How to Complete Form 8023 for a Section 338 Election

To complete Form 8023 for a Section 338 election, identify the acquisition date, confirm you acquired at least 80 percent of the target’s stock by vote and value within a 12-month window, check the correct election box for either a 338(g) or 338(h)(10) election, gather every required signature, and file the form with the IRS by the 15th day of the ninth month beginning after the month of the acquisition date.¹ The form itself is short. The work sits in what you prepare before you sign it, and the election is irrevocable once filed.

Confirm You Have a Qualified Stock Purchase

Form 8023 is only available if the purchasing corporation has completed 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 its stock, all within a single 12-month period.²

Stock received by gift, inheritance, or tax-free exchange doesn’t count. Neither does stock acquired from related parties or through certain reorganizations.³ The 12-month clock starts on the date of the first purchase that counts toward the threshold. The “acquisition date” is the specific day the 80 percent threshold is actually met, and that date governs every downstream deadline on the form.

If you fall short of 80 percent, no election is available. There is no partial version and no waiver.

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

Form 8023 handles two different elections, and Section E of the form has a separate box for each. Picking the wrong box is both easy and expensive to undo, because the choice can’t be reversed after filing.

Section 338(g)

A 338(g) election is made unilaterally by the purchasing corporation. The seller doesn’t need to consent. The catch is double taxation in domestic deals: Old Target pays corporate tax on the deemed asset-sale gain, and the selling shareholders separately pay tax on their stock sale. The combined bill typically wipes out the benefit of the basis step-up.

The election earns its keep in acquisitions of foreign corporations, particularly controlled foreign corporations, where the U.S. corporate-level tax on the deemed sale generally does not apply and the election delivers meaningful planning benefits around earnings and profits, GILTI, and Subpart F.

Section 338(h)(10)

A 338(h)(10) election is joint. Both the purchasing corporation and the selling party sign Form 8023. It is only available if the target is one of three things: 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. The transaction is treated purely as an asset sale by Old Target while it is still part of the seller’s tax structure, so the gain is taxed once rather than twice. This is the standard structure for most domestic deals that qualify, especially S corporation acquisitions.

One important consequence of the shared mechanism: if a 338(h)(10) election is later determined to be invalid, the underlying 338(g) election it subsumes is void as well.⁴

What to Prepare Before You Fill Out the Form

The identifying information on Form 8023 is straightforward. The hard work is the basis arithmetic and the allocation schedule, both of which you need in hand before you file.⁵

AGUB and ADSP

The buyer computes the Adjusted Grossed-Up Basis (AGUB), or the Modified AGUB for a 338(h)(10) election. AGUB is the total new tax basis spread across all of New Target’s assets. It includes the grossed-up basis of the purchased stock, which scales up the purchase price to account for any shares the buyer didn’t acquire, plus the target’s liabilities and other adjustments.

On the seller’s side, the parallel figure is the Aggregate Deemed Sale Price (ADSP), which drives 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.⁶

If contingent liabilities are resolved after the acquisition date, the regulations require both ADSP and AGUB to be recomputed and the allocation redone as if the corrected figure had applied from day one.⁷

Allocation Across Seven Asset Classes

AGUB and ADSP must be allocated across the target’s assets using the residual method under Section 1060.⁸ You fill each class to fair market value in order before any remainder spills into the next:⁹

Class I: cash and general deposit accounts, excluding certificates of deposit.
Class II: actively traded securities, certificates of deposit, and foreign currency.
Class III: debt instruments and accounts receivable.
Class IV: inventory and property held primarily for sale to customers.
Class V: all other tangible and intangible assets not in another class, including equipment, buildings, land, and furniture.
Class VI: Section 197 intangibles other than goodwill and going concern value, including workforce in place, customer relationships, patents, trademarks, covenants not to compete, and government licenses.
Class VII: goodwill and going concern value. This is the residual class, which absorbs whatever purchase price is left after the first six are filled.

Both the buyer and the seller are bound by the allocation, and inconsistent filings between the two sides are an audit flag. Negotiate the allocation during the deal and document it in the purchase agreement.

Filling Out the Form

The opening sections of Form 8023 collect identifying information about the purchasing corporation and the target. Section B asks for the target’s name, EIN, acquisition date, and the type of return the target files. Section E is where the election is actually made, with one checkbox for a 338(h)(10) election and a separate box for a regular 338(g) election. Check only the box that matches the election you intend.

Signatures and Consent

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

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

Unanimous S corporation consent is often the trickiest piece. A single holdout can block the election regardless of how few shares they own. Deal counsel typically condition the stock purchase agreement on every shareholder’s consent before closing.

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.¹⁰ If the deal closes on October 15, the nine-month count starts with November and the deadline is July 15 of the following year. A deal closing on January 3 has an October 15 deadline the same year.

Miss it and the election is dead. The purchasing corporation is stuck with the target’s historical asset basis and loses the enhanced depreciation and amortization deductions that would have followed from the step-up.

Late Election Relief

Relief for a late filing exists under Treasury Regulation Section 301.9100, but it is not automatic.¹¹ You must show the failure resulted from 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, and even that requires corrective action within the extension period.¹²

Both election types are irrevocable once filed. There is no mechanism to pull back the election if the tax results turn out worse than projected.

The Forms That Follow

Filing Form 8023 makes the election. It doesn’t complete the paperwork for the transaction. Two additional forms report the deemed asset sale and the allocation.

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) involving an S corporation, to the final Form 1120-S. New Target attaches it to its first return. For foreign targets, copies accompany the relevant Forms 5471.¹³

Form 8594, the Asset Acquisition Statement Under Section 1060, reports the allocation across the seven asset classes. Both the buyer and the seller file their own Form 8594 with their income tax returns.¹⁴ If contingent liabilities or earnout payments later change the total consideration, an amended Form 8594 is required.

Failing to file 8883 or 8594 does not void the Section 338 election, but it invites IRS scrutiny and leaves gaps in the documentation that will support New Target’s basis figures for years.

If the Target Is Foreign

Form 8023 still applies when the target is a foreign corporation, and the 338(g) box is the one you check. The election closes the foreign target’s tax year on the acquisition date and eliminates its accumulated earnings and profits, which simplifies the buyer’s handling of Subpart F, GILTI, and the Section 245A dividends-received deduction going forward.

The stepped-up asset basis also generates additional depreciation and amortization that reduces the CFC’s future tested income for GILTI, and the higher basis in tangible property increases qualified business asset investment. Trade-offs: favorable attributes of the old CFC such as foreign tax credit pools and previously taxed income don’t carry over, and the deemed asset sale is a “covered asset acquisition” under Section 901(m), which limits foreign tax credits attributable to the stepped-up basis.

If the Buyer Is Not a Corporation

Form 8023 and the 338(h)(10) election require the buyer to be a corporation. When an individual, partnership, or pass-through private equity vehicle is the acquirer, Section 338 is unavailable regardless of how much stock changes hands.

The parallel in that situation is a Section 336(e) election, which produces similar single-level asset-sale treatment for a “qualified stock disposition” of at least 80 percent of a domestic target by a domestic corporate seller or S corporation shareholders.¹⁵ A 336(e) election is made on Form 8883, not Form 8023, and requires a written binding agreement between seller and buyer on or before the due date (including extensions) of the seller’s return for the year of the disposition. If both elections are available, 338(h)(10) is typically chosen for its longer track record and more developed regulations.

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