medium · Investment Banking

In a Section 338(h)(10) election, how is the transaction treated for tax purposes compared to a standard stock sale of a C Corporation subsidiary?

1. It requires the buyer to inherit all of the target's contingent liabilities as a trade-off for the tax benefits.
2. It is treated as an asset sale for tax purposes, allowing the buyer to step up the tax basis of the assets.
3. It triggers double taxation at both the corporate and shareholder levels, similar to a standard asset sale.
4. It prevents the creation of any new Goodwill on the balance sheet for GAAP purposes.

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