The Treasury Department provided guidance (T.D. 9619) on the election to treat certain qualified dispositions of target corporation stock as taxable sales of that corporation's assets when it finalized regulations under Section 336(e).
T.D. 9619 is similar to proposed regulations (REG-143544-04) issued in 2008, with several significant exceptions. First, the final regulations now provide that a Subchapter S corporation can be the target corporation for a qualified stock disposition election under Section 336(e). Second, the election now needs to be made by both the target corporation and the affiliated parent corporation making the disposition (or the Subchapter S corporation shareholders, when the target is an S corporation). Finally, the final regulations modify the rules from the proposed regulations regarding loss disallowance from the deemed asset sale where some of the disposed-of stock is distributed to shareholders.
The Section 336(e) election is similar to the opposing situation occurring under Section 338, where certain qualified purchases of target corporation stock are treated as taxable sales of that corporation's assets. The requirements are that the target corporation's stock is owned by a corporation meeting the affiliation requirements of Section 1504 (80% by vote and by value) and that such stock is sold, exchanged or distributed within a 12-month disposition period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
