How to Complete Form 8023 for a Section 338 Election

To complete Form 8023 for a Section 338 election, confirm you have a qualified stock purchase of at least 80 percent of the target’s stock, decide between a Section 338(g) or Section 338(h)(10) election, calculate the grossed-up basis figures, collect every required signature, and file the form no later than the 15th day of the ninth month beginning after the month in which the acquisition date falls.¹ The form is short. The work that has to happen before you sign it is not, and once you file, the election is permanent.

Confirm You Have a Qualified Stock Purchase

No 338 election is available unless the purchasing corporation first completes a qualified stock purchase. That means acquiring, by purchase, stock representing at least 80 percent of the target’s total voting power and at least 80 percent of the total value of the target’s stock, all within a single 12-month window.²¹

Stock acquired by gift, by inheritance, from related parties, or through certain tax-free reorganizations does not count toward the 80 percent.³ The 12-month clock starts on the date of the first stock purchase that counts. The “acquisition date” is the specific day the 80 percent threshold is met, and every downstream deadline runs from that date.

Fall short and the election is simply unavailable. There is no partial version. A minority holdout who refuses to sell can put the election out of reach entirely, which is why buyers who plan on a 338 election structure their tender or purchase agreement to ensure they clear 80 percent.

Pick the Right Election: 338(g) or 338(h)(10)

Form 8023 handles two different elections, and Section E of the form asks you to check one box or the other. Checking the wrong one can cost millions, and you cannot undo it.

Section 338(g)

A 338(g) election is unilateral. The purchasing corporation makes it alone; the seller doesn’t have to sign or even agree. The catch is double taxation for domestic deals: Old Target pays corporate tax on the deemed asset sale gain, and the selling shareholders separately pay tax on their stock gain. In most domestic transactions the combined tax bill wipes out the value of the basis step-up.

Where 338(g) elections do get used is acquisitions of foreign corporations, where the U.S. double-tax problem largely doesn’t apply and other international tax benefits come into play. If your target is domestic and a 338(h)(10) election is available, a 338(g) is rarely the right choice.

Section 338(h)(10)

A 338(h)(10) election is joint. The purchasing corporation and the selling party both sign Form 8023. It is available only when the target is one of the following: a subsidiary within a consolidated group, a subsidiary of a domestic corporation that owns at least 80 percent of the target’s stock but doesn’t file a consolidated return, or an S corporation.⁴

The stock sale is disregarded. Old Target is treated as selling its assets while still inside the seller’s tax structure, so gain is recognized once: on the consolidated group’s return, or on the S corporation shareholders’ individual returns. The buyer gets the basis step-up without an extra layer of tax inflating the deal. For S corporation acquisitions, this has become standard structure.

If your target qualifies and the buyer is a corporation, this is almost always the box you want. One boundary worth flagging: a 338(h)(10) election requires the buyer to be a corporation. If the acquirer is an individual, a partnership, or a pass-through fund, the analogous election lives in Section 336(e), which is made on Form 8883 rather than Form 8023.⁵

Filling Out the Form

Form 8023 itself is compact.⁶ Work through it in order.

The opening sections collect identifying information about the purchasing corporation. Have the buyer’s legal name, EIN, and address ready.

Section B is about the target. You’ll enter the target’s name, EIN, acquisition date, and the type of return the target files. The acquisition date drives the filing deadline, so enter it carefully and match it to the date the 80 percent threshold was actually crossed, not the signing date, not the closing date if they differ.

Section E is where you actually make the election. One box is for a 338(h)(10) election; a separate box is for a regular 338(g) election. Check one. Both elections are irrevocable. And if a 338(h)(10) election turns out to be invalid for any reason, the underlying 338(g) election it subsumes is also void, so a botched (h)(10) doesn’t quietly fall back to a (g).⁴

Do the Basis Math Before You File

The form doesn’t ask you to attach the basis calculations, but you need them completed before you file, because the numbers flow into the follow-up forms (8883 and 8594) that are tethered to the election, and because the buyer will rely on them for years of depreciation and amortization.

For a regular 338 election, the buyer computes the Adjusted Grossed-Up Basis (AGUB). For a 338(h)(10) election, it’s the Modified Adjusted Grossed-Up Basis (MAGUB). AGUB represents the total new tax basis that will be spread across New Target’s assets. It equals the grossed-up basis of the purchased stock (scaled up to account for any shares the buyer didn’t acquire), plus the target’s liabilities, plus other adjustments.

On the seller’s side, the parallel figure is the Aggregate Deemed Sale Price (ADSP), which determines Old Target’s gain or loss on the deemed sale. ADSP equals the grossed-up amount realized on the stock sale plus the target’s liabilities.⁷

If contingent liabilities or earnout payments resolve after the acquisition date, both ADSP and AGUB have to be recalculated, and the allocation across the target’s assets redone as if the corrected figures had applied from day one.⁸ Build that possibility into the purchase agreement.

