Application of Sec. 338 to S corporations.Final regulations under Sec. 338 provide new rules for S corporations. In a significant liberalization lib·er·al·ize v. lib·er·al·ized, lib·er·al·iz·ing, lib·er·al·iz·es v.tr. To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . . , the final regulations permit a Sec. 338(h)(10) election for a target S corporation. The target S corporation recognizes gain or loss as if it sold all of its assets at the close of the acquisition date. The S shareholders take the deemed sale gain into account under normal S rules. The S shareholders, however, do not recognize gain or loss on the S stock sale. Thus, by making a Sec. 338(h)(10) election, the basis of the S corporation's assets can be stepped up with only a single level of tax. In contrast, a regular Sec. 338 election for an acquired S corporation will result in two levels of tax. Gain or loss will be recognized on a C corporation return for the deemed asset sale and gain or loss will be recognized by the shareholders on the saLe of the S stock. The final regulations provide no additional guidance as to whether an acquiring S corporation can make a Sec.338 election. The Service's ruling position, however, permits the election; see IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Letter Rulings (TAMs) 9325006 and 9245004. The regulations are generally effective Jan. 20, 1994, the scheduled date of publication in the Federal Register. However, target corporations can participate in timely Sec. 338(h)(10) elections as long as the elections are made by the fifteenth day of the ninth month following the month in which the acquisition took place. This means, for example, a timely Sec. 338(h)(10) election must be made by Apr. 15, 1994 for acquisitions that occurred in July 1993; by May 15, 1994 for acquisitions that occurred in August 1993; etc. The opportunity to file timely elections for acquisitions that occurred last year, combined with the opportunity to retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin apply Sec. 197, may provide significant opportunities. Target S corporations could offer buyers a stepped-up basis in assets in return for additional sales proceeds. Note: S shareholders might incur additional tax if the deemed asset sale triggers substantial recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. items. However, this tax could be reimbursed with additional sales proceeds from the buyer. From Sam Starr, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , J.D., Bill Dunn Bill Dunn (born July 3, 1961 in Panama Canal Zone) is an American politician and a Republican member of the Tennessee House of Representatives. He has served as a state representative since being elected to the 99th Tennessee General Assembly. , CPA, Richard Yates There have been several people by the name of Richard Yates:
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