Which Internal Revenue Code section treats a stock sale as an asset sale for tax purposes?

The correct answer is §338 of the Internal Revenue Code, which provides guidance on how stock sales can be treated as asset sales for tax purposes. This section applies specifically to transactions involving the sale of stock in a corporation, where the seller wishes to treat the sale as if the assets of the corporation have been sold instead of just transferring the stock.

This treatment can lead to a stepped-up basis in the assets for tax purposes, which is advantageous because it allows for greater depreciation and can lower taxable income in future years. Essentially, §338 allows the buyer to treat the stock sale as if they acquired the underlying assets directly and enables certain tax benefits that are typically not available in a straightforward stock transfer.

In contrast, the other sections referenced do not specifically provide this type of treatment for stock sales. §336 deals with the consequences of corporate liquidations, which is different from a stock sale; §339 pertains to the treatment of certain distributions to shareholders upon liquidation; and §340 addresses the withholding of income tax on certain wages, which is unrelated to the treatment of stock versus asset sales. Thus, §338 is the key provision that relates to treating a stock sale as an asset sale for tax purposes.