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OH BOY, A NEW CODE SECTION!
August 26, 2008
Cable TV subscribers know the minor thrill that comes while flipping through the channels when you find that they've added a new channel to your subscription. The thrill quickly passes when you realize that there isn't much on the new channel, either.
That's the way it felt last week when the IRS finally issued proposed regulations for Section 336(e), which has been dormant since it was enacted in 1986. This section, which only becomes effective when final regulations are issued, allows C corporations selling the stock of a controlled subsidiary to elect to treat the sale as an asset sale.
Now the tax law has long provided for the treatment of the sale of a stock as an asset sale under Section 338(h)(10). Under these new regulations, though, the seller can make the election unilaterally, rather than with the consent of the buyer, and the buyer doesn't have to be another corporation.
Like with many cable channels, though, much of what is found in 336(e) is already available elsewhere. Usually buyers prefer asset sale treatment, so Section 338(h)(10) elections haven't been hard to negotiate when the buyer is a corporation. If the buyer is a partnership, a "cash merger" of the sold corporation into an LLC is taxed as an asset sale.
Still, cable channels and 336(e) do have niche markets. Sometimes you don't like the buyer to have one more club to use to extract concessions from you, so a unilateral electon can be handy. Sec. 336(e) will also be available for stock distributions, when there is no "buyer," strictly speaking. They may also make deals cleaner by eliminating the need for extra legal steps, like a merger. Tax Analysts has a good discussion of these issues ($link) for their subscribers.
These regulations, and the ability to make Sec. 336(e) elections, will take effect when they are published as final regulations. As it took almost 22 years for the proposed regulations to appear, don't hold your breath for the final regs.
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Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
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