Reg. § 1.338(h)(10)-1 Deemed asset sale and liquidation.
(a) Scope This section prescribes rules for qualification for a section election and for making a section election. This section also prescribes the consequences of such election. The rules of this section are in addition to the rules of through and, in appropriate cases, apply instead of the rules of through .
(b) Definitions
(1) Consolidated target A consolidated target is a target that is a member of a consolidated group within the meaning of on the acquisition date and is not the common parent of the group on that date.
(2) Selling consolidated group A selling consolidated group is the consolidated group of which the consolidated target is a member on the acquisition date.
(3) Selling affiliate; affiliated target A selling affiliate is a domestic corporation that owns on the acquisition date an amount of stock in a domestic target, which amount of stock is described in section , and does not join in filing a consolidated return with the target. In such case, the target is an affiliated target.
(4) S corporation target An S corporation target is a target that is an S corporation immediately before the acquisition date.
(5) S corporation shareholders. S corporation shareholders are the S corporation target's shareholders. Unless otherwise indicated, a reference to S corporation shareholders refers both to S corporation shareholders who do and those who do not sell their target stock.
(6) Liquidation Any reference in this section to a liquidation is treated as a reference to the transfer described in of this section notwithstanding its ultimate characterization for Federal income tax purposes.
(c) Section 338(h)(10) election
(1) In general A section election may be made for T if P acquires stock meeting the requirements of section from a selling consolidated group, a selling affiliate, or the S corporation shareholders in a qualified stock purchase.
(2) Availability of section 338(h)(10) election in certain multi-step transactions Notwithstanding anything to the contrary in , a section election may be made for T where P's acquisition of T stock, viewed independently, constitutes a qualified stock purchase and, after the stock acquisition, T merges or liquidates into P (or another member of the affiliated group that includes P), whether or not, under relevant provisions of law, including the step transaction doctrine, the acquisition of the T stock and the merger or liquidation of T qualify as a reorganization described in section . If a section election is made in a case where the acquisition of T stock followed by a merger or liquidation of T into P qualifies as a reorganization described in section , for all Federal tax purposes, P's acquisition of T stock is treated as a qualified stock purchase and is not treated as part of a reorganization described in section .
(3) Simultaneous joint election requirement A section election is made jointly by P and the selling consolidated group (or the selling affiliate or the S corporation shareholders) on Form 8023 in accordance with the instructions to the form. S corporation shareholders who do not sell their stock must also consent to the election. The section election must be made not later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs.
(4) Irrevocability A section election is irrevocable. If a section election is made for T, a section election is deemed made for T.
(5) Effect of invalid election If a section election for T is not valid, the section election for T is also not valid.
(d) Certain consequences of section 338(h)(10) election For purposes of subtitle A of the Internal Revenue Code (except as provided in ), the consequences to the parties of making a section election for T are as follows:
(1) P P is automatically deemed to have made a gain recognition election for its nonrecently purchased T stock, if any. The effect of a gain recognition election includes a taxable deemed sale by P on the acquisition date of any nonrecently purchased target stock. See .
(2) New T The AGUB for new T's assets is determined under and is allocated among the acquisition date assets under and . Notwithstanding of this section (deemed liquidation of old T), new T remains liable for the tax liabilities of old T (including the tax liability for the deemed sale tax consequences). For example, new T remains liable for the tax liabilities of the members of any consolidated group that are attributable to taxable years in which those corporations and old T joined in the same consolidated return. See .
