26 U.S.C. § 338: Certain stock purchases treated as asset acquisitions

§ 1.338-0 Outline of topics.§ 1.338-1 General principles; status of old target and new target.§ 1.338-2 Nomenclature and definitions; mechanics of the section 338 election.§ 1.338-3 Qualification for the section 338 election.§ 1.338-4 Aggregate deemed sale price; various aspects of taxation of the deemed asset sale.§ 1.338-5 Adjusted grossed-up basis.§ 1.338-6 Allocation of ADSP and AGUB among target assets.§ 1.338-7 Allocation of redetermined ADSP and AGUB among target assets.§ 1.338-8 Asset and stock consistency.§ 1.338-9 International aspects of section 338.§ 1.338-10 Filing of returns.§ 1.338-11 Effect of section 338 election on insurance company targets.Prop. § 1.338-4 Proposed 1994 · Asset and stock consistency.Prop. § 1.338 Proposed 1999 ·

Forms: Form 8023; Form 5471

Final rules 21

(a) General rule For purposes of this subtitle, if a purchasing corporation makes an election under this section (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corporation—

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(1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and

Amended 1984, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 631(b)(1), struck out “to which section 337 applies” after “in a single transaction”.
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(A), inserted “at fair market value” after “acquisition date”.

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(2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date.

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(b) Basis of assets after deemed purchase

Prop. § 1.338(b)-2 Proposed 1997 · Allocation of adjusted grossed-up basis among target assets.Prop. § 1.338(b)-3 Proposed 1997 · Subsequent adjustments to adjusted grossed-up basis.Prop. § 1.338(b)-1 Proposed 1999 ·

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), substituted “Basis of assets after deemed purchase” for “Price at which deemed sale made” in heading.

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(1) In general For purposes of subsection (a), the assets of the target corporation shall be treated as purchased for an amount equal to the sum of—

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), amended par. (1) generally, substituting “as purchased for an amount equal to the sum of” for “as sold (and purchased) at an amount equal to” in introductory text, “purchasing corporation’s recently purchased stock, and” for “purchasing corporation’s stock in the target corporation on the acquisition date” in subpar. (A), and “the basis of the purchasing corporation’s nonrecently purchased stock” in subpar. (B) in lieu of provision relating to adjustment for liabilities and other relevant items, now covered in par. (2).

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(A) the grossed-up basis of the purchasing corporation’s recently purchased stock, and

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(B) the basis of the purchasing corporation’s nonrecently purchased stock.

(2) Adjustment for liabilities and other relevant items The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target corporation and other relevant items.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), amended par. (2) generally, incorporating former par. (1)(B) provision, inserting heading “Adjustment for liabilities and other relevant items” and substituting “adjusted under regulations” for “properly adjusted under regulations”. Former par. (2) redesignated (4).

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(3) Election to step-up the basis of certain target stock

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), added par. (3). Former par. (3) redesignated (5).

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(A) In general Under regulations prescribed by the Secretary, the basis of the purchasing corporation’s nonrecently purchased stock shall be the basis amount determined under subparagraph (B) of this paragraph if the purchasing corporation makes an election to recognize gain as if such stock were sold on the acquisition date for an amount equal to the basis amount determined under subparagraph (B).

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(B) Determination of basis amount For purposes of subparagraph (A), the basis amount determined under this subparagraph shall be an amount equal to the grossed-up basis determined under subparagraph (A) of paragraph (1) multiplied by a fraction—

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(i) the numerator of which is the percentage of stock (by value) in the target corporation attributable to the purchasing corporation’s nonrecently purchased stock, and

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(ii) the denominator of which is 100 percent minus the percentage referred to in clause (i).

(4) Grossed-up basis For purposes of paragraph (1), the grossed-up basis shall be an amount equal to the basis of the corporation’s recently purchased stock, multiplied by a fraction—

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), redesignated former par. (2) as (4), substituted in introductory text “corporation’s recently purchased stock,” for “purchasing corporation’s stock in the target corporation on the acquisition date”, inserted in subpar. (A) “minus the percentage of stock (by value) in the target corporation attributable to the purchasing corporation’s nonrecently purchased stock”, and substituted in subpar. (B) “in the target corporation attributable to the purchasing corporation’s recently purchased stock” for “of the target corporation held by the purchasing corporation on the acquisition date”.

