The Tax Lawyer

Section 338 and the Step Transaction Doctrine

David Hasen

Abstract

Section 338 overrides ordinary step transaction principles for a large but not clearly-defined class of stock purchases. This article addresses two questions about the scope of the override: whether it applies to a larger set of cases than those in which the acquiring corporation has made a qualified stock purchase, and whether Treasury has authority to adjust the scope of the override by regulation. The article concludes that the class of override cases is in fact larger than the class of qualified stock purchases but that Treasury lacks the authority under current law to adjust the scope of the override.