On January 1 of Year 1, P purchases 100 percent of the outstanding common stock of T. On June 1 of Year 1, P sells the T stock to an unrelated person.
P is considered for tax purposes to be the purchaser of the T stock. Accordingly, after June 1 of Year 1, P remains eligible to make a section 338 election for T.
A section 338 election for T results in a deemed asset sale of T’s assets on January 1 of Year 1, the date of the qualified stock purchase, even though P no longer owns the T stock.
P buys 100 percent of T’s stock on January 1 and resells it to an unrelated person on June 1 of the same year.
For tax purposes P is treated as the purchaser of the T stock, so the qualified stock purchase is respected.
P can still make a section 338 election for T after the resale, even though P no longer holds the stock.
The election results in a deemed asset sale of T’s assets on January 1, the original acquisition date.
