so both sides come out ahead versus a plain share deal.
Also called: 10
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