“Amend Section 1045 of the Internal Revenue Code to extend the 60 day rollover period to 6 months.”
First Off, What Is Section 1045?
Section 1045 is a tax code section that allows non-corporate taxpayers to rollover their gain on qualified small business stock, into other nonqualified small business stock. I’ve quoted the first part of Section 1045 below.
Why is Section 1045 important? Section 1045 is to startups what Section 1031 is to real estate. It encourages investments into startups. A noble objective!
Here is the operative provision I am recommending be amended:
- (a) Nonrecognition of gain
- This section shall not apply to any gain which is treated as ordinary income for purposes of this title
Why Amend It?
60 days is a very short window in which to find a replacement investment. If you have ever done angel investing, you will know. To find and close an investment in 60 days is not an easy task. Usually investors hunt for months before they find an investment that they like. Then the paperwork to effectuate the investment can sometimes take weeks as well, if there is back and forth on various business points as the deal is negotiated.
In short, the Section 1045 statute exposes a lack of understanding on the part of the drafter as to how these transactions work. You can’t just call your broker and place an order. Most angel investments are not effectuated through a broker-dealer (which is one of the flaws of the crowdfunding bill–forcing companies who want to crowdfund to work through a broker-dealer).
We need is a Congressional representative to introduce a bill extending the 60 day window to 6 months. Very simple. Could someone please do this?