medium · Investment Banking ma-lbo
A buyer is evaluating the purchase of a private company with $100M of Net Identifiable Assets. The buyer expects to write up assets by $40M.
If the buyer can structure the deal as a Section 338(h)(10) election rather than a standard stock purchase, what is the primary tax advantage?
- The transaction is treated as a tax-free reorganization for both the buyer and the seller.
- The seller is exempt from paying corporate-level taxes, making the deal cheaper for the buyer.
- The buyer avoids paying any capital gains tax on the future sale of the target's business units.
- The buyer can treat the transaction as an asset purchase for tax purposes, allowing for the depreciation of the $40M write-up to create a tax shield.
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