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(A) the numerator of which is 100 percent, minus the percentage of stock (by value) in the target corporation attributable to the purchasing corporation’s nonrecently purchased stock, and

(B) the denominator of which is the percentage of stock (by value) in the target corporation attributable to the purchasing corporation’s recently purchased stock.

(5) Allocation among assets The amount determined under paragraphs (1) and (2) shall be allocated among the assets of the target corporation under regulations prescribed by the Secretary.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), redesignated former par. (3) as (5) and inserted reference to par. (2).

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(6) Definitions of recently purchased stock and nonrecently purchased stock For purposes of this subsection—

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(1)(B), added par. (6).

(A) Recently purchased stock The term “recently purchased stock” means any stock in the target corporation which is held by the purchasing corporation on the acquisition date and which was purchased by such corporation during the 12-month acquisition period.

Textual readingALL OF= recently purchased stock

“any stock in the target corporation”

“which is held by the purchasing corporation on the acquisition date”

“which was purchased by such corporation during the 12-month acquisition period”

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(B) Nonrecently purchased stock The term “nonrecently purchased stock” means any stock in the target corporation which is held by the purchasing corporation on the acquisition date and which is not recently purchased stock.

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[(c) Repealed. Pub. L. 99–514, title VI, § 631(b)(2), Oct. 22, 1986, 100 Stat. 2272]

Amended 1984, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 631(b)(2), struck out subsec. (c) relating to special rules for coordination with section 337 where purchasing corporation holds less than 100 percent of stock, and in case of certain redemptions where an election is made under this section.
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(2), inserted in last sentence “and section 333 does not apply to such liquidation”.

(d) Purchasing corporation; target corporation; qualified stock purchase For purposes of this section—

(1) Purchasing corporation The term “purchasing corporation” means any corporation which makes a qualified stock purchase of stock of another corporation.

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(2) Target corporation The term “target corporation” means any corporation the stock of which is acquired by another corporation in a qualified stock purchase.

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(3) Qualified stock purchase The term “qualified stock purchase” means any transaction or series of transactions in which stock (meeting the requirements of section 1504(a)(2)) of 1 corporation is acquired by another corporation by purchase during the 12-month acquisition period.

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(e)(8)(A), amended par. (3) generally. Prior to amendment, par. (3) read as follows: “The term ‘qualified stock purchase’ means any transaction or series of transactions in which stock of 1 corporation possessing—
“(A) at least 80 percent of total combined voting power of all classes of stock entitled to vote, and
“(B) at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends),
is acquired by another corporation by purchase during the 12-month acquisition period.”

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(e) Deemed election where purchasing corporation acquires asset of target corporation

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(1) In general A purchasing corporation shall be treated as having made an election under this section with respect to any target corporation if, at any time during the consistency period, it acquires any asset of the target corporation (or a target affiliate).

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(2) Exceptions Paragraph (1) shall not apply with respect to any acquisition by the purchasing corporation if—

“with respect to any acquisition by the purchasing corporation” Opening words

Textual readingANY OF= paragraph (1) does not apply

(A) such acquisition is pursuant to a sale by the target corporation (or the target affiliate) in the ordinary course of its trade or business,

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(B) the basis of the property acquired is determined wholly by reference to the adjusted basis of such property in the hands of the person from whom acquired,

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(D) such acquisition is described in regulations prescribed by the Secretary and meets such conditions as such regulations may provide.

“In regulations prescribed by the Secretary” leaves this to Treasury. No regulation cites this provision (eCFR, Oct 19, 2026)

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(3), substituted “wholly” for “(in whole or in part)” in subpar. (B), struck out subpar. (D) providing for nonapplication of par. (1) to any acquisition by the purchasing corporation if, to the extent provided in regulations, the property acquired is located outside the United States, redesignated subpar. (E) as (D), and, in subpar. (D) as redesignated, inserted “and meets such conditions as such regulations may provide”.

(3) Anti-avoidance rule Whenever necessary to carry out the purpose of this subsection and subsection (f), the Secretary may treat stock acquisitions which are pursuant to a plan and which meet the requirements of section 1504(a)(2) as qualified stock purchases.

