Section 338(h)(10) Election Provisions and Statement

SECTION 338(h)(10) ELECTION PROVISIONS AND STATEMENT

ARTICLE [__]: SECTION 338(h)(10) ELECTION

Section __.1 Joint Election

(a) Buyer and [Seller / each Seller and the Company / the common parent of the Selling Consolidated Group] (collectively, the "Electing Parties") shall jointly make a timely and irrevocable election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), and any corresponding elections available under state, local, or non-U.S. tax law (collectively, the "Section 338(h)(10) Election"), with respect to the acquisition of the shares of [TARGET CORPORATION] ("Target").

(b) The Electing Parties shall cooperate fully and in good faith in making the Section 338(h)(10) Election, including:

(i) Timely filing IRS Form 8023, "Elections Under Section 338 for Corporations Making Qualified Stock Purchases," in accordance with its instructions and with signatures from Buyer and the Electing Parties;

(ii) Attaching Form 8883, "Asset Allocation Statement Under Section 338," to each party's federal income tax return for the taxable year that includes the Closing Date;

(iii) Making all corresponding state and local elections identified on Schedule __; and

(iv) Not taking any position inconsistent with the Section 338(h)(10) Election on any tax return, in any tax proceeding, or otherwise.

Section __.2 Filing Deadline

Form 8023 must be filed with the IRS by the 15th day of the 9th month beginning after the month in which the Closing occurs (the "338 Filing Deadline"). Buyer shall prepare a draft Form 8023 and deliver it to Seller no later than [60] days prior to the 338 Filing Deadline. Seller shall execute and return the Form 8023 within [15] days of receipt. Buyer shall file the fully executed Form 8023 with the IRS and shall provide Seller a file-stamped copy within [15] days of filing.

Section __.3 Qualification as Qualified Stock Purchase

Buyer represents and warrants that its acquisition of Target stock under this Agreement constitutes a "qualified stock purchase" within the meaning of Section 338(d)(3) of the Code (i.e., acquisition by a corporate purchaser of at least 80% of Target's stock (by vote and value) by purchase during a 12-month acquisition period).

Seller represents and warrants that Target is:

☐ A domestic S corporation within the meaning of Section 1361(a)(1), and has been an S corporation continuously since [__/__/____]; or

☐ A member of a consolidated group (as defined in Treas. Reg. § 1.1502-1(h)) of which [____________] is the common parent and which will join in the Section 338(h)(10) Election.

ARTICLE [__]: PURCHASE PRICE ALLOCATION

Section __.1 Allocation Methodology

The Aggregate Deemed Sale Price ("ADSP") and Adjusted Grossed-Up Basis ("AGUB") shall be determined pursuant to Treas. Reg. § 1.338-4 and § 1.338-5, and allocated among the assets of Target in accordance with the "residual method" prescribed by Section 1060 of the Code and Treas. Reg. § 1.338-6 (the "Allocation").

Section __.2 Asset Classes

Purchase price shall be allocated among the following classes in the order prescribed by Treas. Reg. § 1.338-6:

Section __.3 Allocation Procedure

(a) Within [60-90] days after the Closing Date, Buyer shall prepare and deliver to Seller a draft allocation schedule (the "Draft Allocation"), consistent with Sections 338 and 1060 and the Accounting Principles.

(b) Seller shall have [30] days to review and propose objections in writing. The Parties shall negotiate in good faith to resolve disputes for [30] days thereafter. If unresolved, disputes shall be submitted to the Independent Accountant pursuant to Section [__] of this Agreement, whose determination shall be final and binding.

(c) The Parties shall file all tax returns (including Form 8883 and Form 8594 where applicable) consistent with the final Allocation, and shall not take any inconsistent position absent a final determination by a taxing authority to the contrary.

ARTICLE [__]: GROSS-UP PAYMENT

Section __.1 Incremental Tax

(a) Because the Section 338(h)(10) Election results in additional federal and state income tax to Seller(s) compared to a straight stock sale (the "Incremental Tax"), Buyer shall pay Seller(s) an additional amount (the "Gross-Up Payment") to place Seller(s) in the same after-tax position they would have been in absent the Section 338(h)(10) Election.