(3) Old T—deemed sale
(i) In general Old T is treated as transferring all of its assets to an unrelated person in exchange for consideration that includes the discharge of its liabilities in a single transaction at the close of the acquisition date (but before the deemed liquidation). See regarding the tax characterization of the deemed asset sale. Except as provided in (regarding the installment method), old T recognizes all of the gain realized on the deemed transfer of its assets in consideration for the ADSP. ADSP for old T is determined under and allocated among the acquisition date assets under and . Old T realizes the deemed sale tax consequences from the deemed asset sale before the close of the acquisition date while old T is a member of the selling consolidated group (or owned by the selling affiliate or owned by the S corporation shareholders). If T is an affiliated target, or an S corporation target, the principles of and -10(a)(1), (5), and (6)(i) apply to the return on which the deemed sale tax consequences are reported. When T is an S corporation target, T's S election continues in effect through the close of the acquisition date (including the time of the deemed asset sale and the deemed liquidation) notwithstanding section . Also, when T is an S corporation target (but not a qualified subchapter S subsidiary), any direct and indirect subsidiaries of T which T has elected to treat as qualified subchapter S subsidiaries under section remain qualified subchapter S subsidiaries through the close of the acquisition date.
(ii) Tiered targets In the case of parent-subsidiary chains of corporations making elections under section , the deemed asset sale of a parent corporation is considered to precede that of its subsidiary. See .
(4) Old T and selling consolidated group, selling affiliate, or S corporation shareholders—deemed liquidation; tax characterization
(i) In general Old T is treated as if, before the close of the acquisition date, after the deemed asset sale in of this section, and while old T is a member of the selling consolidated group (or owned by the selling affiliate or owned by the S corporation shareholders), it transferred all of its assets to members of the selling consolidated group, the selling affiliate, or S corporation shareholders and ceased to exist. The transfer from old T is characterized for Federal income tax purposes in the same manner as if the parties had actually engaged in the transactions deemed to occur because of this section and taking into account other transactions that actually occurred or are deemed to occur. For example, the transfer may be treated as a distribution in pursuance of a plan of reorganization, a distribution in complete cancellation or redemption of all its stock, one of a series of distributions in complete cancellation or redemption of all its stock in accordance with a plan of liquidation, or part of a circular flow of cash. In most cases, the transfer will be treated as a distribution in complete liquidation to which section or applies.
(ii) Tiered targets In the case of parent-subsidiary chains of corporations making elections under section , the deemed liquidation of a subsidiary corporation is considered to precede the deemed liquidation of its parent.
(5) Selling consolidated group, selling affiliate, or S corporation shareholders
(i) In general If T is an S corporation target, S corporation shareholders (whether or not they sell their stock) take their pro rata share of the deemed sale tax consequences into account under section and increase or decrease their basis in T stock under section . Members of the selling consolidated group, the selling affiliate, or S corporation shareholders are treated as if, after the deemed asset sale in of this section and before the close of the acquisition date, they received the assets transferred by old T in the transaction described in of this section. In most cases, the transfer will be treated as a distribution in complete liquidation to which section or applies.
(ii) Basis and holding period of T stock not acquired A member of the selling consolidated group (or the selling affiliate or an S corporation shareholder) retaining T stock is treated as acquiring the stock so retained on the day after the acquisition date for its fair market value. The holding period for the retained stock starts on the day after the acquisition date. For purposes of this paragraph, the fair market value of all of the T stock equals the grossed-up amount realized on the sale to P of P's recently purchased target stock. See .
(iii) T stock sale Members of the selling consolidated group (or the selling affiliate or S corporation shareholders) recognize no gain or loss on the sale or exchange of T stock included in the qualified stock purchase (although they may recognize gain or loss on the T stock in the deemed liquidation).
(6) Nonselling minority shareholders other than nonselling S corporation shareholders
(i) In general This describes the treatment of shareholders of old T other than the following: Members of the selling consolidated group, the selling affiliate, S corporation shareholders (whether or not they sell their stock), and P. For a description of the treatment of S corporation shareholders, see of this section. A shareholder to which this applies is called a minority shareholder.
(ii) T stock sale A minority shareholder recognizes gain or loss on the shareholder's sale or exchange of T stock included in the qualified stock purchase.
(iii) T stock not acquired A minority shareholder does not recognize gain or loss under this section with respect to shares of T stock retained by the shareholder. The shareholder's basis and holding period for that T stock is not affected by the section election.
