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338 Election

Technical topics regarding tax preparation.
3-May-2014 11:11am
Client has a buyer for her company C Corp. They have suggested they want a 338 election and I think that is fine. Here is how I see it happening where am I wrong:

1. She gets her $300,000 for her stock and records the gain to her stock on her return. She is happy to sign the election agreement to apply 338 - she is the 100% owner of the corporation a C Corp. This will maybe happen in September and corp has a fiscal year that will end next April 30, 2020.

2 It is a personal marketing/advertising business,and all valuations of the assets will be done- the election will be done adjustments made for their filing of the 1120 return for the year end 4/30/20. The buyer will be filing the return, correct? The main reason for the 338 are NOLs' not big federal, but bigger State. She will sign the valuation statement with the election, but the tax reporting will transfer to the buyer for reporting it on the returns and paying any resulting corporate taxes. The buyer will be liquidating a corporate insurance policy to come up with part of the payments to my client.

3. There is a comment from the other side about the tax adjustment costs for handling the 338 should be added to my client's price. This is a C Corp - I already went through the numbers with Liquidating after an asset sale - the differences are having some goodwill assigned as personal, salary increase(bonus for not taking old etc), and a liquidating dividend on the final return after corporate gains are computed and taxes resulting. That was already included in the price given to them and agreed upon.

What is wrong with my description of what I described. The valuations used for the step up for the corporation will be supported by what she got for her stock. She is done filing corporate income tax returns after 4/30/19.


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