Amended 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1018(d)(9), substituted “which meet the requirements of section 1504(a)(2)” for “which meet the 80 percent requirements of subparagraphs (A) and (B) of subsection (d)(3)”.

(f) Consistency required for all stock acquisitions from same affiliated group If a purchasing corporation makes qualified stock purchases with respect to the target corporation and 1 or more target affiliates during any consistency period, then (except as otherwise provided in subsection (e))—

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(1) any election under this section with respect to the first such purchase shall apply to each other such purchase, and

(2) no election may be made under this section with respect to the second or subsequent such purchase if such an election was not made with respect to the first such purchase.

(g) Election

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(1) When made Except as otherwise provided in regulations, an election under this section shall be made not later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(4), substituted “the 15th day of the 9th month beginning after the month in which the acquisition date occurs” for “75 days after the acquisition date”.

(2) Manner An election by the purchasing corporation under this section shall be made in such manner as the Secretary shall by regulations prescribe.

(3) Election irrevocable An election by a purchasing corporation under this section, once made, shall be irrevocable.

(h) Definitions and special rules For purposes of this section—

§ 1.338(h)(10)-1 Deemed asset sale and liquidation.

(1) 12-month acquisition period The term “12-month acquisition period” means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase (or, if any of such stock was acquired in an acquisition which is a purchase by reason of subparagraph (C) of paragraph (3), the date on which the acquiring corporation is first considered under section 318(a) (other than paragraph (4) thereof) as owning stock owned by the corporation from which such acquisition was made).

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(5)(C), included within 12-month acquisition period the period beginning with the date on which the acquiring corporation is first considered as owning stock owned by corporation from which acquisition was made.

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(2) Acquisition date The term “acquisition date” means, with respect to any corporation, the first day on which there is a qualified stock purchase with respect to the stock of such corporation.

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(3) Purchase

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(A) In general The term “purchase” means any acquisition of stock, but only if—

“any acquisition of stock” Opening words

Textual readingALL OF= a purchase of stock

(i) the basis of the stock in the hands of the purchasing corporation is not determined (I) in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a decedent),

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(ii) the stock is not acquired in an exchange to which section 351, 354, 355, or 356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain or loss realized on the transaction, and

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(5)(D), included references to sections 354, 355, and 356 and in defining “purchase” provided that the stock not be acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain or loss realized on the transaction.

(iii) the stock is not acquired from a person the ownership of whose stock would, under section 318(a) (other than paragraph (4) thereof), be attributed to the person acquiring such stock.

Amended 2018

2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(64), substituted “paragraph” for “paragaraph”.

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(B) Deemed purchase under subsection (a) The term “purchase” includes any deemed purchase under subsection (a)(2). The acquisition date for a corporation which is deemed purchased under subsection (a)(2) shall be determined under regulations prescribed by the Secretary.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(5)(A), substituted in heading “under subsection (a)” for “of stock of subsidiaries” and in text “The term ‘purchase’ includes any deemed purchase under subsection (a)(2). The acquisition date for a corporation which is deemed purchased under subsection (a)(2) shall be determined under regulations prescribed by the Secretary” for “If stock in a corporation is acquired by purchase (within the meaning of subparagraph (A)) and, as a result of such acquisition, the corporation making such purchase is treated (by reason of section 318(a)) as owning stock in a 3rd corporation, the corporation making such purchase shall be treated as having purchased such stock in such 3rd corporation. The corporation making such purchase shall be treated as purchasing stock in the 3rd corporation by reason of the preceding sentence on the first day on which the purchasing corporation is considered under section 318(a) as owning such stock”.

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Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(5)(B), added subpar. (C).

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(i) In general Clause (iii) of subparagraph (A) shall not apply to an acquisition of stock from a related corporation if at least 50 percent in value of the stock of such related corporation was acquired by purchase (within the meaning of subparagraphs (A) and (B)).

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(7), substituted “subparagraphs” for “subparagraph”.

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(ii) Certain distributions Clause (i) of subparagraph (A) shall not apply to an acquisition of stock described in clause (i) of this subparagraph if the corporation acquiring such stock—

(I) made a qualified stock purchase of stock of the related corporation, and

(II) made an election under this section (or is treated under subsection (e) as having made such an election) with respect to such qualified stock purchase.

