In CCA 201624021 the IRS considered whether the success-based fee safe harbor election under Revenue Procedure 2011-29 is available to a taxpayer to allocate success-based fees between actions that facilitate a transaction (expenses which must be capitalized) and those that do not (and may be currently be expensed) when the taxpayer elects to treat a stock sale as an asset sale under IRC §338(h)(10).

The election under IRC §338(h)(10) treats an acquisition of the stock of a target corporation as the purchase of the underlying assets from the acquired corporation, with the acquired corporation recognizing a gain immediately before the transaction.