hard · Investment Banking ma-lbo

How does a Section 338(h)(10) election affect the creation of a Deferred Tax Liability (DTL) compared to a standard stock purchase?

1. It increases the resulting DTL because the tax-basis step-up exceeds the book write-up amount that is recorded.
2. It results in a Deferred Tax Asset forming on the balance sheet instead of the usual DTL that a stock deal would create.
3. The election has no impact at all on the balance sheet's deferred tax accounts or their resulting valuation basis calculations.
4. It typically eliminates the need for a DTL on asset write-ups because the tax basis is stepped up to match the book basis.

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