IRC 338(g) Elections for Buyers of Controlled Foreign Corporation Stock in Wake of Major Changes

Section 1248(j) and 100% Dividends Received Deduction and Impact of GILTI Claiming Basis Step-Up

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, February 28, 2019

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers to individuals with a practical guide to the tax implications of Section 338(g) election on the purchase of controlled foreign corporation (CFC) stock. The panel will discuss the mechanics of taking a basis adjustment under IRC 338(g) and describe how the 2017 tax reform law changed the value calculation in determining whether a purchaser should make the election. The panel will provide tax planning strategies to optimize tax benefits and minimize pitfalls in the election under the new tax reform law.

Description

The Section 338(g) election has long been a favored tax planning tool in sales of a CFC to or from a U.S. seller. The election permits acquirers of CFC stock to take a step-up in the tax basis of the target company's assets. However, key provisions in the 2017 tax reform law have introduced changes to the economic calculus of making the election.

When a buyer makes the 338(g) election, the result is a deemed closing of the tax year of the target CFC on the date of sale, with all of the target's legacy tax attributes eliminated. The seller reports gain on the deemed sale of its assets, including any Subpart F income and GILTI. The election also requires the seller to include any Subpart F income or GILTI earned before the date of sale. Absent an election, the buyer would be liable for Subpart F income and GILTI for the entire year of sale, less current year earnings included in the seller's income.

However, the lowering of corporate rates, along with a move to a more territorial system of tax and the introduction of Section 1248(j), means that in some transactions, buyers and sellers both must re-evaluate the benefits of a 338(g) election. In certain circumstances, a buyer may want to increase target E&P to claim a dividends-received deduction. The changes may also increase the tax cost to U.S. sellers of CFC stock. Tax advisers must be able to recognize the impact the new provisions make to CFC stock sale transactions under various scenarios.

Listen as our experienced panel details how the 2017 tax reform law changed the value calculation for determining whether a buyer of CFC stock should make a Section 338(g) election.

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Outline

  1. Mechanics of IRC 338(g) election
  2. General tax reform bill provisions impacting economic calculus of making a 338(g) election
  3. GILTI provisions
  4. New 1248(j) dividend treatment
  5. Planning opportunities

Benefits

The panel will discuss these and other important topics:

  • Scenarios under which a seller's tax cost may increase--or decrease--when a buyer of CFC stock makes a Section 338(g) election
  • How the new Section 1248(j) provision intersects with the 100% dividends-received deduction of Section 245A
  • Impact of GILTI on Section 338(g) election decisions
  • How the 338(g) election can benefit post-sale integration and subsequent disposition of CFC stock

Faculty

Fuller, Pamela
Pamela A. Fuller, JD, LLM

Of Counsel
Tully Rinckey PLLC & Royse Law

Ms. Fuller advises a wide range of clients--including private and public companies, joint ventures, private equity...  |  Read More

Skinner, William
William R. Skinner

Partner
Fenwick & West

Mr. Skinner focuses his practice on U.S. international taxation, with a particular emphasis on tax planning and...  |  Read More

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