The AGUB is then allocated across the target’s assets using the residual method required by Section 1060, which assigns value to a fixed seven-class hierarchy ending with goodwill and going concern value as the residual class.⁹¹⁰ Buyer and seller are bound by the allocation, and inconsistency between their filings is an audit flag. Negotiate the allocation and document it in the purchase agreement.

Who Signs

Signatures depend on which box you checked.

For a 338(g) election, only an authorized officer of the purchasing corporation signs.

For a 338(h)(10) election, both the purchasing corporation and the selling party sign. If the target is a subsidiary within a consolidated group, the common parent of the selling group signs. If the target is an S corporation, every shareholder must consent, including any shareholder who didn’t actually sell stock in the transaction.⁴

That unanimous S corporation consent is the trap. A single holdout, no matter how small a stake, can block the entire election. Deal counsel typically make all-shareholder consent to the 338(h)(10) election a condition of the stock purchase agreement well before closing, and collect signed consents at signing rather than chasing them afterward.

The Filing Deadline

Form 8023 must be filed by the 15th day of the ninth month beginning after the month in which the acquisition date occurs.¹¹

Two worked examples. Close on October 15, and the count starts with November; the deadline lands on July 15 of the following year. Close on January 3, and the deadline is October 15 of the same year.

Miss it and the election is dead. The buyer inherits the target’s historical asset basis and forfeits years of enhanced depreciation deductions. Relief for a late filing exists under Treasury Regulation Section 301.9100, but it’s not automatic for a 338 election.¹² You would need to show that the failure was due to reasonable cause and not willful neglect, file a private letter ruling request, and pay the IRS user fee. Certain regulatory elections qualify for an automatic 12-month extension, but corrective action still has to happen within that window.¹³

The Forms That Follow: 8883 and 8594

Filing Form 8023 makes the election. It does not finish the paperwork.

Form 8883, the Asset Allocation Statement Under Section 338, must be filed by both Old Target and New Target. Old Target attaches it to its final return, or, for a 338(h)(10) election involving an S corporation, to the final Form 1120-S. New Target attaches it to its first return. For foreign targets, copies go with the relevant Forms 5471.¹⁴

Form 8594, the Asset Acquisition Statement Under Section 1060, reports how the purchase price was allocated across the seven asset classes. Both buyer and seller file their own Form 8594 with their income tax returns.¹⁵ If contingent liabilities or earnout payments later change the total consideration, an amended Form 8594 reflects the updated allocation.

Failure to file these follow-up forms doesn’t void the election, but it invites IRS scrutiny and leaves the buyer without the documentation trail supporting the basis figures on New Target’s returns for the next 15 years of amortization.

What Form 8023 Doesn’t Cover

A federal Section 338 election doesn’t automatically bind the states. Some states follow the federal election. Others require a separate state-level election or don’t recognize the deemed asset sale treatment at all. Before filing, check each state where the target operates or files, because a state that ignores the election may tax the transaction as an ordinary stock sale while the federal return treats it as an asset sale.

And Form 8023 is only for Section 338 elections. If the acquirer is not a corporation, the buyer and seller are looking at Section 336(e) instead, which is elected on Form 8883 and requires a written, binding agreement between seller and buyer made on or before the due date (including extensions) of the seller’s tax return for the year of the disposition.⁵ The mechanics are similar; the form is different.

1
Office of the Law Revision Counsel. 26 USC 338 – Certain Stock Purchases Treated as Asset Acquisitions
2
Office of the Law Revision Counsel. 26 USC 1504 – Definitions
3
eCFR. 26 CFR 1.338-3 – Qualification for the Section 338 Election
4
GovInfo. 26 CFR 1.338(h)(10)-1 – Requirement for Section 338(h)(10) Election
5
eCFR. 26 CFR 1.336-1 – General Principles, Nomenclature, and Definitions for Section 336(e)
6
Internal Revenue Service. Form 8023 – Elections Under Section 338 for Corporations Making Qualified Stock Purchases
7
eCFR. 26 CFR 1.338-4 – Aggregate Deemed Sale Price
8
eCFR. 26 CFR 1.338-7 – Allocation of Redetermined ADSP and AGUB Among Target Assets
9
Office of the Law Revision Counsel. 26 USC 1060 – Special Allocation Rules for Certain Asset Acquisitions
10
eCFR. 26 CFR 1.338-6 – Allocation of ADSP and AGUB Among Target Assets
11
GovInfo. 26 CFR 1.338-2 – Qualification for the Section 338 Election
12
eCFR. 26 CFR 301.9100-1 – Extensions of Time to Make Elections
13
eCFR. 26 CFR 301.9100-2 – Automatic Extensions
14
Internal Revenue Service. Instructions for Form 8883 – Asset Allocation Statement Under Section 338
15
Internal Revenue Service. Instructions for Form 8594 – Asset Acquisition Statement Under Section 1060