Section 338(h)(10) election

Definition

A joint filing that taxes a stock purchase as though it were an asset one.

Why It Matters

It is the way out of the fight that stalls more small deals than any other: you want assets for the tax step-up and the clean liability line, the seller wants stock for the single layer of tax, and on an S corporation this election can give you both. Buyer and seller file it together, so it is a term you negotiate rather than a form you submit, and it belongs in the letter of intent beside the price. It also moves money: the seller usually pays more tax under it, and the number they ask you to cover for that is part of the deal. Bring it to your accountant before the letter, not after, because the eligibility rules are narrow and the answer changes the price.

In numbers: A step-up that lets a buyer amortise $1,500,000 of goodwill over 15 years is worth roughly $100,000 a year of deductions, which is why a seller's tax gross-up request is negotiable rather than absurd.