Zeev's Turnips Patch-No Politics (ZEEV)

[phill]

Zeev, this on 1202?

Exclusion of Gain on Qualified Small Business (QSB) Stock

Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of QSB stock. The section 1202 exclusion applies only to QSB stock held for more than 5 years.

To be QSB stock, the stock must meet all of the following tests.

* It must be stock in a C corporation (that is, not S corporation stock).
* It must have been originally issued after August 10, 1993.
* As of the date the stock was issued, the corporation was a domestic C corporation with total gross assets of $50 million or less (a) at all times after August 9, 1993, and before the stock was issued and (b) immediately after the stock was issued. Gross assets include those of any predecessor of the corporation. All corporations that are members of the same parent-subsidiary controlled group are treated as one corporation.
* You must have acquired the stock at its original issue (either directly or through an underwriter), either in exchange for money or other property or as pay for services (other than as an underwriter) to the corporation. In certain cases, you may meet the test if you acquired the stock from another person who met the test (such as by gift or inheritance) or through a conversion or exchange of QSB stock you held.
* During substantially all the time you held the stock:
1. The corporation was a C corporation,
2. At least 80% of the value of the corporation's assets were used in the active conduct of one or more qualified businesses (defined below), and
3. The corporation was not a foreign corporation, DISC, former DISC, regulated investment company, real estate investment trust, REMIC, FASIT, cooperative, or a corporation that has made (or that has a subsidiary that has made) a section 936 election.

from 2003 sched D instr:
http://www.irs.gov/instructions/i1040sd/ch01.html#d0e702


but also:

The 50% exclusion of gain from sale of qualified small business ("QSB") stock under Section 1202 has been retained. However, those gains are still taxed at a nominal rate of 28%, with the result that the effective tax rate on QSB stock remains at 14%.

from: http://www.mmblaw.com/articles_and_updates/2003_tax_act.html


and here's extended discussion including rollover and AMT:
http://www.groco.com/readingroom/smbusstock.html

regards,

phill