Treasury Finalizes Section 336(E) Regulations

The Treasury Department provided guidance (T.D. 9619) on the election to treat certain qualified dispositions of target corporation stock as taxable sales of that corporation's assets when it finalized regulations under Section 336(e).

T.D. 9619 is similar to proposed regulations (REG-143544-04) issued in 2008, with several significant exceptions. First, the final regulations now provide that a Subchapter S corporation can be the target corporation for a qualified stock disposition election under Section 336(e). Second, the election now needs to be made by both the target corporation and the affiliated parent corporation making the disposition (or the Subchapter S corporation shareholders, when the target is an S corporation). Finally, the final regulations modify the rules from the proposed regulations regarding loss disallowance from the deemed asset sale where some of the disposed-of stock is distributed to shareholders.