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Create a full M&A tax workflow for a taxable business acquisition involving a potential §338(h)(10) election, including due diligence steps, purchase price allocation under §1060, identification of tax risks, required elections and filings, compliance deadlines, and the authorities that apply at each stage.
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Step-by-step M&A tax workflow (taxable acquisition with potential §338(h)(10))

Step 1 — Define transaction perimeter and timeline
Confirm a Qualified Stock Purchase (QSP): purchasing corporation acquires ≥80% vote and value within 12 months; identify the "acquisition date." Cite §338 basics in term sheet. "If a section 338(h)(10) election is made for the target, the target is generally treated as making the deemed sale and liquidating." [Instructions for Form 8023 (Rev. 10/2023)] 9
Step 2 — Determine §338 election eligibility and parties
Identify if 338(h)(10) is permitted: seller is a consolidated group (parent or selling affiliate) or the target is an S corporation; all S shareholders must consent if S target. Joint election by buyer and seller (or all S shareholders). [Instructions for Form 8023 (Rev. 10/2023)] 9 10
1. taxes / federal / Tax Bills / BILLS-119hr1eas.pdf
(iv) subsection (c) shall not apply to 17 such taxpayer. 18

(D) ELECTION REGARDING COORDINATION 19 WITH RESEARCH CREDIT.—An election under 20 section 280C(c)(2) of the Internal Revenue Code 21 of 1986...
2. taxes / federal / Internal Revenue Code - IRC / usc26.xml
The principles of subsections (a), (b), (c), (d), and (f) of section 6213, section 6214(a), section 6215, section 6503(a), section 6512, and section 7481 shall apply...
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M&A Tax Workflow for Taxable Acquisition with §338(h)(10) Election

Overview

Complete workflow for a taxable stock acquisition qualifying for section 338(h)(10) election, covering eligibility, due diligence, purchase price allocation under section 1060, filings, and compliance deadlines.

Step 1: Transaction Perimeter
  • Confirm Qualified Stock Purchase (≥80% vote and value within 12 months)
  • Map buyer, seller, target roles and set acquisition date
  • Build calendar for signing, closing, elections, return due dates
Step 2: §338(h)(10) Eligibility
  • Confirm seller is consolidated group or S corporation
  • Verify all required shareholders can join the election
  • Compare stock sale vs. deemed asset sale for both parties
Step 3: Tax Due Diligence
  • Review NOLs, E&P, methods, §482 transfer pricing, §174 capitalization
  • Check state conformity to §338 and §1060
  • Identify cross-border items, CFC/PFIC issues
Step 4: Purchase Price Allocation
  • List total consideration: cash, equity, assumed liabilities, earnouts
  • Apply §1060 residual method across asset classes I–VII
  • Draft allocation schedule for Forms 8883/8594
Step 5: Elections & Filings
  • Prepare Form 8023 for §338(h)(10) election
  • Prepare Form 8883 for deemed asset sale reporting
  • Align election language with purchase agreement
Step 6: Deadlines
  • Election due: 15th day of 9th month after acquisition
  • Seller attaches forms to final short-period return
  • Buyer attaches to first post-closing return
Step 7: Risk Management
  • Document missed eligibility scenarios and fallback positions
  • Track inconsistent allocations between parties
  • Maintain audit file with Forms 8023, 8883, 8594
Conclusion

Following this structured workflow ensures compliance with §338(h)(10) requirements while maximizing tax efficiency for both buyer and seller in M&A transactions.

Step‑by‑Step Transaction Playbook

Structured Workflows for M&A and Complex Deals

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Whether it's a domestic restructuring or a cross-border deal, the workflow adapts to entity types, jurisdictions, and deal size.

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US-M&A-TAX-DUE-DILIGENCE.pdf PDF 612 KB
338h10-Election-Template.docx DOCX 89 KB
Transfer-Pricing-Policy-2024.pdf PDF 244 KB
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My client is a single-member LLC with $320K net income on Schedule C. Analyze whether electing S-Corp status would reduce their total tax burden, including SE tax savings, reasonable comp requirements, and compliance risks. Draft a client memo.
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S-Corp Election Tax Savings Analysis
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To: File / [Single-Member LLC S-Corp Election Analysis]

From: Bizora Tax Research  ·  Date: 2023-10-04

Re: S-Corp Election Analysis for Single-Member LLC

1. Facts

Client operates as a single-member LLC with $320,000 net income on Schedule C. Client is sole owner and actively participates in the business. S-Corp election being considered for 2023 tax year.

2. Issues Presented

Would electing S-Corp status reduce the client's total tax burden? What are the reasonable compensation requirements and compliance risks?

3. Short Answers

S-Corp election could reduce SE taxes significantly. Confidence: MEDIUM

Reasonable compensation must align with industry standards. Confidence: HIGH

4. Authorities

Primary: IRC §1361, IRC §1402(a)  ·  Regulatory: Treas. Reg. §1.1361-1

Judicial: Watson v. Commissioner, 668 F.3d 1008 (8th Cir. 2012)

5. Analysis

Issue 1: Tax Burden Reduction

Law: IRC §1361 allows income to pass through, reducing SE taxes under IRC §1402(a).

Application: Client pays reasonable salary subject to payroll taxes; remaining income passes as distributions not subject to SE tax.

Conclusion: S-Corp election could reduce SE taxes significantly. Confidence: MEDIUM

Issue 2: Reasonable Compensation

Law: Compensation must reflect industry norms per Treas. Reg. §1.1361-1.

Conclusion: Reasonable compensation is crucial for savings and compliance. Confidence: HIGH

Issue 3: Compliance Risks

Law: S-Corp requires payroll processing, quarterly filings, W-2s, and Form 1120S.

Conclusion: S-Corp introduces significant compliance requirements. Confidence: HIGH

6. Recommended Actions

Conduct market analysis to establish reasonable salary. Assess administrative capacity for additional compliance tasks. Review state-specific tax implications and consult a tax advisor to finalize the election.

I've drafted a memo titled "S-Corp Election Tax Savings Analysis" covering SE tax savings, reasonable compensation requirements, and compliance risks for your client.
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