Or. Admin. Code § 150-317-0390 - IRC Section 338: Application to Oregon
(1) Internal Revenue Code (IRC) Section 338
applies when at least 80 percent of the voting power and total value of the
stock of a target corporation is acquired by a purchasing corporation. Under
the election provided by IRC 338(g), the acquiring corporation treats the
purchase of the target corporation's stock as the purchase of its assets. The
target's assets are given a stepped-up basis and the target reports gain as if
its assets were sold at fair market value. The seller recognizes a gain on the
sale of stock.
(2) For all Oregon
apportionment computations discussed in this rule, the gross receipts from the
deemed sale of assets are not included in the target's sales factor.
(3) If the target filed a separate federal
return for the period ending with the date of acquisition, the gain from the
deemed sale of assets must be included in the separately filed final return of
the target corporation for the period which ends on the date of acquisition.
(a) For Oregon apportionment purposes, the
apportionment factors computed on the separate Oregon return for the period
ending with the date of acquisition must be used.
(b) The deemed gain on sale of assets is
subject to Oregon apportionment if the target is doing business in Oregon.
(c) The gain on sale of stock is
taxed by Oregon to the selling corporation through apportionment if the stock
is considered a business asset and the seller is doing business in Oregon.
(d) The gain on sale of stock is
taxed by Oregon to the selling corporation through allocation if the stock is
considered a nonbusiness asset and the seller's commercial domicile is in
Oregon.
Example: S Corporation, a calendar year filer, and its nonunitary subsidiary, T Corporation, file separate federal returns. T does business in Oregon. S does not. On July 31, 2002, P Corporation purchases all of T's stock from S and makes an election under IRC 338. T files a separate short period Oregon return through July 31, 2002, and apportions income, including the deemed sale of assets, to Oregon using its apportionment factors for the year to date. S's gain on the sale of T's stock, an intangible, is not taxed by Oregon.
(4) If the acquired target corporation is the
common parent of an affiliated group, the group may elect to file a
consolidated federal return. The final return of the common parent is also the
final return of each subsidiary, which is considered to be acquired on the same
date. The deemed sale of assets for each consolidated corporation must be
reported on the consolidated return for the period ending on the date of
acquisition. The apportionment factors computed on the Oregon return for the
period ending with the date of acquisition must be used to apportion the income
including the gain from the deemed sale of assets. The property factor must
reflect the corporation's basis prior to the step-up in basis under IRC
338.
(5) If the acquired
corporation was purchased from an affiliated group with which it was unitary
and elects to file a consolidated federal return, it must be included in the
consolidated Oregon return of the selling group through the date of
acquisition. However, the deemed gain from the sale of assets must be included
on a separately filed single transaction return unless an election is made
under IRC 338(h)(10). (See Section 6 of this rule for further information
concerning the IRC 338(h)(10) election). For Oregon purposes, the deemed gain
must be attributed to Oregon using the apportionment factors from the
consolidated Oregon return for the period ending with the date of acquisition.
(6) An election may be made
jointly by the selling and acquiring corporations under IRC 338(h)(10). If a
corporation makes the election under IRC 338(h)(10) on its federal return, that
election applies to the Oregon return.
(a) If
a selling corporation making the election under IRC 338(h)(10) files a
consolidated Oregon return including the target corporation, that return must
include the gain or loss from the deemed sale of the target's assets in income
to be apportioned. The gain or loss from the sale of the target's stock will
not be recognized. The apportionment factors for the target must be included
through the date of the stock sale. The property factor must reflect the
target's basis in its assets prior to the step-up in basis under IRC 338.
(b) If a selling corporation
making an election under IRC 338(h)(10) does not file a consolidated Oregon
return with the target corporation, and the target corporation is doing
business in Oregon, the gain or loss from the target's deemed sale of assets
must be reported on the target's separately filed Oregon return.
(c) If the selling corporation has not made
an election under IRC 338(h)(10) on its federal return, the election will not
be accepted by Oregon.
Notes
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 317.329
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