(7) Consolidated return of selling consolidated group If P acquires T in a qualified stock purchase from a selling consolidated group—
(i) The selling consolidated group must file a consolidated return for the taxable period that includes the acquisition date;
(ii) A consolidated return for the selling consolidated group for that period may not be withdrawn on or after the day that a section election is made for T; and
(iii) Permission to discontinue filing consolidated returns cannot be granted for, and cannot apply to, that period or any of the immediately preceding taxable periods during which consolidated returns continuously have been filed.
(8) Availability of the section 453 installment method Solely for purposes of applying sections , , and , and the regulations thereunder (the installment method) to determine the consequences to old T in the deemed asset sale and to old T (and its shareholders, if relevant) in the deemed liquidation, the rules in through of this section are modified as follows:
(i) In deemed asset sale Old T is treated as receiving in the deemed asset sale new T installment obligations, the terms of which are identical (except as to the obligor) to P installment obligations issued in exchange for recently purchased stock of T. Old T is treated as receiving in cash all other consideration in the deemed asset sale other than the assumption of, or taking subject to, old T liabilities. For example, old T is treated as receiving in cash any amounts attributable to the grossing-up of amount realized under . The amount realized for recently purchased stock taken into account in determining ADSP is adjusted (and, thus, ADSP is redetermined) to reflect the amounts paid under an installment obligation for the stock when the total payments under the installment obligation are greater or less than the amount realized.
(ii) In deemed liquidation Old T is treated as distributing in the deemed liquidation the new T installment obligations that it is treated as receiving in the deemed asset sale. The members of the selling consolidated group, the selling affiliate, or the S corporation shareholders are treated as receiving in the deemed liquidation the new T installment obligations that correspond to the P installment obligations they actually received individually in exchange for their recently purchased stock. The new T installment obligations may be recharacterized under other rules. See for example which, in certain circumstances, treats the new T installment obligations deemed distributed by old T as if they were issued by new T in exchange for the stock in old T owned by members of the selling consolidated group, the selling affiliate, or the S corporation shareholders. The members of the selling consolidated group, the selling affiliate, or the S corporation shareholders are treated as receiving all other consideration in the deemed liquidation in cash.
(9) Treatment consistent with an actual asset sale No provision in section or this section shall produce a Federal income tax result under subtitle A of the Internal Revenue Code that would not occur if the parties had actually engaged in the transactions deemed to occur because of this section and taking into account other transactions that actually occurred or are deemed to occur. See, however, for certain exceptions to this rule.
(e) Examples The following examples illustrate the provisions of this section:
Example 1.
(i) S1 owns all of the T stock and T owns all of the stock of T1 and T2. S1 is the common parent of a consolidated group that includes T, T1, and T2. P makes a qualified stock purchase of all of the T stock from S1. S1 joins with P in making a section election for T and for the deemed purchase of T1. A section election is not made for T2.
(ii) S1 does not recognize gain or loss on the sale of the T stock and T does not recognize gain or loss on the sale of the T1 stock because section elections are made for T and T1. Thus, for example, gain or loss realized on the sale of the T or T1 stock is not taken into account in earnings and profits. However, because a section election is not made for T2, T must recognize any gain or loss realized on the deemed sale of the T2 stock. See .
(iii) The results would be the same if S1, T, T1, and T2 are not members of any consolidated group, because S1 and T are selling affiliates.
Example 2.
(i) S and T are solvent corporations. S owns all of the outstanding stock of T. S and P agree to undertake the following transaction: T will distribute half its assets to S, and S will assume half of T's liabilities. Then, P will purchase the stock of T from S. S and P will jointly make a section election with respect to the sale of T. The corporations then complete the transaction as agreed.
(ii) Under section , the assets present in T at the close of the acquisition date are deemed sold by old T to new T. Under of this section, the transactions described in of this section are treated in the same manner as if they had actually occurred. Because S and P had agreed that, after T's actual distribution to S of part of its assets, S would sell T to P pursuant to an election under section , and because of this section deems T subsequently to have transferred all its assets to its shareholder, T is deemed to have adopted a plan of complete liquidation under section . T's actual transfer of assets to S is treated as a distribution pursuant to that plan of complete liquidation.