(iii) Related corporation defined For purposes of this subparagraph, a corporation is a related corporation if stock owned by such corporation is treated (under section 318(a) other than paragraph (4) thereof) as owned by the corporation acquiring the stock.

(4) Consistency period

(A) In general Except as provided in subparagraph (B), the term “consistency period” means the period consisting of—

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(i) the 1-year period before the beginning of the 12-month acquisition period for the target corporation,

(ii) such acquisition period (up to and including the acquisition date), and

(iii) the 1-year period beginning on the day after the acquisition date.

(B) Extension where there is plan The period referred to in subparagraph (A) shall also include any period during which the Secretary determines that there was in effect a plan to make a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the target corporation or any target affiliate.

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(5) Affiliated group The term “affiliated group” has the meaning given to such term by section 1504(a) (determined without regard to the exceptions contained in section 1504(b)).

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(6) Target affiliate

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(A) In general A corporation shall be treated as a target affiliate of the target corporation if each of such corporations was, at any time during so much of the consistency period as ends on the acquisition date of the target corporation, a member of an affiliated group which had the same common parent.

(B) Certain foreign corporations, etc. Except as otherwise provided in regulations (and subject to such conditions as may be provided in regulations)—

(i) the term “target affiliate” does not include a foreign corporation or a DISC, and

Amended 1986, 2018

2018 Pub. L. 115-141 Pub. L. 115–141, § 401(d)(1)(D)(vii), substituted “or a DISC” for “, a DISC, or a corporation to which an election under section 936 applies”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 1275(c)(6), struck out “a corporation described in section 934(b),” after “DISC,”.

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(ii) stock held by a target affiliate in a foreign corporation or a domestic corporation which is a DISC or described in section 1248(e) shall be excluded from the operation of this section.

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[(7) Repealed. Pub. L. 100–647, title I, § 1006(e)(20), Nov. 10, 1988, 102 Stat. 3403]

Amended 1984, 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(e)(20), struck out par. (7) which read as follows: “Additional percentage must be attributable to purchase, etc.—For purposes of subsection (c)(1), any increase in the maximum percentage of stock taken into account over the percentage of stock (by value) of the target corporation held by the purchasing corporation on the acquisition date shall be taken into account only to the extent such increase is attributable to—
“(A) purchase, or
“(B) a redemption of stock of the target corporation—
“(i) to which section 302(a) applies, or
“(ii) in the case of a shareholder who is not a corporation, to which section 301 applies.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(A), added par. (7) and struck out former par. (7) which had provided that acquisitions by purchasing corporation include acquisitions by corporations affiliated with purchasing corporation. See subsec. (h)(8).

(8) Acquisitions by affiliated group treated as made by 1 corporation Except as provided in regulations prescribed by the Secretary, stock and asset acquisitions made by members of the same affiliated group shall be treated as made by 1 corporation.

Amended 1983, 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(A), added par. (8) incorporating former par. (7) provision stating that “Except as otherwise provided in regulations, an acquisition of stock or assets by any member of an affiliated group which includes a purchasing corporation shall be treated as made by the purchasing corporation.” Former par. (8) redesignated (9).
1983 Pub. L. 97-448 Pub. L. 97–448 added pars. (8) and (9).

(9) Target not treated as member of affiliated group Except as otherwise provided in paragraph (10) or in regulations prescribed under this paragraph, the target corporation shall not be treated as a member of an affiliated group with respect to the sale described in subsection (a)(1).

Amended 1983, 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(A), (B), redesignated former par. (8) as (9) and substituted therein “paragraph (10)” for “paragraph (9)”. Former par. (9) redesignated (10).
1983 Pub. L. 97-448 Pub. L. 97–448 added pars. (8) and (9).

(10) Elective recognition of gain or loss by target corporation, together with nonrecognition of gain or loss on stock sold by selling consolidated group

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(A), redesignated former par. (9) as (10).

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(A) In general Under regulations prescribed by the Secretary, an election may be made under which if—

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(i) the target corporation was, before the transaction, a member of the selling consolidated group, and

(ii) the target corporation recognizes gain or loss with respect to the transaction as if it sold all of its assets in a single transaction,

then the target corporation shall be treated as a member of the selling consolidated group with respect to such sale, and (to the extent provided in regulations) no gain or loss will be recognized on stock sold or exchanged in the transaction by members of the selling consolidated group.

