INSTITUTIONAL CHECKLIST · M&A AND EXIT
Transaction-time evaluation framework for the eight potential exit pathways available to a C-corporation MSO.
By Alex Jones, EA, CFP®, CLU®, ChFC®, CEPA, Managing Principal, Guardian Tax Consultants®.
How to use this checklist
A C-corporation MSO typically has more than one viable exit pathway. The right path depends on the buyer profile, shareholder composition, holding periods, basis position, and state-tax environment. This checklist surfaces the diligence questions each pathway requires. It is a diligence tool for deal teams, tax counsel, and CPA firms, not a tax opinion.
1. Stock sale
- ☐ Identify the buyer’s preferred structure and willingness to accept stock-sale treatment.
- ☐ Document shareholder basis position by tranche.
- ☐ Confirm representation, warranty, and indemnification posture.
- ☐ Quantify R&W insurance availability and pricing.
- ☐ Coordinate with potential §1202 positioning where applicable.
2. Asset sale
- ☐ Identify assets in scope and any retained or excluded assets.
- ☐ Model corporate-level tax impact and shareholder-level distribution tax.
- ☐ Review state apportionment and unitary-group implications.
- ☐ Confirm contract assignability and consent requirements.
- ☐ Quantify successor-liability and transfer-tax exposure.
3. §1202 QSBS
- ☐ Run the full §1202 QSBS diligence checklist for each potentially qualifying shareholder.
- ☐ Confirm holding-period tiers post-OBBBA.
- ☐ Confirm gross-assets, active-business, and redemption tests.
- ☐ Coordinate transaction structure to preserve §1202 treatment.
- ☐ Document state-conformity exposure.
4. §338(h)(10) election
- ☐ Confirm eligibility: corporate buyer purchasing stock of an S corporation or subsidiary in a consolidated group.
- ☐ Quantify tax cost of the deemed asset sale at the target level.
- ☐ Model the buyer’s step-up benefit and negotiation leverage.
- ☐ Confirm shareholder-level tax treatment.
- ☐ Counsel sign-off prior to election filing.
5. §336(e) election
- ☐ Confirm eligibility: domestic corporate seller (or partnership of corporate sellers) disposing of stock in a single transaction.
- ☐ Compare §336(e) economics to §338(h)(10) where both are available.
- ☐ Confirm buyer flexibility (corporate or non-corporate).
- ☐ Document the election rationale.
- ☐ Counsel sign-off prior to election filing.
6. §331 complete liquidation
- ☐ Quantify corporate-level gain on the deemed asset sale.
- ☐ Quantify shareholder-level gain on the deemed exchange of stock for distributed assets.
- ☐ Confirm board and shareholder authorizations for plan of liquidation.
- ☐ Review timing requirements for the 12-month window.
- ☐ Coordinate with creditor, employee, and contract wind-down.
7. §1014 hold-until-death
- ☐ Quantify the basis step-up opportunity for the surviving shareholder cohort.
- ☐ Model estate-tax exposure against the income-tax basis benefit.
- ☐ Review buy-sell, voting, and governance arrangements for compatibility.
- ☐ Coordinate with estate counsel on testamentary structure.
- ☐ Document the strategic rationale and refresh annually.
8. Dividends-Received Deduction (DRD) for corporate shareholders
- ☐ Identify any corporate shareholders eligible for DRD treatment.
- ☐ Confirm holding-period and debt-financed-portfolio limitations.
- ☐ Model dividend versus capital-gain treatment at the corporate-shareholder level.
- ☐ Coordinate with consolidated-return or affiliated-group analysis where applicable.
- ☐ Document the DRD analysis with counsel.
9. State tax conformity
- ☐ Identify states of corporate filing and shareholder residence.
- ☐ Confirm state conformity to relevant federal provisions (§1202, §338(h)(10), §336(e), §331, DRD).
- ☐ Model state-level corporate and individual tax impact under each exit path.
- ☐ Review apportionment, unitary, and combined-reporting implications.
- ☐ Document the state-tax analysis in the transaction file.
Disclosures
This checklist is published by Guardian Tax Consultants® for educational and diligence purposes. It is not a tax opinion, legal opinion, or financial-product recommendation, and it does not establish an advisor-client relationship. Specific facts, applicable state law, and the federal tax code in effect at the relevant time will govern any actual planning. CPA firms, tax counsel, and family-office advisors should review each item with qualified professionals before relying on it. Past results do not guarantee future outcomes.