Example 3.
(i) S1 owns all of the outstanding stock of both T and S2. All three are corporations. S1 and P agree to undertake the following transaction. T will transfer substantially all of its assets and liabilities to S2, with S2 issuing no stock in exchange therefor, and retaining its other assets and liabilities. Then, P will purchase the stock of T from S1. S1 and P will jointly make a section election with respect to the sale of T. The corporations then complete the transaction as agreed.
(ii) Under section , the remaining assets present in T at the close of the acquisition date are deemed sold by old T to new T. Under of this section, the transactions described in this section are treated in the same manner as if they had actually occurred. Because old T transferred substantially all of its assets to S2, and is deemed to have distributed all its remaining assets and gone out of existence, the transfer of assets to S2, taking into account the related transfers, deemed and actual, qualifies as a reorganization under section . Section and not section applies to T's deemed liquidation.
Example 4.
(i) T owns two assets: an actively traded security (Class II) with a fair market value of $100 and an adjusted basis of $100, and inventory (Class IV) with a fair market value of $100 and an adjusted basis of $100. T has no liabilities. S is negotiating to sell all the stock in T to P for $100 cash and contingent consideration. Assume that under generally applicable tax accounting rules, P's adjusted basis in the T stock immediately after the purchase would be $100, because the contingent consideration is not taken into account. Thus, under the rules of , AGUB would be $100. Under the allocation rules of , the entire $100 would be allocated to the Class II asset, the actively traded security, and no amount would be allocated to the inventory. P, however, plans immediately to cause T to sell the inventory, but not the actively traded security, so it requests that, prior to the stock sale, S cause T to create a new subsidiary, Newco, and contribute the actively traded security to the capital of Newco. Because the stock in Newco, which would not be actively traded, is a Class V asset, under the rules of $100 of AGUB would be allocated to the inventory and no amount of AGUB would be allocated to the Newco stock. Newco's own AGUB, $0 under the rules of , would be allocated to the actively traded security. When P subsequently causes T to sell the inventory, T would realize no gain or loss instead of realizing gain of $100.
(ii) Assume that, if the T stock had not itself been sold but T had instead sold both its inventory and the Newco stock to P, T would for tax purposes be deemed instead to have sold both its inventory and actively traded security directly to P, with P deemed then to have created Newco and contributed the actively traded security to the capital of Newco. Section , if elected, generally recharacterizes a stock sale as a deemed sale of assets. However, of this section states, in general, that no provision of section or the regulations thereunder shall produce a Federal income tax result under subtitle A of the Internal Revenue Code that would not occur if the parties had actually engaged in the transactions deemed to occur by virtue of the section election, taking into account other transactions that actually occurred or are deemed to occur. Hence, the deemed sale of assets under section should be treated as one of the inventory and actively traded security themselves, not of the inventory and Newco stock. The anti-abuse rule of does not apply, because the substance of the deemed sale of assets is a sale of the inventory and the actively traded security themselves, not of the inventory and the Newco stock. Otherwise, the anti-abuse rule might apply.
Example 5.
(i) T, a member of a selling consolidated group, has only one class of stock, all of which is owned by S1. On March 1 of Year 2, S1 sells its T stock to P for $80,000, and joins with P in making a section election for T. There are no selling costs or acquisition costs. On March 1 of Year 2, T owns land with a $50,000 basis and $75,000 fair market value and equipment with a $30,000 adjusted basis, $70,000 recomputed basis, and $60,000 fair market value. T also has a $40,000 liability. S1 pays old T's allocable share of the selling group's consolidated tax liability for Year 2 including the tax liability for the deemed sale tax consequences (a total of $13,600).
