(a) In general—(1) Deemed transaction. Elections are available under section 338 when a purchasing corporation acquires the stock of another corporation (the target) in a qualified stock pur-chase. One type of election, under sec-tion 338(g), is available to the pur-chasing corporation. Another type of election, under section 338(h)(10), is, in more limited circumstances, available jointly to the purchasing corporation and the sellers of the stock. (Rules con- cerning eligibility for these elections are contained in §§ 1.338–2, 1.338–3, and 1.338(h)(10)–1.) However, if, as a result of the deemed purchase of old target's assets pursuant to a section 336(e) elec-tion, there would be both a qualified stock purchase and a qualified stock disposition (as defined in § 1.336–1(b)(6)) of the stock of a subsidiary of target, neither a section 338(g) election nor a section 338(h)(10) election may be made with respect to the qualified stock pur-chase of the subsidiary. Instead, a sec-tion 336(e) election may be made with respect to such purchase. See § 1.336– 1(b)(6)(ii). Although target is a single corporation under corporate law, if a section 338 election is made, then two separate corporations, old target and new target, generally are considered to exist for purposes of subtitle A of the Internal Revenue Code. Old target is treated as transferring all of its assets to an unrelated person in exchange for consideration that includes the dis-charge of its liabilities (see § 1.1001– 2(a)), and new target is treated as ac-quiring all of its assets from an unre-lated person in exchange for consider-ation that includes the assumption of those liabilities. (Such transaction is, without regard to its characterization for Federal income tax purposes, re-ferred to as the deemed asset sale and the income tax consequences thereof as the deemed sale tax consequences.) If a section 338(h)(10) election is made, old target is deemed to liquidate following the deemed asset sale.
CFR 26-1.338-1-2013 history
2013CFR 26-1.338-1-2013 Internal Revenue. Part1:Income taxes(continued). Section1.338-1:General principles; status of old target and new target.