What Is Form 8663 for a Section 338 Election?

Form 8883, the Asset Allocation Statement Under Section 338, is a tax document filed with the Internal Revenue Service (IRS). The form details the effects of treating a stock purchase as an asset acquisition for tax purposes, a treatment that impacts both the purchasing corporation and the selling shareholders.

Form 8883 establishes and reports the values used to determine the tax basis of the acquired assets and the gain or loss recognized by the seller. This process ensures that both the buyer and seller use consistent figures for the transaction.

The Context of Form 8883: The Section 338 Election

Form 8883 is used after a Section 338 election, which is only possible following a “qualified stock purchase” (QSP). A QSP occurs when a corporation buys at least 80% of the total voting power and value of another corporation’s stock within a 12-month period. While this is a stock sale for legal purposes, the tax code allows for a different treatment.

The election under Internal Revenue Code Section 338 allows the purchasing corporation to treat the stock purchase as an asset purchase for tax purposes. The target corporation is treated as if it sold all its assets at fair market value in a single transaction. Following this “deemed sale,” the target is treated as a new corporation that purchased all those assets, which creates a “step-up” in the tax basis of the assets to their fair market value.

There are two main types of this election. A Section 338(g) election is made unilaterally by the purchasing corporation and is common when acquiring a freestanding C corporation. In this scenario, the tax liability from the deemed asset sale is borne by the target corporation, which is now owned by the purchaser.

A Section 338(h)(10) election is a joint election made by the purchasing corporation and the sellers of the target stock. This option is available when the target is an S corporation or a subsidiary member of a consolidated group. The deemed asset sale is reported on the seller’s tax return, and the sellers do not recognize gain or loss on the stock sale itself, resulting in a single level of tax.

Required Information and Calculations for Form 8883

Form 8883 requires identifying information for all parties, including the names, addresses, and Employer Identification Numbers (EINs) of the purchasing corporation, the old target, and the new target. The acquisition date, which is the first day a QSP has occurred, must also be included.

The form also requires the calculation and allocation of the Aggregate Deemed Sale Price (ADSP) and the Adjusted Grossed-Up Basis (AGUB). The ADSP represents the total amount the old target is considered to have received for its assets, which is used to determine the seller’s gain or loss. The AGUB determines the tax basis the new target corporation will have in its assets for future depreciation and amortization.

These calculated ADSP and AGUB totals are then allocated on Form 8883 among various classes of assets. This allocation ranges from cash and securities to tangible property and intangible assets like goodwill.

Filing Procedures and Deadlines

The responsibility for filing Form 8883 rests with both the purchasing corporation and the selling party. In a Section 338(h)(10) election involving a consolidated group, the common parent of the selling group files the form. For other elections, the old target’s shareholders are responsible for their part of the filing.

Form 8883 should not be confused with Form 8023, which is used to make the Section 338 election. Form 8023 must be filed by the 15th day of the 9th month after the month in which the acquisition date occurs. Form 8883 is filed later to report the financial consequences of that election.

Form 8883 does not have an independent due date; it is filed as an attachment to federal income tax returns. The old target attaches Form 8883 to its final tax return. If the old target was part of a selling consolidated group making an (h)(10) election, the form is attached to that group’s consolidated return.

The new target corporation must also attach a copy of Form 8883 to its first income tax return. This return covers the period beginning the day after the acquisition date.