(ii) ADSP of $120,000 ($80,000 + $40,000 + 0) is allocated to each asset as follows:
| Assets | Basis | FMV | Fraction | Allocable ADSP |
|---|---|---|---|---|
| Land | $50,000 | $75,000 | 5⁄9 | $66,667 |
| Equipment | 30,000 | 60,000 | 4⁄9 | 53,333 |
| Total | 80,000 | 135,000 | 1 | 120,000 |
(iii) Under of this section, old T has gain on the deemed sale of $40,000 (consisting of $16,667 of capital gain and $23,333 of ordinary income).
(iv) Under of this section, S1 recognizes no gain or loss upon its sale of the old T stock to P. S1 also recognizes no gain or loss upon the deemed liquidation of T. See of this section and section .
(v) P's basis in new T stock is P's cost for the stock, $80,000. See section .
(vi) Under , the AGUB for new T is $120,000, i.e., P's cost for the old T stock ($80,000) plus T's liability ($40,000). This AGUB is allocated as basis among the new T assets under and .
Example 6.
(i) The facts are the same as in Example 5, except that S1 sells 80 percent of the old T stock to P for $64,000, rather than 100 percent of the old T stock for $80,000.
(ii) The consequences to P, T, and S1 are the same as in Example 5, except that:
(A) P's basis for its 80-percent interest in the new T stock is P's $64,000 cost for the stock. See section .
(B) Under , the AGUB for new T is $120,000 (i.e., $64,000/.8 + $40,000 + $0).
(C) Under of this section, S1 recognizes no gain or loss with respect to the retained stock in T. See section .
(D) Under of this section, the basis of the T stock retained by S1 is $16,000 (i.e., $120,000 − $40,000 (the ADSP amount for the old T assets over the sum of new T's liabilities immediately after the acquisition date) “ .20 (the proportion of T stock retained by S1)).
Example 7.
(i) The facts are the same as in Example 6, except that K, a shareholder unrelated to T or P, owns the 20 percent of the T stock that is not acquired by P in the qualified stock purchase. K's basis in its T stock is $5,000.
(ii) The consequences to P, T, and S1 are the same as in Example 6.
(iii) Under of this section, K recognizes no gain or loss, and K's basis in its T stock remains at $5,000.
Example 8.
(i) The facts are the same as in Example 5, except that the equipment is held by T1, a wholly-owned subsidiary of T, and a section election is also made for T1. The T1 stock has a fair market value of $60,000. T1 has no assets other than the equipment and no liabilities. S1 pays old T's and old T1's allocable shares of the selling group's consolidated tax liability for Year 2 including the tax liability for T and T1's deemed sale tax consequences.
(ii) ADSP for T is $120,000, allocated $66,667 to the land and $53,333 to the stock. Old T's deemed sale results in $16,667 of capital gain on its deemed sale of the land. Under of this section, old T does not recognize gain or loss on its deemed sale of the T1 stock. See section .
(iii) ADSP for T1 is $53,333 (i.e., $53,333 + $0 + $0). On the deemed sale of the equipment, T1 recognizes ordinary income of $23,333.
(iv) Under of this section, S1 does not recognize gain or loss upon its sale of the old T stock to P.
Example 9.
(i) The facts are the same as in Example 8, except that P already owns 20 percent of the T stock, which is nonrecently purchased stock with a basis of $6,000, and that P purchases the remaining 80 percent of the T stock from S1 for $64,000.
(ii) The results are the same as in Example 8, except that under of this section and , P is deemed to have made a gain recognition election for its nonrecently purchased T stock. As a result, P recognizes gain of $10,000 and its basis in the nonrecently purchased T stock is increased from $6,000 to $16,000. P's basis in all the T stock is $80,000 (i.e., $64,000 + $16,000). The computations are as follows:
(A) P's grossed-up basis for the recently purchased T stock is $64,000 (i.e., $64,000 (the basis of the recently purchased T stock) × (1−.2)/(.8) (the fraction in section )).
(B) P's basis amount for the nonrecently purchased T stock is $16,000 (i.e., $64,000 (the grossed-up basis in the recently purchased T stock) × (.2)/(1.0−.2) (the fraction in section )).
