8883 Instructions for Form 8883

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Instructions for Form 8883

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Instructions for Form 8883

Department of the Treasury
Internal Revenue Service

(Rev. December 2008)
Asset Allocation Statement Under Section 338
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
What’s New
Final Regulations under section 338
provide details on the effect of the section
338 election on insurance company
targets. See Regulations sections
1.338-1(b)(2)(vii) and 1.338-11.

Purpose of Form
Use Form 8883, Asset Allocation
Statement Under Section 338, to report
information about transactions involving
the deemed sale of corporate assets
under section 338. This includes
information previously reported on Form
8023, Elections Under Section 338 for
Corporations Making Qualified Stock
Purchases.
Although you use Form 8023 to make
an election under section 338, you must
also file Form 8883 to supply information
relevant to the election. Timely file Form
8023 even if you do not have all the
information required to be supplied
separately on Form 8883.
If an election is made under section
338 for a qualified purchase of stock of a
target corporation, the target corporation
(old target) is deemed to sell its assets to
a new corporation (new target) at the
close of the acquisition date. See
Regulations section 1.338-1 for details.
There are two types of section 338
elections. A section 338(g) election is
made only by the purchasing corporation.
A section 338(h)(10) election is made
jointly by both the old target shareholders
and the purchasing corporation. Form
8883 must be used to make both types of
section 338 elections.

Who Must File
For elections under sections 338(g) and
338(h)(10) both the old target and the
new target must file Form 8883.

When and How To File
Generally, attach Form 8883 to the return
on which the effects of the section 338
deemed sale and purchase of the target’s
assets are required to be reported.
Old target (S corporation for a section
338(h)(10) election). For a section
338(h)(10) election for an S corporation
target, attach Form 8883 to Form 1120S,
U.S. Income Tax Return for an S
Corporation.
Old target (consolidated return). If the
old target is the common parent of a
consolidated group, attach Form 8883 to

its final consolidated return ending on the
acquisition date. If the old target is a
member (not the parent) of a selling
group that will file a consolidated return
and is making a section 338(h)(10)
election, attach the form to the selling
group’s consolidated return for its tax year
including the acquisition date.
However, if an election under section
338(g) is made for the target, attach the
form to the old target’s deemed sale
return; not to the selling group’s
consolidated return. See Regulations
section 1.338-10(a)(2) through (4) for
details.
New target. Attach Form 8883 to the
first return of the new target. If, on the day
after the acquisition date, the new target
is a member of a group filing a
consolidated return, attach the form to the
consolidated return that includes the day
after the acquisition date.
Foreign target. If a section 338(g)
election is made for a foreign target for
which Form 5471, Information Return of
U.S. Persons With Respect to Certain
Foreign Corporations, must be filed:
• The seller (or U.S. shareholder) must
attach a copy of Form 8883 to the last
Form 5471 for the old foreign target.
• The purchaser (or its U.S. shareholder)
must attach a copy of Form 8883 to the
first Form 5471 for the new foreign target.

Supplemental Form 8883
If the amount allocated to any asset is
increased or decreased after the year in
which the sale occurs, any affected party
must complete Parts I through IV and VI
of Form 8883 and attach the form to the
income tax return for the year in which the
increase or decrease is taken into
account. See the instructions for Part VI
and Regulations section 1.338-7 for more
information.

Penalties
If you do not file a correct Form 8883 by
the due date of your return and you
cannot show reasonable cause, you may
be subject to penalties. See sections
6721 through 6724.

Elections for Multiple Targets
Under Section 338
Although one Form 8023 (rather than
multiple Forms 8023) may be used for
targets that
• each have the same acquisition date
• were members of the same affiliated
group immediately before the acquisition
date (defined below), and
• are members of the same affiliated
group (defined below) immediately after
Cat. No. 33706N

the acquisition date, file a separate Form
8883 for each target corporation.

