When the Structure’s Off, So Is the Outcome
The structure of a transaction determines the tax result as much as the purchase price does. Two deals at the same price can differ by a third in what the seller keeps and by years in when the buyer recovers what it paid, depending on whether the transaction is an asset sale, a stock sale, or a stock sale with an election that makes it an asset sale for tax purposes only. Most of those choices close at the letter of intent, and several of them, the elections in particular, expire on a date that has nothing to do with the tax return due date.
Erik Lincoln brings a dual JD/CPA credential, decades of combined experience as a former Big Four Senior Tax Manager at Ernst & Young and a former BigLaw equity partner at Moore & Van Allen, and admission to the U.S. Tax Court to every transaction our firm reviews. He has been recognized by Super Lawyers, named to Best Lawyers in America, and honored on Business North Carolina’s Legal Elite list for tax.
That combination lets us evaluate a deal’s legal structure and its tax consequences side by side, rather than looping in separate advisors after the terms are already set. We handle the structuring, the elections, the purchase price allocation, and the tax terms of the purchase agreement itself. Our business law team works alongside this tax structuring work, whether we are engaged directly by a buyer or seller or as tax counsel alongside a client’s existing CPA or transactional attorney. Our tax law team also advises on the international reporting and partnership matters that frequently arise alongside a transaction.
Areas of M&A Tax Structuring and Diligence Counsel
We support buyers, sellers, and their advisors across every stage of a business transaction.
Asset vs. Stock
Deal Structuring
The buyer generally wants an asset purchase, which produces a cost basis in the acquired assets and limits the liabilities that travel with the transaction. The seller generally wants a sale of stock or membership interests, producing a single layer of capital gain and leaving historic liabilities behind. Where the target is a C corporation, an asset sale can produce tax at the corporate level and again at the shareholder level, which is why we evaluate every angle before the deal terms are finalized. See our related coverage on successor liability in asset purchases.
Section 338(h)(10) and
336(e) Elections
A Section 338(h)(10) election treats a stock purchase as an asset purchase for tax purposes, but it requires a corporate buyer and a qualified stock purchase of at least eighty percent of vote and value. The deadline falls on the fifteenth day of the ninth month after the acquisition month, a date with nothing to do with the tax return due date. Where the buyer is an LLC, a fund, or a group of purchasers, we turn to a Section 336(e) election instead.
Tax Due Diligence for Business Acquisitions
A financial statement will not show an unresolved state audit position, sales tax nexus exposure, worker misclassification, a defective S election, or net operating losses limited under Section 382 after the ownership change. We run this diligence buy-side and sell-side, and findings identified before closing can still move the price or move into an indemnity or escrow.
Purchase Price Allocation Under Section 1060
In an asset sale, buyer and seller must each allocate the purchase price across seven asset classes and file Form 8594. Their interests are directly opposed, and we negotiate the allocation into the purchase agreement itself rather than leaving it to be reconciled after signing, when neither side has anything left to trade.
M&A Tax Counsel for Every Stage of the Transaction
Lincoln Tax & Business Attorneys help businesses structure transactions that protect long-term value and reduce compliance risk.
F Reorganizations for S Corporation Sellers
Before a middle-market S corporation is sold, we frequently restructure the target through a Section 368(a)(1)(F) reorganization into a holding company with the operating entity converted to a disregarded entity.
- Rollover equity without triggering a second layer of tax
- Asset-sale treatment for the buyer without a second entity
- Protection when the S election itself is a diligence risk
- Coordination with state law merger requirements
Cross-Border M&A Tax Structuring
We address FIRPTA and Section 1446(f) withholding obligations that fall on the buyer or transferee, not the seller, plus the treaty and reporting issues that arise when a transaction crosses U.S. borders in either direction.
- FIRPTA withholding on U.S. real property interests
- Permanent establishment and treaty-based deal structuring
- Section 1446(f) withholding on foreign partner transfers
- Post-acquisition international reporting
Earnouts, Installment Sales, and Rollover Equity
Where consideration is paid over time or contingent on performance, Section 453 installment reporting and the earnout’s imputed interest component change when income is recognized and how basis is recovered.
- Earnout payment characterization and timing
- Contingent purchase price allocation
- Rollover equity structured as a nonrecognition contribution
- Indemnity escrow tax treatment
Qualified Small Business Stock Planning
For C corporation stock, Section 1202 can exclude a substantial portion of gain from federal tax, and the rules were significantly expanded for stock acquired after July 4, 2025.
- Tiered exclusion schedule reaching a full exclusion at five years
- Per-issuer cap raised to fifteen million dollars
- Aggregate gross asset ceiling raised to seventy-five million dollars
- Eligibility testing before a letter of intent is signed
Frequently Asked Questions About M&A Tax Structuring
When Is It Too Late to Change the Tax Structure of a Deal
Practically, at the letter of intent. The LOI fixes the form of the transaction, and once the parties have agreed to a stock sale at a stated price, restructuring it costs one side money.
What Is a Section 338(h)(10) Election
It treats a stock purchase as an asset purchase for tax purposes, giving the buyer a basis step-up. It requires a corporate buyer, a qualified stock purchase of eighty percent of vote and value, and joint agreement including every S corporation shareholder.
Can a Private Equity Buyer Make a Section 338(h)(10) Election
Generally no, because the acquiring vehicle is usually not a corporation. Section 336(e) is the alternative.
Is Goodwill Taxed as Capital Gain
At the shareholder level in a passthrough sale, generally yes. In a C corporation asset sale, gain on goodwill is taxed at ordinary corporate rates at the entity level and taxed again on distribution, which is why personal goodwill matters.
How Is an Earnout Taxed
Generally under the installment method, with an imputed interest component and basis recovered over the payment period rather than in the year of closing.
Put Experience on Your Side
Erik Lincoln has been recognized by Super Lawyers across multiple years and Business North Carolina’s Legal Elite, and works with CPAs and attorneys nationwide from Lincoln PLLC’s Charlotte headquarters. If you are structuring or evaluating a business transaction, schedule a consultation to discuss the tax due diligence your deal need’s.