What is Asset sale versus stock sale?
In short
Buyers of a business usually prefer to buy its assets, for a stepped-up basis to depreciate and to avoid hidden liabilities. Sellers of a C corporation usually prefer to sell stock, to avoid a corporate-level tax and get capital gain.
Key takeaways
- Section 338(h)(10) and 336(e) elections let a stock purchase be treated as an asset purchase for tax.
- In an asset sale, the price is allocated among the asset classes, which affects the character of the seller's gain.
- S corporation and partnership sellers are taxed once either way, but the character of income can differ.
Where it's tested
TCP: Distributions, Redemptions & Liquidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A shareholder owns 70% of a corporation's stock. Following a redemption, she owns 52%. Ignoring attribution, does the redemption qualify as substantially disproportionate?