§ 338. Certain stock purchases treated as asset acquisitions
(a)
General rule
For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation—
(b)
Basis of assets after deemed purchase
(1)
In general
For purposes of subsection (a), the assets of the target corporation shall be treated as purchased for an amount equal to the sum of—
(2)
Adjustment for liabilities and other relevant items
The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items.
(3)
Election to step-up the basis of certain target stock
(A)
In general
Under regulations prescribed by the Secretary, the basis of the purchasing corporation’s nonrecently purchased stock shall be the basis amount determined under subparagraph (B) of this paragraph if the purchasing corporation makes an election to recognize gain as if such stock were sold on the acquisition date for an amount equal to the basis amount determined under subparagraph (B).
(B)
Determination of basis amount
For purposes of subparagraph (A), the basis amount determined under this subparagraph shall be an amount equal to the grossed-up basis determined under subparagraph (A) of paragraph (1) multiplied by a fraction—
(4)
Grossed-up basis
For purposes of paragraph (1), the grossed-up basis shall be an amount equal to the basis of the corporation’s recently purchased stock, multiplied by a fraction—
(5)
Allocation among assets
The amount determined under paragraphs (1) and (2) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary.
(6)
Definitions of recently purchased stock and nonrecently purchased stock
For purposes of this subsection—
(d)
Purchasing corporation; target corporation; qualified stock purchase
For purposes of this section—
(1)
Purchasing corporation
The term “purchasing corporation” means any corporation which makes a qualified stock purchase of stock of another corporation.
(e)
Deemed election where purchasing corporation acquires asset of target corporation
(1)
In general
A purchasing corporation shall be treated as having made an election under this section with respect to any target corporation if, at any time during the consistency period, it acquires any asset of the target corporation (or a target affiliate).
(2)
Exceptions
Paragraph (1) shall not apply with respect to any acquisition by the purchasing corporation if—
(A)
such acquisition is pursuant to a sale by the target corporation (or the target affiliate) in the ordinary course of its trade or business,
(f)
Consistency required for all stock acquisitions from same affiliated group
If a purchasing corporation makes qualified stock purchases with respect to the target corporation and 1 or more target affiliates during any consistency period, then (except as otherwise provided in subsection (e))—
(g)
Election
(1)
When made
Except as otherwise provided in regulations, an election under this section shall be made not later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs.
(h)
Definitions and special rules
For purposes of this section—
(1)
12-month acquisition period
The term “12-month acquisition period” means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase (or, if any of such stock was acquired in an acquisition which is a purchase by reason of subparagraph (C) of paragraph (3), the date on which the acquiring corporation is first considered under section
318
(a) (other than paragraph (4) thereof) as owning stock owned by the corporation from which such acquisition was made).
(2)
Acquisition date
The term “acquisition date” means, with respect to any corporation, the first day on which there is a qualified stock purchase with respect to the stock of such corporation.
(3)
Purchase
(A)
In general
The term “purchase” means any acquisition of stock, but only if—
(i)
the basis of the stock in the hands of the purchasing corporation is not determined
(I)
in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or
(B)
Deemed purchase under subsection (a)
The term “purchase” includes any deemed purchase under subsection (a)(2). The acquisition date for a corporation which is deemed purchased under subsection (a)(2) shall be determined under regulations prescribed by the Secretary.
(C)
Certain stock acquisitions from related corporations
(i)
In general
Clause (iii) of subparagraph (A) shall not apply to an acquisition of stock from a related corporation if at least 50 percent in value of the stock of such related corporation was acquired by purchase (within the meaning of subparagraphs (A) and (B)).
(4)
Consistency period
(A)
In general
Except as provided in subparagraph (B), the term “consistency period” means the period consisting of—
(B)
Extension where there is plan
The period referred to in subparagraph (A) shall also include any period during which the Secretary determines that there was in effect a plan to make a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the target corporation or any target affiliate.
(6)
Target affiliate
(A)
In general
A corporation shall be treated as a target affiliate of the target corporation if each of such corporations was, at any time during so much of the consistency period as ends on the acquisition date of the target corporation, a member of an affiliated group which had the same common parent.
(B)
Certain foreign corporations, etc.
Except as otherwise provided in regulations (and subject to such conditions as may be provided in regulations)—
(i)
the term “target affiliate” does not include a foreign corporation, a DISC, or a corporation to which an election under section
936 applies, and
(8)
Acquisitions by affiliated group treated as made by 1 corporation
Except as provided in regulations prescribed by the Secretary, stock and asset acquisitions made by members of the same affiliated group shall be treated as made by 1 corporation.
(9)
Target not treated as member of affiliated group
Except as otherwise provided in paragraph (10) or in regulations prescribed under this paragraph, the target corporation shall not be treated as a member of an affiliated group with respect to the sale described in subsection (a)(1).
(10)
Elective recognition of gain or loss by target corporation, together with nonrecognition of gain or loss on stock sold by selling consolidated group
(A)
In general
Under regulations prescribed by the Secretary, an election may be made under which if—
(i)
the target corporation was, before the transaction, a member of the selling consolidated group, and
(ii)
the target corporation recognizes gain or loss with respect to the transaction as if it sold all of its assets in a single transaction,
then the target corporation shall be treated as a member of the selling consolidated group with respect to such sale, and (to the extent provided in regulations) no gain or loss will be recognized on stock sold or exchanged in the transaction by members of the selling consolidated group.
(B)
Selling consolidated group
For purposes of subparagraph (A), the term “selling consolidated group” means any group of corporations which (for the taxable period which includes the transaction)—
To the extent provided in regulations, such term also includes any affiliated group of corporations which includes the target corporation (whether or not such group files a consolidated return).
(C)
Information required to be furnished to the Secretary
Under regulations, where an election is made under subparagraph (A), the purchasing corporation and the common parent of the selling consolidated group shall, at such times and in such manner as may be provided in regulations, furnish to the Secretary the following information:
(11)
Elective formula for determining fair market value
For purposes of subsection (a)(1), fair market value may be determined on the basis of a formula provided in regulations prescribed by the Secretary which takes into account liabilities and other relevant items.
(13)
Tax on deemed sale not taken into account for estimated tax purposes
For purposes of section
6655, tax attributable to the sale described in subsection (a)(1) shall not be taken into account. The preceding sentence shall not apply with respect to a qualified stock purchase for which an election is made under paragraph (10).
(15)
Combined deemed sale return
Under regulations prescribed by the Secretary, a combined deemed sale return may be filed by all target corporations acquired by a purchasing corporation on the same acquisition date if such target corporations were members of the same selling consolidated group (as defined in subparagraph (B) of paragraph (10)).
(16)
Coordination with foreign tax credit provisions
Except as provided in regulations, this section shall not apply for purposes of determining the source or character of any item for purposes of subpart A of part III of subchapter N of this chapter (relating to foreign tax credit). The preceding sentence shall not apply to any gain to the extent such gain is includible in gross income as a dividend under section
1248 (determined without regard to any deemed sale under this section by a foreign corporation).
[1] So in original.