The document outlines the provisions of Code Section 1202 related to the exclusion of gains on the sale of Qualified Small Business Stock (QSBS), which allows for a 100% gain exclusion with no Alternative Minimum Tax (AMT) add back for qualifying stock acquired between specific dates. To qualify, the stock must be from a domestic C Corporation with gross assets under $50 million and held for at least five years, with an exclusion limit of $10 million or 10 times the basis. Additional details include rollover options for deferred gains, qualifications for a business to be considered a qualified trade, and associated limitations.

1. A Big Opportunity for Small BusinessGain Exclusion for Qualified Small Business StockPresented by: Jode A. Beauvais, CPA

3. BackgroundCode Section 1202 of Internal Revenue CodeOriginal Law: Exclude 50% of gain on sale of qualified small business stock (QSBS) however included in add back for alternative minimum tax (AMT)Current law: Exclude 100% of gain on sale of qualified small business stock (QSBS) no AMT add back

4. What qualifies as QSBSDomestic C Corporation stockMust be original issuanceCorporation’s gross assets cannot exceed $50 MStock must be acquired in exchange for money or property or compensation for services

5. How does it qualify for the exclusionMust be purchased between September 28, 2010 and December 31, 2011Must hold the stock for at least 5 years

6. Who is eligibleIndividualsLLC/PartnershipsS CorporationsTrust/Estates

7. What are the limitationsLimitations on how much gain can be excluded$10,000,000 or10 times the basiswhichever is greater

8. What are the limitationsExampleJennifer purchases 500 shares of Company X for $100,000. She holds the stock for 10 years and then sells it for $15,000,000Maximum gain excludable$10,000,000

9. What type of business’ qualifyCorporation must use 80% of it’s assets in a qualified trade or businessQualified trade or business – other thanBanking, insurance, finance, leasing or investingFarming businessAny business of operating a hotel, motel, restaurant or similar businessAny business involving the performance of services – health, law, engineering, accounting

10. Rollover of QSBS GainIf gain is recognized on sale of QSBSCan elect to defer gain by purchasing new stock within 60 days of sale dateGain is recognized to the extent proceeds exceed purchase price of new stockHolding period of stock continues with new stockElection must be filed with tax return

11. Rollover of QSBS GainCharlie invests $400,000 in Eagle Corp. on 8/22/09On 10/1/10 Charlie sells the Eagle stock for $625,000, resulting in a $225,000 gain.On 10/13/10 he purchases stock in newly formed Hawk Corp for $600,000

12. Rollover of QSBS GainCharlie can elect to roll over the gain from the sale of the Eagle stockHe recognizes only $25,000 of the gain because this is the amount the sales proceeds ($625,000) exceed his investment in Hawk ($600,000). His basis in his Hawk stock is $400,000 ($600,000 cost less deferred gain of $200,000).His holding period carries over from original purchase - 8/22/09

13. TakeawaysThree different periods involvedPre 2/18/2009 – 50% exclusion2/18/2009-9/27/2010 – 75% exclusion9/28/2010 – 12/31/2011 – 100% exclusionMust be QSBS

14. Limitations on maximum gain excludable