Definitions
A qualified stock purchase (QSP) is the
purchase of stock of at least 80% of the
total voting power and value of the stock
of a corporation by another corporation
during a 12-month period.
A 12-month acquisition period is the
12-month period beginning with the first
acquisition by purchase of stock included
in the QSP.
The acquisition date is the first date
on which a QSP has occurred.
Recently purchased target stock is
any stock in the target corporation that is
held by the purchasing corporation on the
acquisition date and was purchased by
the corporation during the 12-month
acquisition period. See section 338(h)(1)
for special rules for stock acquisitions
from related corporations.
An affiliated group is an affiliated
group as defined in section 1504(a),
determined without regard to the
exceptions contained in section 1504(b).
A corporation will be treated as a
target affiliate (as defined in section
338(h)(6)) of the target corporation if each
corporation was, at any time during much
of the consistency period that ends on the
acquisition date of the target corporation,
a member of an affiliate group which had
the same common parent. Except as
otherwise provided, a target affiliate does
not include a foreign corporation, a DISC,
or a corporation to which section 936
applies.
Class I assets are cash and general
deposit accounts (including savings and
checking accounts) other than certificates
of deposit held in banks, savings and loan
associations, and other depository
institutions.
Class II assets are actively traded
personal property within the meaning of
section 1092(d)(1) and Regulations
section 1.1092(d)-1 (determined without
regard to section 1092(d)(3)). In addition,
Class II assets include certificates of
deposit and foreign currency even if they
are not actively traded personal property.
Class II assets do not include stock of
target affiliates, whether or not actively
traded, other than actively traded stock
described in section 1504(a)(4).
Examples of Class II assets include U.S.
government securities and publicly traded
stock.
Class III assets are assets that the
taxpayer marks-to-market at least
annually for federal income tax purposes
and debt instruments (including accounts

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Instructions for Form 8883

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receivable). However, Class III assets do
not include (a) debt instruments issued by
persons related at the beginning of the
day following the acquisition date to the
target under section 267(b) or 707; (b)
contingent debt instruments subject to
Regulations sections 1.1275-4, and
1.483-4, or section 988, unless the
instrument is subject to the noncontingent
bond method of Regulations section
1.1275-4(b) or is described in Regulations
section 1.988-2(b)(2)(i)(B)(2); and (c) debt
instruments convertible into the stock of
the issuer or other property.
Class IV assets are stock in trade of
the taxpayer or other property of a kind
that would properly be included in the
inventory of the taxpayer if on hand at the
close of the taxable year, or property held
by the taxpayer primarily for sale to
customers in the ordinary course of its
trade or business.
Class V assets are all assets other
than Class I, II, III, IV, VI, and VII assets.
Note. Furniture and fixtures, buildings,
land, vehicles, and equipment, which
constitute all or part of a trade or business
as defined in Regulations section
1.1060-1(b)(2) are generally Class V
assets.

goodwill or going concern value qualifies
as a section 197 intangible).

Class VI assets are all section 197
intangibles (as defined in section 197)
except goodwill and going concern value.
Section 197 intangibles include:
• Workforce in place;
• Business books and records, operating
systems, or any other information base,
process, design, pattern, know-how,
formula, or similar item;
• Any customer-based intangible;
• Any supplier-based intangible;
• Any license, permit, or other right
granted by a government unit;
• Any covenant not to compete entered
into in connection with the acquisition of
an interest in a trade or a business; and
• Any franchise trademark, or trade
name (however, see exception below for
certain professional sports franchises).
The term “section 197 intangible” does
not include any of the following:
• An interest in a corporation,
partnership, trust, or estate;
• Interests under certain financial
contracts;
• Interests in land;
• Certain computer software;
• Certain separately acquired interests in
films, sound recordings, video tapes,
books, or other similar property;
• Interests under leases of tangible
property;
• Certain separately acquired rights to
receive tangible property or services;
• Certain separately acquired interests in
patents or copyrights;
• Interests under indebtedness;
• Professional sports franchises acquired
before October 23, 2004; and
• Certain transactions costs.
See section 197(e) for further information.
Class VII assets are goodwill and
going concern value (whether or not the

Part II. Other Party’s Identifying
Information

Specific Instructions
Part I. Filer’s Identifying
Information
Line 1a. Enter the name as shown on
your income tax return.
Line 1b. Enter the corporation’s
employer identification number (EIN). If
the form is filed by an individual U.S.
shareholder for a foreign target, enter the
shareholder’s social security number
(SSN).
Line 1c. Indicate by checking the
applicable box whether you are filing this
form because you are filing the federal
income tax return that reflects the tax
results for the old target of a section 338
election, or because you are filing the
federal income tax return that reflects the
tax results for the new target of a section
338 election. See When and How To File
on page 1 for a discussion of who files the
tax returns reporting the section 338
results for the old target and new target,
respectively.

