S and T are solvent corporations and S owns all of the outstanding stock of T. S and P agree to undertake the following transaction: T will distribute half of its assets to S, and S will assume half of T’s liabilities. Then P will purchase the stock of T from S, and S and P will jointly make a section 338(h)(10) election with respect to the sale of T. The corporations then complete the transaction as agreed.
Under section 338(a), the assets present in T at the close of the acquisition date are deemed sold by old T to new T. Under paragraph (d)(4) of this section, the transactions described in paragraph (d) are treated in the same manner as if they had actually occurred.
Because S and P had agreed that, after T’s actual distribution to S of part of its assets, S would sell T to P pursuant to an election under section 338(h)(10), and because paragraph (d)(4) deems T subsequently to have transferred all of its assets to its shareholder, T is deemed to have adopted a plan of complete liquidation under section 332. T’s actual transfer of assets to S is treated as a distribution pursuant to that plan of complete liquidation.
The pre-sale transfer of half of Target’s assets to its selling parent is treated as a distribution pursuant to Target’s deemed plan of complete liquidation under section 332.
Under section 338(a), the assets in Target at the close of the acquisition date are deemed sold by old Target to new Target as a result of the section 338(h)(10) election.
Paragraph (d)(4) treats the agreed transactions as if they had actually occurred, integrating the distribution and the stock sale into a single planned transaction.
The selling parent retains the unwanted half of Target’s assets and liabilities, while the buyer acquires Target holding the wanted half.
