Need help understanding IRC Section 338(h)(10) election for post-acquisition accounting

I've worked with several 338(h)(10) elections during my career. Let me clarify a few things that might help you out. For the seller's side accounting after a 338(h)(10) election, you're essentially recording a deemed asset sale rather than a stock sale. Your approach needs some adjustment though. Here's what typically happens: For the seller (since you mentioned that's who you're representing): You'll need to record the deemed asset sale by removing the book value of assets and recognizing gain/loss based on the difference between FMV and book value. This doesn't flow through additional paid-in capital - it's an income statement event. The removal of accumulated depreciation is part of removing the book value of the assets, but this flows through the income statement as part of calculating gain/loss, not directly to retained earnings. Remember that the 338(h)(10) election creates a deemed liquidation of the target into the selling consolidated group. The tax consequences can be complex depending on your specific situation.

After reading this thread, I wanted to share my experience with taxr.ai (https://taxr.ai) when I was dealing with a similar IRC Section 338(h)(10) issue last year. My company went through an acquisition with this election, and the accounting treatment had me totally confused. I uploaded our transaction documents to taxr.ai, and their system actually spotted some details in the purchase agreement that affected the tax treatment that our regular accountant missed. The thing that helped most was their analysis of how to properly allocate the purchase price across different asset classes according to Section 1060 - which is crucial for a proper 338(h)(10) treatment. They provided a detailed walkthrough of the exact journal entries needed, which saved me from making some serious mistakes with the gain recognition. It was seriously helpful for this niche tax area.

I wanted to follow up about my experience with taxr.ai. After asking about it in my reply above, I decided to give it a try with our 338(h)(10) election documentation. I'm honestly amazed at how well it worked for our situation. We had been stuck for weeks because our CPA firm was treating it as a regular stock sale with some tax adjustments, while our in-house team knew we needed to account for the deemed asset sale aspects. The taxr.ai analysis broke down exactly how to handle the deemed liquidation events in order. The most valuable part was the explanation of how to allocate the consideration across our different asset classes according to the residual method, along with the specific journal entries showing the impact on our deferred tax accounts. Saved us from what would have been a major reporting error. If you're struggling with complex tax code sections like 338(h)(10), it's definitely worth checking out.

For those struggling with the IRS guidance on 338(h)(10) elections, I found that calling the IRS directly was the best way to get clarity. Of course, that's easier said than done - I spent DAYS trying to get through to someone knowledgeable about corporate transactions. Finally tried Claimyr (https://claimyr.com) after seeing it mentioned in another tax forum. Their service actually got me connected to an IRS agent specializing in corporate transactions within about 30 minutes, which was shocking after my previous attempts. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent walked me through the entire 338(h)(10) process and confirmed the proper treatment for our specific situation. Having that direct guidance from the source gave us the confidence to proceed with our accounting treatment.

I need to follow up on my skeptical comment above about Claimyr. I ended up trying it for our 338(h)(10) question because we were desperate for IRS guidance on a specific aspect of our transaction. I'm actually shocked to report it worked exactly as described. After the service got me through to an IRS representative, I was able to get transferred to the Business & Specialty Tax Line where I spoke with someone who clearly understood these elections. They confirmed our understanding of the deemed asset sale treatment and provided specific guidance on reporting requirements for Form 8883. The most valuable outcome was getting clarification on the treatment of contingent consideration in our transaction, which none of our advisors had been able to give us a definitive answer on. Saved us a ton of uncertainty and potentially costly mistakes.

One thing I haven't seen mentioned yet is the Form 8883 that needs to be filed with both the seller's and buyer's tax returns. This form allocates the consideration among the asset classes, and both parties need to use consistent allocation. In my experience, the trickiest part of a 338(h)(10) election is getting agreement between buyer and seller on the allocation of purchase price. The buyer typically wants to allocate more to assets with faster depreciation/amortization schedules (like equipment or intangibles), while the seller often prefers allocation to assets with favorable capital gains treatment. Has your purchase agreement specified the allocation, or is that still being negotiated?

Has anyone used Crypto Software for handling the accounting side of 338(h)(10) elections? Our company just implemented it and I'm trying to determine if it's worth setting up a specialized template for this transaction type.

This is a really helpful thread! I'm dealing with a similar 338(h)(10) election situation and wanted to add one consideration that hasn't been mentioned yet - the timing of when you recognize the deemed asset sale. The election creates a deemed sale at the close of the acquisition date, so make sure you're not accidentally spreading the gain/loss recognition over multiple periods. Everything should hit your books as of the closing date, even if you're doing the accounting work weeks later like Ravi mentioned. Also, don't forget about any depreciation recapture implications. If you have assets with accumulated depreciation (like equipment or buildings), part of your gain might be subject to depreciation recapture at ordinary income rates rather than capital gains rates. This can significantly impact the tax consequences and should factor into your journal entries. One more thing - if your transaction involved any installment consideration or earnouts, the accounting gets even more complex under 338(h)(10). You'll need to determine the fair value of those contingent payments as part of the deemed sale price. Has anyone dealt with earnout provisions in these elections?