M&A Section 338(h)(10) & F-Reorganization Seller Tax Gross-Up Calculator
Private equity LOIs routinely slip a single sentence requiring Sellers to cooperate with a Section 338(h)(10) or F-Reorganization election—giving the Buyer a massive tax step-up while handing Founders a surprise $250,000–$850,000+ ordinary-income tax bill at closing. Model your iterative Tax Gross-Up below—then scan your LOI or APA free.
M&A LOI & Section 338(h)(10) Inputs
Surprise Seller Tax Hit
$567,000
Ordinary income spread + state entity tax
Iterative Tax Gross-Up
+$766,216
Includes tax-on-tax make-whole payment at closing
Founder Proceeds Saved
$766,216
100% buyer-funded Section 338(h)(10) election
“MANDATORY SECTION 338(h)(10) / F-REORGANIZATION TAX GROSS-UP: Sellers' obligation to join in any election under IRC Section 338(h)(10) or consummate a pre-closing F-Reorganization shall be strictly conditioned upon Buyer paying Sellers at Closing an additional cash Tax Gross-Up Payment (estimated at $766,216) sufficient to place Sellers in the exact net after-tax cash position (including taxes assessed on the Tax Gross-Up Payment itself) that Sellers would have realized had the transaction closed as a straight sale of stock taxed at long-term capital gains rates.”