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January 15, 2014 The Tax Lawyer

Something Not So Simple: Sale of S Corporation Stock or Assets for Contingent Payment Obligations

Volume 67, No. 1 - Fall 2013

Stephen P. Foley


    The rules governing both (a) the sale of property for contingent obligations and (b) stock sales under section 338(h)(1) of the Code are each counterintuitive and complex. In combination, these rules become insupportable. They can result in taxation that could not be expected by any normally intelligent business person or tax lawyer not well versed in how these rule interact. This Article (1) examines the statutory history and the current statutory language of the relevant parts of both sections 453 and 338; (2) fits the pieces together by setting forth some of the more unfortunate results that can occur when these rules apply in tandem; (3) demonstrates some planning techniques for mitigating the worst effect of these rules; (4) discusses additional problems posed by the rules governing allocation of items of purchase price to specific assets sold that make the results even more problematic; and (5) suggests, in conclusion, a number of regulatory changes that should be made to all these rules as to mitigate their least sensible aspects.

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