Identify the taxpayer that files the U.S.
income tax return, if any, reflecting the tax
results under section 338 for the other
party to the transaction. If the tax results
of the transaction are reported on a
consolidated return for the other party,
provide the identifying information of the
common parent of the consolidated group
instead of the old or new target. If the old
or new target is a controlled foreign
corporation (CFC) and does not file a
U.S. income tax return, identify the U.S.
shareholder owning the largest interest in
the CFC (or if the U.S. shareholder is a
member of a consolidated group, the
common parent of that group).
Line 2b. Enter the identifying number
(EIN or SSN) of the other party.

Part III. Target Corporation’s
Identifying Information
Complete Part III if the target identifying
information is not provided in Part I (that
is, if Form 8883 is filed by the common
parent of a consolidated group including
the target or by the seller, purchaser, or
U.S. shareholder filing for a foreign
target).
Line 3b. An EIN is not required if a party
does not have, and is not otherwise
required to have, an EIN.
Line 3c. When identifying the country of
incorporation, include political
subdivisions, if any.

Part IV. General Information
Both the old and the new target must
complete lines 4a through 8g.
Line 5a. Enter the amount of
consideration paid (without regard to

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selling or acquisition costs) for the
recently purchased target stock (defined
on page 1). Include only amounts actually
paid to the seller(s) of the target stock.
Line 5b. New Target: Enter the
acquisition costs, including any other
amounts capitalized in the purchasing
corporation’s basis in the recently
purchased target stock.
Old Target: Enter the selling costs of
the selling consolidated group, selling
affiliates, or S corporation shareholder(s)
incurred in connection with the QSP that
reduce the amount realized on the sale of
recently purchased target stock.
Line 5c. Enter the amount of the target’s
liabilities as of the beginning of the day
after the acquisition date. The old target’s
liabilities are also measured as of the
beginning of the day after the acquisition
date. However, see Regulations section
1.338-1(d) regarding certain transactions
on the acquisition date. These liabilities
may include tax consequences resulting
from the deemed sale.
Line 5d. New Target: Enter the
adjusted grossed-up basis (AGUB).
AGUB is the amount for which the new
target is deemed to have purchased all of
its assets from the old target. AGUB is the
sum of:
• The grossed-up basis in the purchasing
corporation’s recently purchased target
stock,
• The purchasing corporation’s basis in
nonrecently purchased target stock, and
• The liabilities of the new target
(reported on line 5c).
See Regulations section 1.338-5 for
additional information.
Old Target: Enter the aggregate
deemed sales price (ADSP). The ADSP
is the amount for which the old target is
deemed to have sold all of its assets in
the deemed asset sale. ADSP is the sum
of:
• The grossed-up amount realized on the
sale to the purchasing corporation of the
purchasing corporation’s recently
purchased target stock and
• The liabilities of the old target (reported
on line 5c). Compute ADSP as follows:
1. Enter the amount from line 5a (stock
price) . . . . . . . . . . . . . . . . . . . . .
2. Divide the amount on line 1 by the
percentage of target stock (by value,
determined on the acquisition date)
attributable to that recently
purchased target stock . . . . . . . . .
3. Enter the amount from line 5b
(selling costs) . . . . . . . . . . . . . . .
4. Grossed-up amount realized on
the sale. Subtract line 3 from line 2
5. Enter the amount from line 5c (target
liabilities) . . . . . . . . . . . . . . . . . .
6. ADSP. Add line 5 to line 4. Enter
here and on line 5d . . . . . . . . . . . .

For more information see Regulations
section 1.338-4.

