Compare a stock acquisition with a 338(h)(10) election to a direct asset acquisition from the buyer's perspective. Discuss operational and tax considerations, and explain why a buyer might choose 338(h)(10) over an asset deal for an S corp target.

In a direct asset acquisition, the buyer purchases individual assets and assumes specified liabilities. This provides a full step-up in tax basis and avoids any DTL. However, it requires renegotiating assignment of every contract, lease, and license, as well as obtaining third-party consents. It can be operationally burdensome and may trigger change-of-control provisions. In a 338(h)(10) election, the buyer acquires the stock, so the legal transfer is simple, but a deemed asset sale occurs for tax purposes. The buyer still gets a step-up, tax-deductible goodwill, and no DTL. For an S corp, the seller's gain on the deemed asset sale flows through to shareholders and is taxed only once, avoiding the double taxation that a C corp faces in an asset deal. The buyer might accept the election and pay a small premium to compensate the seller for immediate tax recognition in exchange for future tax amortization benefits. The buyer also avoids the operational complexity of an asset deal.

Follow-up pressure: (1) What is the tax treatment of the target's NOLs under a 338(h)(10) election versus a plain stock deal? (2) If the target is a C corporation, why is a 338(h)(10) election typically avoided, and what is the closest alternative? (3) How would you quantify the value to the buyer of making this election, and what key assumptions drive that calculation?