IRC Section 336(e) Final Regulations Issued
(July 10, 2013)
The IRS recently published long-awaited final regulations under IRC Section 336(e). The regulations generally allow assets in certain deemed asset sale transactions to be stepped up similarly to how assets are treated under a Section 338(h)(10) election. The Section 336(e) election is available for situations that are not eligible for 338(h)(10) treatment, including:
- When noncorporate purchasers, including individuals, private equity funds, and partnerships, purchase corporate stock.
- When multiple purchasers acquire stock of a target corporation.
- When a corporation makes certain distributions of subsidiary stock that do not qualify as tax-free spinoffs under Section 355 to its shareholders. In these situations a loss disallowance rule may limit the use of losses.
Similar to Section 338(h)(10), at least 80 percent of the stock (vote and value) of the target corporation must be acquired to be eligible for a 336(e) election.
These regulations are a broad step forward and significantly expand the availability of deemed asset sale treatment for stock acquisitions.
For More Information on Income Tax Implications