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Instructions for Form 8883

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Part V. Original Statement of
Assets Transferred
Allocation of consideration. An
allocation of ADSP must be made to
determine the old target’s gain or loss on
the deemed transfer of each asset, and
an allocation of AGUB must be made to
determine the new target’s basis in each
acquired asset. Use the residual method
for making the allocation. The amount
allocated to an asset, other than a Class
VII asset, cannot exceed its fair market
value (FMV) on the acquisition date. For
purposes of this allocation, FMV is the
gross fair market value not reduced by
mortgages, liens, pledges, or other debt.
The amount allocated to an asset is also
subject to any applicable limits under the
Internal Revenue Code or general
principles of tax law.
Allocate consideration in Part V as
follows:
1. Reduce the consideration by the
amount of Class I assets.
2. Allocate the remaining
consideration to Class II assets, then to
Class III, IV, V, and VI assets in that
order. For each class, allocate the
remaining consideration to the class
assets in proportion to their FMVs on the
acquisition date (as discussed in the
previous paragraph).
3. Allocate consideration to Class VII
assets.
If an asset can be included in more
than one class, choose the lower
numbered class (for example, if an asset
could be included in Class III or IV,
choose Class III).
Line 9. For a particular class of
assets, enter the total FMV of all the
assets in the class and the total allocation

of the amount on line 5d, (ADSP or
AGUB, whichever applies) to the class.
For Classes VI and VII, enter the total
FMV of Classes VI and VII combined, and
the total allocation of the amount on line
5d (ADSP or AGUB, whichever applies)
to Classes VI and VII combined.

Part VI. Supplemental
Statement of Assets
Transferred
Complete Parts I through IV and Part VI
and file a new Form 8883 for each year
that an increase or decrease in AGUB or
ADSP occurs. If an increase or decrease
in the amount to be allocated occurs after
the purchase date, the increase or
decrease must be allocated among the
assets. The reallocation is made in the
taxable year in which the increase or
decrease occurs. Give the reason(s) for
the increase or decrease in allocation.
Also enter the tax year(s) and the form
number of the income tax return with
which the original Form 8883 and any
supplemental Forms 8883 were filed. For
example, enter “2007 Form 1120”.
Increases. Allocate an increase in
consideration by first allocating the
increase in consideration to Class I and
any remaining consideration to each of
the following classes (Class II, III, etc.).
The number of classes may vary
depending on the year of the acquisition.
Increase the amounts previously
allocated to the assets in each class in
proportion to their fair market values on
the purchase date (do not allocate to any
asset in excess of fair market value).
If an asset has been disposed of,
depreciated, amortized, or depleted by
the new target before the increase
occurs, any amount allocated to that

asset by the new target must be properly
taken into account under principles of tax
law applicable when part of the cost of an
asset (not previously reflected in its basis)
is paid after the asset has been disposed
of, depreciated, amortized, or depleted.
Decreases. Allocate a decrease in
consideration as follows:
1. Reduce the amount previously
allocated to Class VII assets.
2. Reduce the amount previously
allocated to Class VI assets, then to
Class V, IV, III, and II assets in that order.
Within each class, allocate the decrease
among the class assets in proportion to
their FMVs on the acquisition date (as
discussed under Increases above).
You cannot decrease the amount
allocated to an asset below zero. If an
asset has a basis of zero at the time the
decrease is taken into account because it
has been disposed of, depreciated,
amortized, or depleted by the new target,
the decrease in consideration allocable to
such asset must be properly taken into
account under the principles of tax law
applicable when the cost of an asset
(previously reflected in basis) is reduced
after the asset has been disposed of,
depreciated, amortized, or depleted. An
asset is considered to have been
disposed of to the extent the decrease
allocated to it would reduce its basis
below zero.
Transitional rules for patents,
copyrights, and similar property. For
transactions occurring before January 6,
2000, the regulations applied special
rules to the allocation to particular
intangible assets of increases or
decreases in consideration. See the
regulations in effect prior to that time.

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their
contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete and file this tax form will vary depending on individual circumstances. The estimated average time
is:
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16 hr., 30 min.

Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 hr., 40 min.

Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 hr., 6 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be
happy to hear from you. You can write to the IRS at the address listed in the instructions for the tax return with which this form is
filed.

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