IRS Form 8023 Guide: Section 338 Corporate Stock Purchase

1. Introduction – What is Form 8023?

IRS Form 8023, titled Elections Under Section 338 for Corporations Making Qualified Stock Purchases, is an official corporate tax election form issued by the Internal Revenue Service (IRS). It is governed under Section 338 of the Internal Revenue Code (IRC § 338) and related Treasury regulations.

This form is used when one corporation purchases the stock of another corporation (known as the “target”) and elects to treat the stock purchase as an asset purchase for federal income tax purposes. By making this election, the transaction legally remains a stock acquisition under corporate law while receiving the tax treatment of an asset acquisition.

2. Purpose of the Form – Why Does Form 8023 Exist?

In mergers and acquisitions (M&A), buyers generally prefer purchasing assets to obtain a “stepped-up” tax basis in property, machinery, and intangible assets, which creates valuable future depreciation and amortization deductions. Conversely, sellers often prefer selling stock to achieve a clean exit and avoid double taxation.

Form 8023 bridges this gap and solves critical corporate tax objectives:

• Creates Stepped-Up Basis: It allows the purchasing corporation to treat the acquired target as a “new target” that purchased all its assets at fair market value, creating substantial tax deductions.
• Executes Section 338(g) Elections: Enables a purchasing corporation to unilaterally elect deemed asset sale treatment, which is commonly used when acquiring foreign target corporations.
• Executes Joint Section 338(h)(10) Elections: Enables the buyer and seller (a corporate consolidated parent or S corporation shareholders) to jointly treat the stock sale as a deemed asset sale followed by a tax-free liquidation.
• Preserves Operational Continuity: It avoids the legal complexity, customer contract transfers, and permit re-assignments required in a direct physical asset sale.

3. Who Needs to File Form 8023?

Form 8023 must be filed when a corporate buyer acquires a target corporation through a Qualified Stock Purchase (QSP) and elects Section 338 treatment. Qualifying parties include:

• Purchasing Corporations: A domestic or foreign corporation that purchases at least 80% of the total voting power and at least 80% of the total value of the target stock within a 12-month acquisition period.
• Selling Consolidated Groups: Corporate parents joining the buyer to make a joint Section 338(h)(10) election for a subsidiary target.
• S Corporation Shareholders: When an S corporation target is acquired, all S corporation shareholders (including non-selling and non-voting shareholders) must join the buyer in executing Form 8023.

4. Who Is Exempt / Not Required to File?

Form 8023 is strictly limited to corporate stock acquisitions where an elective tax step-up is desired. You do not file Form 8023 under the following circumstances:

• Non-Corporate Buyers: Individuals, partnerships, and LLCs taxed as partnerships cannot make a Section 338 election directly (unless they establish a corporate acquisition vehicle).
• Direct Asset Purchases: Buyers purchasing physical business assets directly receive a stepped-up basis automatically and file Form 8594 instead.
• Standard Stock Purchases: Stock purchases where the parties do not wish to trigger a deemed asset sale and prefer carryover asset basis.
• Section 336(e) Elections: Dispositions structured under IRC Section 336(e) use a separate written election agreement rather than Form 8023.

5. When to File – Deadlines and Frequency

Form 8023 is an event-driven filing governed by a strict statutory deadline under Treasury Regulation Section 1.338-2:

• Strict 9-Month Deadline: Form 8023 must be filed no later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs.
• Example: If a corporate acquisition closes on March 10, the 9th month after March is December. The absolute deadline to file Form 8023 is December 15.
• Irrevocable Election: Once Form 8023 is submitted to the IRS, the election is legally binding and cannot be revoked.

6. Where and How to File Form 8023

Unlike most routine tax schedules, Form 8023 is submitted as an independent election document to the IRS Service Center:

• Standalone Submission: Form 8023 is mailed separately from your annual tax return directly to the IRS address as per instructions for the service center where the purchasing corporation files its annual income tax return.
• Foreign Purchasing Corporations: If the purchasing corporation is a foreign entity not required to file a U.S. return, the form is mailed to the designated international IRS processing center.
• Subsequent Return Attachments: In addition to the standalone filing, copies of Form 8023 and the asset allocation schedule (Form 8883) must be attached to the final tax return of the old target and the initial tax return of the new target.

7. Step-by-Step Instructions to Fill Form 8023

Form 8023 consists of seven distinct parts covering entity identities, transaction parameters, election checkboxes, and authorized signatures.

Part	Item / Section Name	Instructions and Key Requirements
Part I	Purchasing Corporation	Enter the legal name, Employer Identification Number (EIN), tax year ending date, state/country of incorporation, and mailing address of the corporate buyer.
Part II	Common Parent of Buyer	Complete this part only if the purchasing corporation is a subsidiary member of a consolidated tax group.
Part III	Target Corporation	Enter the legal name, EIN, tax year, and incorporation details of the acquired target company.
Part IV	Selling Group or S Corp Owners	Provide identifying details for the selling common parent, selling affiliate, or S corporation shareholders selling the target.
Part V	Acquisition Details	Enter the exact acquisition date, percentage of target stock acquired on that date, and percentage acquired during the 12-month acquisition period.
Part VI	Elections Under Section 338	Check the appropriate box: Line 1 for a regular Section 338(g) election, or Line 2 for a joint Section 338(h)(10) election.
Part VII	Signatures & Consents	Must be signed by an authorized corporate officer of the buyer. For a Section 338(h)(10) election, the selling parent officer or all S corporation shareholders must sign.

