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Section 338(g) or 338(h)(10): an election issue map for a qualified stock purchase

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Section 338 lets a buyer treat a stock acquisition as though the acquired corporation had sold its assets, but only if the acquisition is a qualified stock purchase and only through one of two elections that are not interchangeable. Under section 338(a) the target is treated as having sold all of its assets at fair market value at the close of the acquisition date and as a new corporation that purchased those assets the next day. Section 338(d)(3) defines the qualified stock purchase by reference to stock meeting section 1504(a)(2), acquired by purchase during a 12-month acquisition period. The election under section 338(g) is the purchasing corporation's alone. The election under section 338(h)(10) exists only to the extent regulations provide, and Regulations section 1.338(h)(10)-1(c)(1) makes it available where the buyer acquires that stock from a selling consolidated group, a selling affiliate, or the shareholders of an S corporation target; section 1.338(h)(10)-1(c)(3) requires it to be made jointly. The practical divide is who absorbs the deemed-sale gain and whether the seller is also taxed on the stock. Statutory text here was read on a page stating it contains the laws in effect on September 14, 2026; the regulations come from the Code of Federal Regulations edition revised as of April 1, 2025, and the form instructions from the revisions named in the sources.

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Scope

Jurisdiction: United States — federal

Tax periods: Not period-specific; checked 2026-09-15, Code as in effect 2026-09-14

Assumptions

Exclusions

1. Establish the qualified stock purchase first

No election exists without a qualified stock purchase. Section 338(d)(3) defines it as any transaction or series of transactions in which stock meeting the requirements of section 1504(a)(2) of one corporation is acquired by another corporation by purchase during the 12-month acquisition period. Section 338(h)(1) defines that period as the 12 months beginning with the first acquisition by purchase of stock included in the qualified stock purchase, and section 338(h)(2) defines the acquisition date as the first day on which there is a qualified stock purchase.

The Instructions for Form 8023 restate the threshold in working terms: the purchase of at least 80 percent of the total voting power and value of the stock of a corporation by another corporation during a 12-month acquisition period, with preferred stock described in section 1504(a)(4) left out of the voting-power and value computation. That exclusion is often what decides a borderline file, because it changes the denominator.

Two facts drive everything downstream and should be fixed before anything else: the acquisition date, and which shares were acquired by purchase within the window. Section 338(d)(1) supplies a third gate that is easy to skip, since only a corporation can be the purchasing corporation.

2. What the election deems to happen

Section 338(a)(1) treats the target as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and section 338(a)(2) treats it as a new corporation that purchased those assets as of the beginning of the day after the acquisition date. Section 338(b)(1) sets the deemed purchase amount as the sum of the grossed-up basis of the buyer's recently purchased stock and the basis of its nonrecently purchased stock, with section 338(b)(2) adjusting that figure for liabilities and other relevant items.

The deemed figures are then spread across the target's assets rather than applied in a lump. Regulations section 1.338(h)(10)-1(d)(3)(i) determines the aggregate deemed sale price under section 1.338-4 and allocates it among the acquisition date assets under sections 1.338-6 and 1.338-7, and section 1.338(h)(10)-1(d)(2) determines the adjusted grossed-up basis for the new target's assets under section 1.338-5 and allocates it the same way.

A step-up is therefore an outcome of the deemed sale, not an independent benefit that can be claimed on its own. If the deemed sale produces little gain, it produces little step-up.

3. The two elections are distinguished by who may make them

Section 338(g) is the general election. The Instructions for Form 8883 draw the line plainly: a section 338(g) election is made only by the purchasing corporation, while a section 338(h)(10) election is made jointly by the old target shareholders and the purchasing corporation. Section 338(g)(2) and section 338(g)(3) speak of an election by the purchasing corporation and leave the manner of making it to regulations. Nothing in the seller's position controls whether it can be made.

Section 338(h)(10) is narrower and conditional. The statute authorizes it only under regulations prescribed by the Secretary, and describes a case in which the target was, before the transaction, a member of the selling consolidated group and recognizes gain or loss as if it had sold all of its assets, with the result that no gain or loss is recognized on stock sold by members of that group to the extent regulations provide. Regulations section 1.338(h)(10)-1(c)(1) then extends availability beyond the statutory case to a selling affiliate and to the shareholders of an S corporation target.

That gap between statute and regulation is the single most useful line on this map. A practitioner who reads only section 338(h)(10) will not find S corporation targets there; a practitioner who reads only the regulation will not see that the election exists at the Secretary's direction and is conditioned accordingly.

4. Follow the deemed-sale tax to the party that actually carries it

Under a section 338(h)(10) election, Regulations section 1.338(h)(10)-1(d)(3)(i) provides that the old target recognizes all of the gain realized on the deemed transfer of its assets and realizes the deemed sale tax consequences before the close of the acquisition date, while it is still a member of the selling consolidated group or owned by the selling affiliate or the S corporation shareholders. Section 1.338(h)(10)-1(d)(4) then treats the old target as transferring its assets to those sellers and ceasing to exist, a transfer the regulation says will in most cases be treated as a distribution in complete liquidation to which section 336 or section 337 applies.

