No QSP (Non-Purchase) Explained
P owns stock of R, and R owns stock of T. Under section 338(h)(3) a corporation is treated as purchasing T stock that it is considered to own by reason of the section 318(a) attribution rules, but stock is not treated as purchased if it is acquired by a non-purchase transaction or is considered owned before the start of the 12-month acquisition period.
Over the period from February 1 of Year 1 through December 1 of Year 2, P’s direct interest in R (and R’s interest in T) changes through a series of constructive and actual acquisitions. Twenty-five percent of the R stock is transferred to P via a non-purchase, so the T stock attributed to P through that block is not counted as purchased. Additional blocks of R stock and T stock are treated as owned by P before the 12-month period that ends on the first date P would otherwise be treated as making a qualified stock purchase.
Because the T stock that P is treated as acquiring by purchase during any 12-month period never reaches the 80-percent vote-and-value threshold of section 338(d)(3), P does not make a qualified stock purchase of T. No section 338 election is available, and R’s basis in the T stock is unaffected.
