what exactly is a 338(h)(10) Election? Where can i find a explanation that isn't too hard to understand?

Answer 1

338(h)(10) is an election to treat a stock purchase deal as an asset purchase deal. It is common in business combinations, mergers and acquisitions. The purpose of this election is to let the buying company to have a basis in each of the selling corp's asset.

The mechanic is rather complicated. Simply put, the selling corp. makes a hypotheical sale of all of its assets and recognize all gains. The buying corp takes the basis (purchase price) of each asset sold in the hypothecial sale of the selling corp. When the selling corp has a lot of NOL carryforward, this election certainly makes sense. The stepped-up basis to the buyer is also advtangeous because the buying corp may recognize additional depreciation in future years and recognzie less gains when assets are sold because of the stepped-up basis.

Answer 2

According to the IRS document linked below, section 338(h)(10) of the Internal Revenue code has been repealed as of July 5, 2006. It looks to me that it allowed corporations to treat certain stock purchases as if they had purchased the assets of the companies whose stack was purchased.

NOTE: I am not a tax expert and have not actually read section 338(h)(10).

Answer 3

Previous answer provides a good short summary. Just for clarification, sec. 338(h)(10) has not been repealed!