IRC Sec. 1202 Exclusion of Gain on Qualified Small Business Stock

IRC Sec. 1202 was enacted in 1993 with the goal of encouraging long-term investment in startups and other small businesses by exempting capital gains from taxation on the sale of stock in these entities.  Prior to 2013, the maximum long term capital gains (“LTCG”) rate was 15% and the effective tax rate on IRC Sec. 1202 gains was 14%, giving taxpayers little incentive to claim the exclusion. In 2013, LTCG rates increased to a maximum 23.8% and brought the benefits of IRC Sec. 1202 into the spotlight. Furthermore, the enactment of the 100% gain exclusion for QSBS and changes made by the Tax Cuts and Jobs Act to corporate tax rates have combined to make QSBS a more attractive option than in the past.

IRC Sec. 1202 allows holders of QSBS to exclude 50% to 100% of capital gains on the sale of QSBS. The amount of gain eligible for exclusion is limited to the greater of $10 million or 10 times the taxpayer’s basis in the QSBS.

EisnerAmper can assist you with IRC. Sec. 1202:

• Determine eligibility for the IRC Sec. 1202 exclusion
• Document IRC Sec. 1202 eligibility
• Calculate IRC Sec. 1202 gain exclusion 
• Assist with procedural requirements in order to claim the IRC Sec. 1202 exclusion
• Provide tax planning, including choice of entity analysis
• Determine eligibility for the IRC Sec. 1045 tax deferral