(b) The Gross-Up Payment shall equal the sum of:

(i) The excess of (A) Seller's actual combined federal and state income tax liability resulting from the deemed asset sale, over (B) the federal and state income tax liability Seller would have incurred on a sale of stock at the same purchase price; plus

(ii) An additional amount sufficient to cover the tax on the Gross-Up Payment itself (computed iteratively or by algebraic gross-up formula).

(c) The Gross-Up Payment shall be calculated by the Independent Accountant at Buyer's expense and shall be paid at Closing / within [30] days after final determination.

ELECTION STATEMENT (Attachment to IRS Form 8023)

SECTION 338(h)(10) ELECTION STATEMENT

Name of Target Corporation: [________________________________]
Target EIN: [__-_______]
State of Incorporation of Target: [________________________________]

Name of Purchasing Corporation: [________________________________]
Purchasing Corporation EIN: [__-_______]

Name(s) of Selling Shareholder(s) / Selling Consolidated Group:
[________________________________]
EIN(s): [__-_______]

Acquisition Date: [__/__/____]

Percentage of Target Stock Acquired (by vote and value): [____]%

Classification of Target: ☐ S Corporation ☐ Subsidiary in Consolidated Group

Pursuant to Treasury Regulation § 1.338(h)(10)-1(c), the parties identified above hereby jointly elect under Section 338(h)(10) of the Internal Revenue Code to treat the purchase of stock of the above-named Target as a deemed sale of Target's assets and a deemed liquidation of Target, effective as of the Acquisition Date.

Aggregate Deemed Sale Price (ADSP): $[__________]
Adjusted Grossed-Up Basis (AGUB): $[__________]

Executed this [____] day of [_________________], 20[____].

PURCHASING CORPORATION:
By: _____________________________________________
Name: [________________________________]
Title: [________________________________]

SELLING SHAREHOLDER / COMMON PARENT:
By: _____________________________________________
Name: [________________________________]
Title: [________________________________]

STATE CONFORMING ELECTIONS

COOPERATION AND INFORMATION SHARING

Information to Be Provided

Each Party shall provide the other with:

☐ Copies of relevant tax returns for the pre-closing period
☐ Asset registers, depreciation schedules, and tax basis information
☐ Fair market value appraisals supporting the Allocation
☐ Section 382 studies, if applicable
☐ Section 197 intangible inventories
☐ Evidence of S corporation status (for S-corp targets)

Audit and Contest

If any taxing authority challenges the Section 338(h)(10) Election or the Allocation, the Parties shall cooperate in good faith in defending the election. Buyer shall have the right to control any contest of the Allocation at its own expense, provided Seller is not materially prejudiced.

Sources and References

• 26 U.S.C. § 338: https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapC-partII-subpartB-sec338
• 26 C.F.R. § 1.338(h)(10)-1: https://www.ecfr.gov/current/title-26/part-1/section-1.338(h)(10)-1
• 26 U.S.C. § 1060 (Allocation): https://www.govinfo.gov/app/details/USCODE-2024-title26/USCODE-2024-title26-subtitleA-chap1-subchapO-partIV-sec1060
• IRS Form 8023 (Elections Under Section 338): https://www.irs.gov/forms-pubs/about-form-8023
• IRS Form 8883 (Asset Allocation Statement): https://www.irs.gov/forms-pubs/about-form-8883
• IRS Form 8594 (Asset Acquisition Statement): https://www.irs.gov/forms-pubs/about-form-8594
• Section 336(e) alternative: 26 C.F.R. § 1.336-1

Disclaimer: This template is provided for informational purposes only and does not constitute legal or tax advice. The Section 338(h)(10) election is among the most technical and consequential elections in M&A tax practice. Eligibility requirements (S-corp or consolidated group status), the 9-month filing deadline, and the pricing of the gross-up require careful analysis by qualified tax counsel.