(C) The gain recognized on the nonrecently purchased stock is $10,000 (i.e., $16,000−$6,000).
Example 10.
(i) T is an S corporation whose sole class of stock is owned 40 percent each by A and B and 20 percent by C. T, A, B, and C all use the cash method of accounting. A and B each has an adjusted basis of $10,000 in the stock. C has an adjusted basis of $5,000 in the stock. A, B, and C hold no installment obligations to which section applies. On March 1 of Year 1, A sells its stock to P for $40,000 in cash and B sells its stock to P for a $25,000 note issued by P and real estate having a fair market value of $15,000. The $25,000 note, due in full in Year 7, is not publicly traded and bears adequate stated interest. A and B have no selling expenses. T's sole asset is real estate, which has a value of $110,000 and an adjusted basis of $35,000. Also, T's real estate is encumbered by long-outstanding purchase-money indebtedness of $10,000. The real estate does not have built-in gain subject to section . A, B, and C join with P in making a section election for T.
(ii) Solely for purposes of application of sections , , and , old T is considered in its deemed asset sale to receive back from new T the $25,000 note (considered issued by new T) and $75,000 of cash (total consideration of $80,000 paid for all the stock sold, which is then divided by .80 in the grossing-up, with the resulting figure of $100,000 then reduced by the amount of the installment note). Absent an election under section , gain is reported by old T under the installment method.
(iii) In applying the installment method to old T's deemed asset sale, the contract price for old T's assets deemed sold is $100,000, the $110,000 selling price reduced by the indebtedness of $10,000 to which the assets are subject. (The $110,000 selling price is itself the sum of the $80,000 grossed-up in paragraph (ii) above to $100,000 and the $10,000 liability.) Gross profit is $75,000 ($110,000 selling price − old T's basis of $35,000). Old T's gross profit ratio is 0.75 (gross profit of $75,000 ÷ $100,000 contract price). Thus, $56,250 (0.75 × the $75,000 cash old T is deemed to receive in Year 1) is Year 1 gain attributable to the sale, and $18,750 ($75,000 − $56,250) is recovery of basis.
(iv) In its liquidation, old T is deemed to distribute the $25,000 note to B, since B actually sold the stock partly for that consideration. To the extent of the remaining liquidating distribution to B, it is deemed to receive, along with A and C, the balance of old T's liquidating assets in the form of cash. Under section , B, unless it makes an election under section , is not required to treat the receipt of the note as a payment for the T stock; P's payment of the $25,000 note in Year 7 to B is a payment for the T stock. Because section applies to B, old T's deemed liquidating distribution of the note is, under section , not treated as a taxable disposition by old T.
(v) Under section , A reports 40 percent, or $22,500, of old T's $56,250 gain recognized in Year 1. Under section , this increases A's $10,000 adjusted basis in the T stock to $32,500. Next, in old T's deemed liquidation, A is considered to receive $40,000 for its old T shares, causing it to recognize an additional $7,500 gain in Year 1.
(vi) Under section , B reports 40 percent, or $22,500, of old T's $56,250 gain recognized in Year 1. Under section , this increases B's $10,000 adjusted basis in its T stock to $32,500. Next, in old T's deemed liquidation, B is considered to receive the $25,000 note and $15,000 of other consideration. Applying section , including section , to the deemed liquidation, B's selling price and contract price are both $40,000. Gross profit is $7,500 ($40,000 selling price − B's basis of $32,500). B's gross profit ratio is 0.1875 (gross profit of $7,500 ÷ $40,000 contract price). Thus, $2,812.50 (0.1875 × $15,000) is Year 1 gain attributable to the deemed liquidation. In Year 7, when the $25,000 note is paid, B has $4,687.50 (0.1875 × $25,000) of additional gain.