(B) Selling consolidated group For purposes of subparagraph (A), the term “selling consolidated group” means any group of corporations which (for the taxable period which includes the transaction)—

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 631(b)(3), inserted provision that to the extent provided in regulations, term “selling consolidated group” also includes any affiliated group of corporations which includes the target corporation (whether or not such group files a consolidated return).

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(i) includes the target corporation, and

(ii) files a consolidated return.

To the extent provided in regulations, such term also includes any affiliated group of corporations which includes the target corporation (whether or not such group files a consolidated return).

(C) Information required to be furnished to the Secretary Under regulations, where an election is made under subparagraph (A), the purchasing corporation and the common parent of the selling consolidated group shall, at such times and in such manner as may be provided in regulations, furnish to the Secretary the following information:

Amended 1990

1990 Pub. L. 101-508 Pub. L. 101–508 added subpar. (C).

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(i) The amount allocated under subsection (b)(5) to goodwill or going concern value.

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(ii) Any modification of the amount described in clause (i).

(iii) Any other information as the Secretary deems necessary to carry out the provisions of this paragraph.

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(11) Elective formula for determining fair market value For purposes of subsection (a)(1), fair market value may be determined on the basis of a formula provided in regulations prescribed by the Secretary which takes into account liabilities and other relevant items.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(C), added pars. (11) to (15).

[(12) Repealed. Pub. L. 99–514, title VI, § 631(e)(5), Oct. 22, 1986, 100 Stat. 2273]

Amended 1984, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 631(e)(5), struck out par. (12) relating to applicability of section 337 where target had adopted plan for complete liquidation.
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(C), added pars. (11) to (15).

(13) Tax on deemed sale not taken into account for estimated tax purposes For purposes of section 6655, tax attributable to the sale described in subsection (a)(1) shall not be taken into account. The preceding sentence shall not apply with respect to a qualified stock purchase for which an election is made under paragraph (10).

Amended 1984, 2004

2004 Pub. L. 108-357 Pub. L. 108–357 inserted at end “The preceding sentence shall not apply with respect to a qualified stock purchase for which an election is made under paragraph (10).”
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(C), added pars. (11) to (15).

[(14) Repealed. Pub. L. 108–27, title III, § 302(e)(4)(B)(i), May 28, 2003, 117 Stat. 763]

Amended 1984, 2003

2003 Pub. L. 108-27 Pub. L. 108–27 struck out heading and text of par. (14). Text read as follows: “For purposes of determining whether section 341 applies to a disposition within 1 year after the acquisition date of stock by a shareholder (other than the acquiring corporation) who held stock in the target corporation on the acquisition date, section 341 shall be applied without regard to this section.”
1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(C), added pars. (11) to (15).

(15) Combined deemed sale return Under regulations prescribed by the Secretary, a combined deemed sale return may be filed by all target corporations acquired by a purchasing corporation on the same acquisition date if such target corporations were members of the same selling consolidated group (as defined in subparagraph (B) of paragraph (10)).

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(6)(C), added pars. (11) to (15).

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(16) Coordination with foreign tax credit provisions Except as provided in regulations, this section shall not apply for purposes of determining the source or character of any item for purposes of subpart A of part III of subchapter N of this chapter (relating to foreign tax credit). The preceding sentence shall not apply to any gain to the extent such gain is includible in gross income as a dividend under section 1248 (determined without regard to any deemed sale under this section by a foreign corporation).

Amended 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(bb)(5)(A), added par. (16).

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(i) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—

§ 1.338(i)-1 Effective/applicability date.

Amended 1984

1984 Pub. L. 98-369 Pub. L. 98–369, § 712(k)(7), provided in introductory text that the regulations be appropriate to carry out the purposes of this section; designated existing provisions as par. (1) and substituted therein “treatment of stock and asset sales and purchases” for “treatment of stock and asset purchases with respect to a target corporation and its target affiliates (whether by treating all of them as stock purchases or as asset purchases)” before “may not be circumvented”, and added par. (2).

(1) regulations to ensure that the purpose of this section to require consistency of treatment of stock and asset sales and purchases may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations) and

(2) regulations providing for the coordination of the provisions of this section with the provision of this title relating to foreign corporations and their shareholders.