Tax News
Obama Proposes to Make Small Business Stock Exclusion Permanent
February 02, 2011
Legislative Actions
The Obama administration announced on January 31, 2011 that the President's 2012 budget plan will include a proposal to make permanent the 100% exclusion from tax on capital gains from the sale or exchange of qualified small business stock.   IRC Section 1202(a)(4), added by The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which provides for the 100% exclusion, currently applies only to qualified small business stock issued after Dec. 31, 2010, and before Jan. 1, 2012 (IRC Section 1202 provides for a 50% exclusion on capital gains with respect to all other qualified small business stock).  The President's proposal will presumably make the 100% exclusion applicable to all qualified small business stock, no matter when issued.  To qualify for the exclusion the qualified small business stock must be held for more than 5 years.  The amount of gain eligible for the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock. 

Qualified small business stock is stock of a domestic C corporation that conducts an active trade or business with “aggregate gross assets” not in excess of $50 million at any time on or after August 10, 1993 and immediately before and after the date of issuance.  For this purpose, “aggregate gross assets” is the amount of  cash and the aggregate adjusted bases of the C corporatin's property. 

Clearly, funds with U.S. individual investors will be watching the progress of this proposal closely.
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Tags: Small Business Stock Exclusion, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010