Two taxes, or one.

The facts, in one place.

Six quotable sentences on the two ways to sell a C corporation.

1. A C corporation that sells its assets pays the 21% corporate rate on the gain over its basis in them (§§ 1001, 11(b)). When it then distributes what is left in liquidation, the shareholder pays the gains rate on the distribution over the stock basis (§ 331). That is the double tax.
2. A shareholder who sells the stock pays once, at the gains rate on the price over the stock basis. The corporation's assets keep their old basis in the buyer's hands, so the buyer gets no fresh depreciation from the price paid (§ 1012 applies to the stock, not the assets).
3. Example: a corporation sold for $5,000,000 with $1,000,000 of basis in its assets and $500,000 of stock basis, at 20% plus the surtax: an asset sale leaves $3,288,920 after $840,000 of corporate tax and $871,080 at the shareholder level; a stock sale leaves $3,929,000. The double tax costs $640,080.
4. To leave the seller where a stock sale would, an asset buyer would have to pay $6,063,291 in the example, a gross-up of $1,063,291. That gap is what the buyer's stepped-up basis is worth in the negotiation.
5. An S corporation or a subsidiary can be sold as stock with a joint election to treat the deal as an asset sale for tax (§ 338(h)(10); § 336(e)), giving the buyer the step-up with one level of tax. A C corporation with outside shareholders cannot: for it, the choice is real.
6. The 3.8% surtax reaches the gain on C corporation stock and on a liquidating distribution whether or not the shareholder worked in the business (§ 1411(c)(1)(A)(iii) excepts only assets of a trade or business the taxpayer runs, and stock is not one). Qualified small business stock held five years may be excluded instead (§ 1202).

The two routes in the example.

Each layer of tax under an asset sale and under a stock sale, and what the shareholder keeps.

How the double tax works.

A C corporation is a taxpayer in its own right. When it sells its assets, the gain over its basis in them is the corporation's income, taxed at the flat 21% rate. The cash that remains belongs to the corporation, not the shareholder, and reaches the shareholder only as a distribution; in a complete liquidation that distribution is treated as payment for the stock, and the shareholder is taxed on it over the stock basis at the capital gains rate, with the 3.8 percent surtax on top for most sellers of this size. Two taxes on one sale. A stock sale skips the first: the shareholder sells the shares, is taxed once on the price over the stock basis, and the corporation, its assets, and its basis in them pass to the buyer intact.

That last clause is why buyers ask for assets. A buyer of assets takes a cost basis in each of them and depreciates or amortizes the price; a buyer of stock inherits the corporation's old basis and gets nothing new to deduct, along with every liability the corporation carries. For an S corporation or a subsidiary the parties can have both, a stock transfer taxed as an asset sale by election, with one level of tax; a C corporation held by individuals has no such election, and the difference must be priced. The gross-up the calculator shows is that price: the higher asset-deal figure that leaves the seller where a stock sale at the offered price would.

Methodology.

1. Inputs. The sale price, the corporation's adjusted basis in its assets, the shareholder's basis in the stock, the gains rate, and whether the surtax applies.
2. Asset sale. Corporate tax at 21% on the price over the inside basis (§§ 1001, 11(b)), floored at zero; the remainder distributed in complete liquidation; shareholder gain as the distribution over the stock basis (§ 331(a)), taxed at the gains rate plus the surtax when it applies (§ 1411).
3. Stock sale. Shareholder gain as the price over the stock basis, at the same rate. No tax at the corporate level.
4. The comparison. What the shareholder keeps under each route; the double-tax cost as the difference; the asset price that would net the stock-sale figure, solved by working back from the needed distribution through the corporate tax; and the stock price that would net the asset-sale figure.
5. Validation. The example pinned by hand at every step (corporate tax 840,000; nets 3,288,920 against 3,929,000; cost 640,080; the matching price closes to the cent), and a no-inside-gain case where the routes meet. A transcription error fails the build.
6. Not modeled. State corporate and individual tax, net operating losses or capital losses, an S corporation or its built-in gains tax, the § 338(h)(10) and § 336(e) elections, the § 1202 exclusion, a partial liquidation or a holding of the proceeds inside the corporation, and the buyer's side of the step-up. Educational, not advice.

Sources.

1. 1. United States Code (Cornell LII), 26 U.S.C. § 11 — Tax imposed on corporations. The flat 21 percent rate on a C corporation's taxable income (b), which reaches the gain on the corporation's sale of its assets. Retrieved September 7, 2026; verified September 7, 2026.
2. 2. United States Code (Cornell LII), 26 U.S.C. § 331 — Gain or loss to shareholder in corporate liquidations; § 336 — Gain or loss recognized on property distributed in complete liquidation. That amounts a shareholder receives in a complete liquidation are treated as full payment in exchange for the stock, so the shareholder's gain is the distribution less the stock basis (§ 331(a)), the second layer of the double tax; and that the corporation itself recognizes gain on appreciated property it distributes (§ 336(a)). Retrieved September 7, 2026; verified September 7, 2026.
3. 3. United States Code (Cornell LII), 26 U.S.C. § 338 — Certain stock purchases treated as asset acquisitions. The election that treats a qualified stock purchase as an asset purchase, including the joint election for a subsidiary or an S corporation target under (h)(10), which gives the buyer a stepped-up basis in the assets while the parties transfer stock. Stated in the reference; not modeled. Retrieved September 7, 2026; verified September 7, 2026.
4. 4. United States Code (Cornell LII), 26 U.S.C. § 1060 — Special allocation rules for certain asset acquisitions. That the consideration in an applicable asset acquisition is allocated among the assets by the residual method of § 338(b)(5) (a); that both the buyer and the seller report the allocation to the Service (b), on Form 8594; and that a written allocation agreed between the parties binds both of them unless the Service determines it is not appropriate (a). Retrieved September 7, 2026; verified September 7, 2026.
5. 5. Internal Revenue Service, Publication 544, Sales and Other Dispositions of Assets. The Service's statement that the sale of a business is the sale of each asset separately, that gain on inventory and receivables is ordinary income, that depreciation recapture on equipment is ordinary, that the excess is section 1231 gain, that unrecaptured section 1250 gain is taxed at up to 25 percent, and that a payment for a covenant not to compete is ordinary income to the seller. Retrieved September 7, 2026; verified September 7, 2026.
6. 6. United States Code (Cornell LII), 26 U.S.C. § 1411 — Imposition of tax (net investment income). That the 3.8 percent surtax reaches interest and net gain from the disposition of property (c)(1)(A), except property held in a trade or business in which the taxpayer materially participates (c)(1)(A)(iii), (c)(2); so the sale of a C corporation's stock is within it, and the sale of an active owner's business assets is generally outside it. Retrieved September 7, 2026; verified September 7, 2026.

Revision history.

The record's history.

September 7, 2026

First release: the installment sale of a business (§ 453, with recapture in the year of sale and the § 453A line stated), the asset-or-stock double tax on a C corporation (§§ 11, 331), and the purchase price allocation by class (§ 1060, Form 8594).

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