The buyer's exposure survives that fiction. Regulations section 1.338(h)(10)-1(d)(2) states that notwithstanding the deemed liquidation, the new target remains liable for the tax liabilities of the old target, including the tax liability for the deemed sale tax consequences. Economic responsibility and legal liability are therefore allocated to different parties by default, which is why the agreement's tax indemnity and the election are a single subject and not two.

Where the target is an S corporation, Regulations section 1.338(h)(10)-1(d)(5)(i) passes the deemed sale tax consequences through: the shareholders, whether or not they sell their stock, take their pro rata share into account under section 1366 and adjust their stock basis under section 1367. Under a section 338(g) election the picture differs, because section 338(h)(10)(A) is the only provision in the section that removes gain or loss on the stock sold by members of a selling consolidated group. A buyer-only election therefore leaves the seller's own treatment of the stock sale to be analyzed on its own terms rather than assumed away.

5. The filing rules, stated as rules

Section 338(g)(1) provides that, except as otherwise provided in regulations, an election under the section shall be made not later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs, and section 338(g)(3) provides that an election by a purchasing corporation, once made, is irrevocable. Regulations section 1.338(h)(10)-1(c)(3) applies the same window to a section 338(h)(10) election and requires it to be made jointly on Form 8023, with S corporation shareholders who do not sell their stock also consenting. The Instructions for Form 8023 give the same window in shorter form, as the 15th day of the 9th month after the acquisition date, and identify the fax number and the Ogden service center address the form goes to.

Two failure modes are written into the regulation itself. Section 1.338(h)(10)-1(c)(4) makes the election irrevocable and provides that where a section 338(h)(10) election is made, a section 338 election is deemed made. Section 1.338(h)(10)-1(c)(5) provides that if the section 338(h)(10) election is not valid, the section 338 election is also not valid, so a defect in consent does not leave a fallback buyer-only election standing.

Form 8023 makes the election; the allocation information travels on a different form. The Instructions for Form 8883 state that although Form 8023 is used to make the election, Form 8883 must also be filed to supply information relevant to it, and that Form 8023 should be timely filed even if all of the information required on Form 8883 is not yet available. Whether these rules operate as stated for a given acquisition depends on the acquisition date, the target's status, and the identity of the seller, and those facts should be established before the filing calendar is built.

6. Consistency, and what this map leaves open

Section 338(f) constrains repeat purchases from the same group: where a purchasing corporation makes qualified stock purchases with respect to a target and one or more target affiliates during a consistency period, an election with respect to the first purchase applies to each of the others, and no election may be made for a second or later purchase if none was made for the first. A single acquisition rarely raises this; a program of acquisitions from one seller often does.

Left open here on purpose: valuation of the target's assets, the detailed computation of the aggregate deemed sale price and the adjusted grossed-up basis, foreign targets, and every state consequence. The sibling page titled Asset purchase or stock purchase: where the federal tax consequences actually diverge covers the allocation mechanics and the attribute question for an ordinary purchase of assets, and does not repeat the election analysis given here.

A workable next step is to put the acquisition date, the seller's identity and the target's status into a research question and ask Taxterity for the authorities that govern availability in that configuration, or have it draft a Federal Tax Memo on which of the two elections the facts support, and then verify each citation in the current Code, regulations, and form instructions before acting on it.

Related research

Official sources

  1. 26 U.S.C. 338 — Certain stock purchases treated as asset acquisitions — § 338(a)(1) and (2); (b)(1) and (2); (d)(1) and (d)(3); (f); (g)(1), (g)(2) and (g)(3); (h)(1), (h)(2) and (h)(10)(A)
  2. 26 CFR 1.338(h)(10)-1 — Deemed asset sale and liquidation — § 1.338(h)(10)-1(c)(1), (c)(3), (c)(4) and (c)(5); (d)(2); (d)(3)(i); (d)(4)(i); (d)(5)(i); 26 CFR ch. I, 4-1-25 edition
  3. Instructions for Form 8023, Elections Under Section 338 for Corporations Making Qualified Stock Purchases — Rev. October 2023: Purpose of Form; Who Must File; When and Where To File; Definitions (qualified stock purchase, acquisition date, 12-month acquisition period)
  4. Instructions for Form 8883, Asset Allocation Statement Under Section 338 — Rev. October 2017: Purpose of Form, including the statement that Form 8023 should be timely filed even if Form 8883 information is incomplete, and the two types of section 338 election
  5. 26 CFR 1.338-6 — Allocation of ADSP and AGUB among target assets — § 1.338-6(b)(1) and (b)(2)(i) through (b)(2)(vii), the seven classes of acquisition date assets; § 1.338-6(c)(1) fair market value limit; 26 CFR ch. I, 4-1-25 edition

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