Pennsylvania Code › Title 61 - REVENUE › Part I - Department of Revenue › Subpart B - General Fund Revenues › Article VI - Corporation Taxes › Chapter 153 - CORPORATE NET INCOME TAX › ELECTIONS › Section 153.81 - Elections under 26 U.S.C.A. section 338

Current through Register Vol. 54, No. 28, July 13, 2024
(a)
General.
Under section
						338 of the IRC (26 U.S.C.A.
						§
													338), a corporation which acquires at
						least 80% of the stock of another corporation-the target-within a 12 month
						period may elect, or, under certain circumstances, may be treated as having
						elected to treat the stock purchase as a purchase of assets. Where the target
						corporation is not includable in a consolidated Federal return for a period
						that includes the acquisition date, the tax liability, if any, resulting from a
						deemed sale of assets by a target corporation shall be reported in the Federal
						return filed for the target corporation's taxable year that ends at the close
						of the acquisition date. If the target corporation is a member of an affiliated
						group for the taxable year that includes the acquisition date and the target
						corporation would be includable in a consolidated Federal return by the selling
						group for this period, the deemed sale of assets is treated as the target
						corporation's last transaction occurring at the close of the acquisition date
						in a separate taxable year. The tax liability resulting from the deemed sale
						shall be reported by the target corporation in a final, separate deemed sale
						Federal return. This section sets forth special rules which shall be followed
						by a target corporation subject to Pennsylvania corporate taxation.
(b)
Reports required.
Target
						corporations shall file Corporate Net Income and Capital Stock or Foreign
						Franchise Tax reports for periods for which a Federal return is required to be
						filed, including a Federal 1-day deemed sale return. An election made with the
						Federal government is binding for Commonwealth purposes, as is a failure to
						elect.
(c)
Due date for
						reports.
Reports are due 30 days after the return to the Federal
						government is due, or would be due in the case of a corporation participating
						in the filing of a consolidated Federal return.
(d)
Effect of election on tax
						liability.
(1)
Corporate Net
						Income Tax.
Taxable income generated as a result of a section 338
						election is subject to Pennsylvania Corporate Net Income Tax and treated as
						business income subject to apportionment, if the taxpayer was entitled to
						apportionment for the taxable year ending immediately prior to the acquisition
						date. The income consequences of a Section 338 election shall be reflected on a
						separate company basis and not as part of a combined or consolidated
						report.
(2)
Capital Stock
						or Foreign Franchise Tax.
In computing the capital stock value of a
						target corporation on a deemed sale report, actual net worth as of the close of
						that day shall be used. In computing averge net income on a 1-day deemed sale
						report, the averge net income for the period ending immediately prior to the
						acquisition date shall be used.