Tax
§338(h)(10) Election
Quick definition
Treats a qualifying stock sale as an asset sale for tax purposes.
Section 338(h)(10) is a joint election by buyer + seller that treats a stock acquisition AS IF the buyer acquired the underlying assets. Gives buyer an asset-basis step-up (better depreciation, better goodwill amortization). Common in M&A involving S-corp targets. Seller pays more tax (asset-sale tax treatment is generally worse for sellers than stock-sale treatment), so deal typically includes a 'gross-up' payment to compensate. Standard in PE buyouts of S-corps.
Related tax terms
R&D Tax Credit
Federal credit for qualified research expenses, usable against payroll tax by startups.
Delaware Franchise Tax
Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.
Nexus (Sales Tax)
The connection with a state that triggers a tax-collection obligation.
QSBS (Qualified Small Business Stock)
Tax exemption for gains on qualifying startup stock held 5+ years.
Frequently asked questions
- What is §338(h)(10) Election?
- Section 338(h)(10) is a joint election by buyer + seller that treats a stock acquisition AS IF the buyer acquired the underlying assets. Gives buyer an asset-basis step-up (better depreciation, better goodwill amortization). Common in M&A involving S-corp targets. Seller pays more tax (asset-sale tax treatment is generally worse for sellers than stock-sale treatment), so deal typically includes a 'gross-up' payment to compensate. Standard in PE buyouts of S-corps.
- Why is §338(h)(10) Election important for startups?
- §338(h)(10) Election is a tax concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does §338(h)(10) Election belong to?
- §338(h)(10) Election is a Tax term in the StartupCFO finance glossary — alongside other tax concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about §338(h)(10) Election?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put §338(h)(10) Election in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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