IRS Instruction 8883 – Instructions for Form 8883, Asset Allocation Statement Under Section 338

IRS Instruction 8883 – If your business has completed a qualified stock purchase (QSP) and made a section 338 election, you must file Form 8883 (Asset Allocation Statement Under Section 338) along with the appropriate tax return. This IRS form reports the allocation of the purchase price (or deemed sales price) among the target corporation’s assets in a deemed asset sale/purchase transaction.

The official Instructions for Form 8883 (Rev. October 2017) remain the current version with no updates or recent developments as of 2026. Download the latest PDF directly from the IRS:

• Form 8883: https://www.irs.gov/pub/irs-pdf/f8883.pdf
• Instructions for Form 8883: https://www.irs.gov/pub/irs-pdf/i8883.pdf

This comprehensive guide explains everything you need to know, based solely on official IRS sources.

What Is Section 338 and Why Does Form 8883 Matter?

Under IRC Section 338, a purchasing corporation can elect to treat a stock purchase as an asset purchase for tax purposes. This creates a “deemed sale” of the target corporation’s (old target) assets to a new corporation (new target) at the close of the acquisition date.

There are two main elections:

• Section 338(g): Made unilaterally by the purchaser.
• Section 338(h)(10): Made jointly by the old target shareholders and the purchaser (commonly used for S corporations or subsidiaries in consolidated groups).

Form 8883 provides the detailed asset allocation required to determine gain/loss on the deemed sale (for the old target) and the basis in the assets (for the new target). It replaced much of the detailed reporting previously included on Form 8023.

Failing to file a correct Form 8883 by the due date (without reasonable cause) can trigger penalties under IRC Sections 6721–6724.

Who Must File Form 8883?

Both the old target and the new target must file Form 8883 for any section 338 or 338(h)(10) election.

• Old target files on the return reflecting the deemed sale results.
• New target files on its first return (or the consolidated return including the day after the acquisition date).

Special rules apply for:

• S corporation targets under 338(h)(10).
• Consolidated groups.
• Foreign targets (attach copies to relevant Form 5471 filings).

A separate Form 8883 is required for each target corporation, even if a single Form 8023 covers multiple targets.

When and How to File?

Attach Form 8883 to the income tax return that reports the tax effects of the deemed asset sale/purchase.

Key filing locations:

• Old target (S corp 338(h)(10)): Attach to Form 1120-S.
• Old target in consolidated group: Usually the selling group’s consolidated return (or old target’s final consolidated return if it is the parent).
• New target: First return of the new target (or consolidated return including the day after acquisition).
• Supplemental Form 8883: File in any later year if AGUB or ADSP increases or decreases.

Always check the specific Regulations sections 1.338-10 for consolidated returns and foreign targets.

Key Definitions You Need to Know

• Qualified Stock Purchase (QSP): Purchase of at least 80% (by vote and value) of target stock during a 12-month acquisition period.
• Acquisition Date: First day a QSP occurs.
• 12-Month Acquisition Period: Begins with the first stock purchase included in the QSP.
• Recently Purchased Target Stock: Stock purchased by the buyer during the 12-month period and held on the acquisition date.
• Affiliated Group: Defined under section 1504(a) (without certain exceptions).
• AGUB (Adjusted Grossed-Up Basis): Amount the new target is treated as paying for the assets (used by new target for basis).
• ADSP (Aggregate Deemed Sales Price): Amount the old target is treated as receiving for the assets (used by old target for gain/loss).

How to Calculate AGUB and ADSP (Line 5d)?

For new target (AGUB):
Grossed-up basis in recently purchased stock + basis in non-recently purchased stock + target liabilities (line 5c).

For old target (ADSP) – Use this worksheet from the instructions:

1. Stock price paid for recently purchased target stock (line 5a)
2. Divide line 1 by the percentage of target stock (by value) attributable to recently purchased stock
3. Selling costs (line 5b)
4. Grossed-up amount realized = line 2 – line 3
5. Target liabilities (line 5c)
6. ADSP = line 4 + line 5 (enter on line 5d)

See Regulations sections 1.338-4 (ADSP) and 1.338-5 (AGUB) for full details.

Asset Classes and the Residual Allocation Method (Part V)

The purchase price (AGUB or ADSP) is allocated using the residual method across seven asset classes (based on IRC Section 1060 rules). Allocation order is strictly Class I → II → III → IV → V → VI → VII.

Asset Classes (verbatim from instructions):

Class	Description	Examples
I	Cash and general deposit accounts (excluding CDs)	Checking/savings accounts
II	Actively traded personal property + CDs & foreign currency	U.S. government securities, publicly traded stock
III	Mark-to-market assets & debt instruments (with exceptions)	Accounts receivable (non-related party)
IV	Inventory or property held for sale to customers	Stock in trade
V	All other assets not in I–IV, VI, or VII	Buildings, land, equipment, furniture, vehicles
VI	Section 197 intangibles (except goodwill/going concern)	Workforce in place, customer lists, covenants not to compete, franchises, trademarks
VII	Goodwill and going concern value	Residual value

Allocation rules (Part V):

1. Reduce total consideration by Class I assets (dollar-for-dollar).
2. Allocate remaining amount to Class II, then III, IV, V, VI in proportion to FMV within each class.
3. Allocate any residual to Class VII (goodwill).
4. No asset (except Class VII) can receive more than its fair market value on the acquisition date.

Enter aggregate FMV and allocated amounts for each class (or combined VI+VII) on line 9.

Supplemental Statements (Part VI)

If AGUB or ADSP changes in a later year (e.g., due to contingent payments, liability adjustments), file a supplemental Form 8883 with Parts I–IV and VI completed.

• Increases: Allocate proportionally within classes, respecting FMV limits.
• Decreases: Reduce Class VII first, then VI, V, IV, III, II (never below zero).

Attach to the return for the year the adjustment is taken into account.

Step-by-Step: How to Complete Form 8883?

Part I – Filer’s Identifying Information
Name, EIN/SSN, check “Old target” or “New target,” and whether Form 8023 was filed.

Part II – Other Party’s Identifying Information
Details of the other side (buyer or seller, or common parent/U.S. shareholder for consolidated/foreign cases).

Part III – Target Corporation’s Identifying Information
Target name, address, EIN, state/country of incorporation (complete if not already in Part I).

Part IV – General Information
Acquisition date, stock purchase percentages, stock price (5a), costs (5b), liabilities (5c), AGUB/ADSP (5d), plus questions 6–8 about affiliated group status, foreign corporation flags, PFIC, etc.

Part V – Original Statement of Assets Transferred
Complete the asset class table with FMVs and allocations.

Part VI – Supplemental Statement (only if amending).

Common Scenarios and Tips

• S corporation 338(h)(10): Old target attaches to final 1120-S.
• Foreign targets: Coordinate with Form 5471.
• Multiple targets: One 8023 OK, but separate 8883 per target.
• Always use gross FMV (not reduced by liabilities).
• Consult a tax professional for complex consolidated group or international issues.
• Keep detailed workpapers for the residual allocation—IRS may examine these closely.

Related IRS Forms and Resources

• Form 8023 (to make the actual election)
• Form 5471 (foreign targets)
• Regulations §§ 1.338-1 through 1.338-10
• IRS.gov/Form8883 for future developments

Bottom line: Accurate completion of Form 8883 ensures proper basis step-up for the buyer and correct gain recognition for the seller in a section 338 transaction. Always use the official October 2017 instructions and form available on IRS.gov, as they remain authoritative.

For the most current information, visit the official IRS pages linked above or consult your tax advisor. This guide is for informational purposes only and is not tax or legal advice.