Although the transaction is treated as an asset deal, a stock purchase can be difficult to properly value. Additionally, the buyer inherits all of the target’s liabilities. Proper valuation of intangible assets and liabilities can be complicated but is essential. Specifically, intangible assets obtained in a Section 338 election are considered intangible assets under IRC § 197, which requires that all assets be amortized over a 15-year period.
Additionally, IRC § 338 identifies seven general asset allocation classes:
- Cash and cash equivalents
- Actively traded personal property
- Accounts receivable, mortgages, and credit card receivables that arise in the ordinary course of business
- Stock-in-trade of the taxpayer or other property of the kind that would properly be included in the inventory of the taxpayer if on hand at the close of the tax year, or property held by the taxpayer primarily for sale to customers in the ordinary course of business
- All assets not in other classes
- All IRC § 197 intangibles, except those in the nature of goodwill and going-concern value
- Goodwill and going-concern value
Great American has extensive experience with purchase price allocation valuations with Section 338 elections. If it is determined that a 338 election is needed, our team values all assets to ensure the acquisition price accurately reflects the assets acquired and that a company’s financial and tax filings are compliant.