Magazine article The CPA Journal

New Jersey Changes Its Policy on Treatment of IRC Sec. 338(H)(10) Transactions

Magazine article The CPA Journal

New Jersey Changes Its Policy on Treatment of IRC Sec. 338(H)(10) Transactions

Article excerpt

The New Jersey Division of Taxation (the Division) recently announced a significant change in its treatment of the sale of a business when an election is made under Federal IRC Sec. 338(h)(10). For transactions occurring on or after January 14, 1992, the state will follow the Federal treatment and will no longer require the seller to report gain or loss on the ale of a target corporation's stock (letter from the Division, dated March 13, 1995).

Federal Tax Treatment

For Federal income tax purposes, IRC Sec. 338(a) allows a corporation that purchases 80% or more of a target's stock to elect to have the acquisition treated as a purchase of the target's assets. Following the purchaser's election, the target is treated as if it sold all of its assets at a price determined by the purchasing corporation's basis in the target's stock. The result of the election is that the difference between the purchase price of a target's assets and its basis is recognized as gain or loss to the target, and the basis of the assets is stepped up or down, as the case may be.

If an IRC Sec. 338(a) election is made, a joint election may be made under IRC Sec. 338(h)(10) by the buyer and seller of the target's stock. Under this election, the gain or loss on the deemed asset sale is included in the consolidated tax return of the selling group, and no gain or loss is recognized on the sale of target's stock by members of that group.

Before January 11, 1392, an IRC Sec 338(h)(10) election could be made only for a target that was a member of an affiliated group filing a consolidated Federal tax return. Recently, the IRS issued Treas. Reg. 1.338(h)(10), which expanded permissible IRC Sec. 338(h)(10) elections to include selling affiliated group filing separate returns and S corporations. The new Federal regulation is effective for acquisitions occurring on or after January 14, 1992. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.