Section 338 Election Corporate Liquidation | Corporate Income Tax Course | CPA Exam REG

What is a Section 338 election in a corporate liquidation? This video explains the IRC Section 338 election — treating a qualified stock purchase as an asset acquisition, the deemed asset sale, the step-up in basis, and strategic use of tax attributes — taught by Professor Farhat for CPA and EA candidates and accounting students studying corporate taxation and the REG section. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Professor Farhat explains why a Section 332 liquidation carries over the subsidiary's basis, how the difference between inside and outside basis creates a problem, and how a Section 338 election lets an acquirer step up asset basis through a deemed asset sale that triggers gain to the target. Video Timeline & Key Concepts: 0:00 — Introduction 0:45 — General rule under Section 332 2:27 — The inside versus outside basis problem 4:05 — Section 338 election and qualified stock purchase 5:17 — Deemed asset sale mechanics 7:16 — Step-up in basis 13:45 — Strategic use of net operating losses and credits Frequently Asked Questions: What is a Section 338 election? A Section 338 election lets a corporation that makes a qualified stock purchase treat the stock acquisition as a deemed asset acquisition for tax purposes. What is a qualified stock purchase? A qualified stock purchase is the acquisition of at least eighty percent of the vote and value of a target corporation's stock within a twelve-month period. What is the benefit of a step-up in basis? A stepped-up asset basis gives the acquirer larger depreciation and amortization deductions and lower gains on a future sale of the assets. What is the drawback of a Section 338 election? The deemed asset sale triggers an immediate taxable gain to the target corporation, so the future benefits must outweigh the current tax cost. When is a Section 338 election most beneficial? It is most beneficial when the target has net operating losses or tax credits that can offset the gain triggered by the deemed asset sale. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #REG #Section338 #corporatetaxation #liquidation #ProfessorFarhat