How Long Does the New Qualified Small Business Stock Benefit Last?

I was asked by someone the other day, “Are you sure that the 100% tax exclusion for investments in qualified small business stock that Congress passed as part of the fiscal cliff bill lasts until the end of 2013? My friend told me that it expired at the first quarter of 2013.”

Answer: Yes, I am sure.

You can view the final bill here: http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf

The 1202 benefit can be found in Section 324 of the bill.

I quote it for you below.

SEC. 324. EXTENSION OF TEMPORARY EXCLUSION OF 100 PERCENT
OF GAIN ON CERTAIN SMALL BUSINESS STOCK.
(a) IN GENERAL.—Paragraph (4) of section 1202(a) is amended—
(1) by striking ‘‘January 1, 2012’’ and inserting ‘‘January
1, 2014’’, and
(2) by striking ‘‘AND 2011’’ and inserting ‘‘, 2011, 2012,
AND 2013’’ in the heading thereof.

[By virtue of these amendments, paragraph (4) of Section 1202(a) as amended now reads as follows:

(4) 100 percent exclusion for stock acquired during certain periods in 2010, 2011, 2012, and 2013
In the case of qualified small business stock acquired after the date of the enactment of the Creating Small Business Jobs Act of 2010 and before January 1, 2014—
(A) paragraph (1) shall be applied by substituting “100 percent” for “50 percent”,
(B) paragraph (2) shall not apply, and
(C) paragraph (7) of section 57 (a) shall not apply.]

(b) TECHNICAL AMENDMENTS.—
(1) SPECIAL RULE FOR 2009 AND CERTAIN PERIOD IN 2010.—
Paragraph (3) of section 1202(a) is amended by adding at the
end the following new flush sentence:
‘‘In the case of any stock which would be described in the
preceding sentence (but for this sentence), the acquisition date
for purposes of this subsection shall be the first day on which
such stock was held by the taxpayer determined after the
application of section 1223.’’.
(2) 100 PERCENT EXCLUSION.—Paragraph (4) of section
1202(a) is amended by adding at the end the following new
flush sentence:
‘‘In the case of any stock which would be described in the
preceding sentence (but for this sentence), the acquisition date
for purposes of this subsection shall be the first day on which
such stock was held by the taxpayer determined after the
application of section 1223.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by subsection
(a) shall apply to stock acquired after December 31, 2011.
(2) SUBSECTION (b)(1).—The amendment made by subsection
(b)(1) shall take effect as if included in section 1241(a)
of division B of the American Recovery and Reinvestment Act
of 2009.
(3) SUBSECTION (b)(2).—The amendment made by subsection
(b)(2) shall take effect as if included in section 2011(a)
of the Creating Small Business Jobs Act of 2010.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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