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.
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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