Section 338 Election and an Inventory Sale

Harrison Corporation, a C corporation, is part of a consolidated group, with assets consisting of inventory with a pre-transaction tax basis of $3,200 and value of $40,000. Harrison also has $3,200 of liabilities. Debra Smith acquires 100% of Harrison’s outstanding stock for $36,800, and the parties make a Sec. 338(h)(10) election. Prepare a letter to Debra that answers the following questions:

  1. What      is Harrison Corp.’s adjusted grossed-up basis (AGUB)?
  2. What      is the inventory’s allocated tax basis?
  3. How      much gain will be realized when the inventory is sold?

Include your calculations in the memo or attach a spreadsheet showing your calculations.

No hard coding of solutions.

Submission Requirements

  • Be      sure to discuss and reference concepts taken from the assigned textbook      reading and relevant research.
  • Support      your paper with at least 6 tax, scholarly, legislative, or court      references (of which the textbook may be one).

Your paper should be 5 pages in length and conform to the APA format.

Include at least 5 scholarly references in addition to the course textbook.

Chapter 20 in South-Western Federal Taxation 2019

Aggregate Deemed Sale Price; Various Aspects of Taxation of the Deemed Asset Sale, 26 CFR 1.338-4

Caiazza, S., & Pozzolo, A. (2016). The determinants of failed takeovers in the banking sector: Deal or country characteristics? Journal of Banking & Finance, 72(SS), S92-S103.

Seago, W. E., & Schnee, E. J. (2018). Post-reorganization transactions and the step transaction doctrine. Journal of Taxation, 128(1), 6-13.

Certain stock purchases treated as asset acquisitions, 26 U.S. Code § 338(h)(10) (n.d.). Retrieved from Thomson Reuters Checkpoint database.

Complete liquidations of subsidiaries, 26 U.S. Code § 332 (n.d.). Retrieved from Thomson Reuters Checkpoint database.

 
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