During the current year, Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338. Which of the following statements is incorrect with respect to the § 338 election?
A) Dove is treated as a new corporation as of the day following the qualified stock purchase date.
B) Dove must be liquidated pursuant to the § 338 election.
C) Dove Corporation is treated as having sold its assets on the qualified stock purchase date.
D) Dove can recognize gain or loss as a result of the § 338 election.
E) None of the above.

Question

Quizplus · Accepted Answer

Contrary to choice B, Dove Corporation is not required to be liquidated pursuant to a § 338 election. Instead, the § 338 election provides an alternative tax treatment for the purchase of a target corporation's stock. The election treats the target corporation as if it sold all of its assets at fair market value on the date of the stock sale, which allows the acquirer to adjust the tax basis of the assets to their fair market value at the time of the stock purchase. However, the target corporation continues to exist after the election, and its operations can continue as usual.

During the Current Year, Goldfinch Corporation Purchased 100% of the Stock