These Comments, submitted on behalf of the American Bar Association Section of Taxation, discuss regulations that implement an election under section 336(e) to treat a target as if it sold its assets in a taxable sale when the target stock is sold or distributed. The regulations represent a significant step in the evolution of the corporate income tax law, allowing some transactions to be structured more simply and without unwarranted tax. The simplification arises because, unlike for a section 338 election, the target stock does not have to be acquired in large part by a corporate purchaser.
If a section 336(e) election is made, the target is deemed to sell its assets in a taxable sale and generally to liquidate. The election may be made for many sales or distributions of an affiliated interest in target stock, including importantly when the target is an S corporation that intends to retain that status. Our Comments begin with an overview of our recommendations. We next survey the tax consequences of section 336(e) election. We finally describe in some detail how the regulations may be simplified, clarified, and otherwise improved. Note that our Comments do not revisit the major policy calls made in the regulations.