8. Required Documents and Information Needed Before Filling

To prepare Form 8023 accurately, ensure the deal team has gathered all fundamental legal and financial closing binders:

• Stock Purchase Agreement (SPA): The executed purchase agreement outlining purchase prices, closing dates, and formal covenants to make a Section 338 election.
• Certified Capitalization Tables: Detailed ownership records confirming that at least 80% voting power and value was acquired within the 12-month acquisition window.
• Tax Identification Details: Active EINs, corporate addresses, and tax year-end dates for the buyer, seller, and target corporations.
• Shareholder Consent Agreements: Signed consent forms from all selling and non-selling S corporation shareholders (for S corp 338(h)(10) elections).
• Form 8883 Worksheets: Preliminary calculations of the Aggregate Deemed Sales Price (ADSP) and Adjusted Grossed-Up Basis (AGUB) for subsequent reporting.

9. Common Mistakes to Avoid

Because Section 338 elections carry significant tax dollars, minor procedural oversights can completely void the election:

• Missing the Strict 9-Month Deadline: Missing the 15th day of the 9th month deadline invalidates the election, requiring costly private letter rulings to cure.
• Missing S Corp Shareholder Signatures: Under Section 338(h)(10), every single S corp shareholder must sign Form 8023, including non-voting shareholders who sold no shares.
• Attempting an Election by Non-Corporate Buyers: If an LLC or partnership buys the stock directly without forming a corporate holding company, the Section 338 election is legally void.
• Confusing Form 8023 with Form 8883: Form 8023 is the initial legal election document; Form 8883 is the separate asset allocation schedule filed with the subsequent tax returns.
• Failing to Meet the 80% Threshold: Acquiring less than 80% of voting stock or value disqualifies the transaction from being a Qualified Stock Purchase.

10. Penalties for Non-Filing or Errors

Form 8023 is an elective tax form, so the IRS does not assess a traditional monetary failure-to-file penalty. However, failing to file correctly creates massive financial losses:

• Loss of Stepped-Up Basis: An invalid election forces the buyer to keep historical carryover basis in target assets, permanently losing millions of dollars in future depreciation and amortization write-offs.
• Costly IRS Relief Filings: Curing a late Form 8023 requires requesting formal Section 9100 relief via an IRS Private Letter Ruling (PLR), costing tens of thousands of dollars in IRS user fees and legal expenses.
• Accuracy-Related Penalties (IRC § 6662): If the buyer claims stepped-up depreciation on tax returns without a valid Form 8023 on file, the IRS will disallow deductions and impose a 20% negligence penalty plus compounding interest.

11. Related Forms and Schedules

Form 8023 operates alongside several primary M&A and corporate tax schedules:

• Form 8883: Asset Allocation Statement Under Section 338 (filed with tax returns to allocate purchase price across the 7 asset classes).
• Form 8594: Asset Acquisition Statement Under Section 1060 (used for direct physical asset sales).
• Form 1120: U.S. Corporation Income Tax Return (parent and target returns).
• Form 1120-S: U.S. Income Tax Return for an S Corporation.
• Form 8832: Entity Classification Election.

12. Frequently Asked Questions (FAQs)

1. What is the difference between a Section 338(g) and Section 338(h)(10) election?

A Section 338(g) election is made unilaterally by the buyer and triggers two levels of tax (one on the stock sale and one corporate-level tax on the deemed asset sale). A Section 338(h)(10) election is made jointly by buyer and seller and triggers only a single level of tax, treating the transaction as an asset sale followed by a tax-free liquidation.

2. Can an LLC or individual make a Section 338 election?

No. Section 338 explicitly requires the purchaser to be a corporation. Individuals or LLCs must form a corporate acquisition vehicle (Newco C-corp) to execute the qualified stock purchase.

3. Do non-selling S corporation shareholders have to sign Form 8023?

Yes. For a Section 338(h)(10) election involving an S corporation target, federal regulations mandate that all shareholders on the acquisition date—regardless of whether they sold their shares—must sign Form 8023.

4. What is a Qualified Stock Purchase (QSP)?

A QSP occurs when a purchasing corporation acquires by purchase stock meeting the requirements of Section 1504(a)(2) (at least 80% of total voting power and total value) during a 12-month acquisition period.

5. Can Form 8023 be revoked after it is submitted?

No. Once Form 8023 is filed with the IRS, the Section 338 election is legally irrevocable.

6. Is Form 8023 attached to the annual corporate tax return?

Form 8023 is initially filed as an independent standalone document directly to the IRS Service Center by the 9-month deadline. However, a copy must also be attached to the relevant corporate income tax returns along with Form 8883.

13. Conclusion – Key Takeaways Summarized

IRS Form 8023 is a cornerstone of corporate deal structuring, enabling corporate buyers and sellers to achieve the tax benefits of an asset purchase through a legal stock acquisition. By unlocking stepped-up asset basis, Section 338 elections generate substantial future depreciation and amortization deductions that enhance overall transaction value.

Because the form requires strict adherence to the 9-month filing window, qualified stock purchase rules, and unanimous S corporation shareholder consents, dealmakers and tax advisors must execute and submit Form 8023 promptly following closing.