(vii) Under section , C reports 20 percent, or $11,250, of old T's $56,250 gain recognized in Year 1. Under section , this increases C's $5,000 adjusted basis in its T stock to $16,250. Next, in old T's deemed liquidation, C is considered to receive $20,000 for its old T shares, causing it to recognize an additional $3,750 gain in Year 1. Finally, under of this section, C is considered to acquire its stock in T on the day after the acquisition date for $20,000 (fair market value = grossed-up amount realized of $100,000 × 20%). C's holding period in the stock deemed received in new T begins at that time.
Example 11. Stock acquisition followed by upstream merger—without section 338(h)(10) election.
(i) P owns all the stock of Y, a newly formed subsidiary. S owns all the stock of T. Each of P, S, T and Y is a domestic corporation. P acquires all of the T stock in a statutory merger of Y into T, with T surviving. In the merger, S receives consideration consisting of 50% P voting stock and 50% cash. Viewed independently of any other step, P's acquisition of T stock constitutes a qualified stock purchase. As part of the plan that includes P's acquisition of the T stock, T subsequently merges into P. Viewed independently of any other step, T's merger into P qualifies as a liquidation described in section . Absent the application of of this section, the step transaction doctrine would apply to treat P's acquisition of the T stock and T's merger into P as an acquisition by P of T's assets in a reorganization described in section . P and S do not make a section election with respect to P's purchase of the T stock.
(ii) Because P and S do not make an election under section for T, P's acquisition of the T stock and T's merger into P is treated as part of a reorganization described in section .
Example 12. Stock acquisition followed by upstream merger—with section 338(h)(10) election.
(i) The facts are the same as in Example 11 except that P and S make a joint election under section for T.
(ii) Pursuant to of this section, as a result of the election under section , for all Federal tax purposes, P's acquisition of the T stock is treated as a qualified stock purchase and P's acquisition of the T stock is not treated as part of a reorganization described in section .
Example 13. Stock acquisition followed by brother-sister merger—with section 338(h)(10) election.
(i) The facts are the same as in Example 12, except that, following P's acquisition of the T stock, T merges into X, a domestic corporation that is a wholly owned subsidiary of P. Viewed independently of any other step, T's merger into X qualifies as a reorganization described in section . Absent the application of of this section, the step transaction doctrine would apply to treat P's acquisition of the T stock and T's merger into X as an acquisition by X of T's assets in a reorganization described in section .
(ii) Pursuant to of this section, as a result of the election under section , for all Federal tax purposes, P's acquisition of T stock is treated as a qualified stock purchase and P's acquisition of T stock is not treated as part of a reorganization described in section .
Example 14. Stock acquisition that does not qualify as a qualified stock purchase followed by upstream merger.
(i) The facts are the same as in Example 11, except that, in the statutory merger of Y into T, S receives only P voting stock.
(ii) Pursuant to and of this section, no election under section can be made with respect to P's acquisition of the T stock because, pursuant to relevant provisions of law, including the step transaction doctrine, that acquisition followed by T's merger into P is treated as a reorganization described in section , and that acquisition, viewed independently of T's merger into P, does not constitute a qualified stock purchase under section . Accordingly, P's acquisition of the T stock and T's merger into P is treated as a reorganization described in section .
(f) Inapplicability of provisions The provisions of section , and -6 (relating to information returns and recordkeeping requirements for corporate liquidations) do not apply to the deemed liquidation of old T under of this section.
(g) Required information The Commissioner may exercise the authority granted in section to require provision of any information deemed necessary to carry out the provisions of section by requiring submission of information on any tax reporting form.
(h) Effective date This section is applicable to stock acquisitions occurring on or after July 5, 2006. For stock acquisitions occurring before July 5, 2006, see as contained in the edition of 26 CFR part 1, revised as of April 1, 2006.
[T.D. 8940, 66 FR 9954, Feb. 13, 2001, as amended by T.D. 9071, 68 FR 40768, July 9, 2003; T.D. 9264, 71 FR 30607, May 30, 2006; T.D. 9271, 71 FR 38075, July 5, 2006; T.D. 9329, 72 FR 32808, June 14, 2007]