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

The Qualified Small Business Stock (QSBS)/IRC Sec. 1202 exclusion is a little-known benefit available to C corporation shareholders. 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

With rising taxes on the horizon the IRC Sec. 1202 exclusion is more relevant than ever. EisnerAmper can assist your business to determine QSBS eligibility.

On-Demand Webinars November 09, 2022 On-Demand: Maximizing The Qualified Small Business Stock Exclusion - Section 1202

In this webinar, Join EisnerAmper for an update on Section 1202, a discussion on the Qualified Small Business Stock exclusion (QSBS).

Blogs June 21, 2022 Venture Capital Tax Roundtable: IRC Sec. 1202 Qualified Small Business Stock

A recap of a recent roundtable hosted by EisnerAmper, featuring insight into the considerations surrounding venture capital and IRC Sec. 1202 qualified small business stock.

Articles June 13, 2022 Favorable IRS Ruling Issued on IRC Sec. 1202 Qualified Small Business Stock (QSBS)

The IRS recently released a favorable private letter ruling (PLR) with respect to IRC Sec. 1202. The PLR provided welcome insight into the treatment of qualified small business stock (QSBS) and the potential to save eligible taxpayers millions in fed…

Articles March 03, 2022 Recent IRS Ruling Provides Clarity into IRC Sec. 1202 – Qualified Small Business Stock

The IRS recently released Private Letter Ruling (PLR) 202204007 in response to a request by a business. This PLR provides insight and clarity into IRC Sec. 1202 and whether a certain business was engaged in the field of “brokerage services.”

Blogs December 01, 2021 Potential Changes on the Horizon for Qualified Small Business Stock – IRC Sec. 1202

The Build Back Better Act, passed by the House and currently under consideration in the Senate, could potentially reduce the tax benefits of IRC Sec. 1202.

Articles October 14, 2021 Big Changes to Small Business Stock: How Venture Capital Investors Must Adapt to Evolving Tax Law

IRC Sec. 1202 was enacted to encourage investment in small business by providing tax benefits to those willing to take on the risk and uncertainty associated with early-stage companies. This article examines its benefits, as well as the evolving tax …

Articles September 15, 2021 House Ways and Means Committee Addresses Reconciliation Bill Tax Increases

On September 13, 2021, Richard Neal, chairman of the House Ways & Means Committee, released far-reaching tax proposals. EisnerAmper has summarized the highlights of these tax proposals, and will continue to keep you informed on this important tax leg…

Articles May 19, 2021 IRS Issues Rare Insight into IRC Section 1202 – Qualified Small Business Stock

A taxpayer that operates as an insurance agent/broker requested a PLR to determine whether their business is engaged in “brokerage services,” which would not be a qualified trade or business for purposes of IRC Sec. 1202.

Blogs March 12, 2021 Changes, Issues, and Challenges for Venture Capital and Hedge Funds Under the Biden/Harris Administration

This content features a recap of recent EisnerAmper conversations regarding the coming tax reform and how it may relate to venture capital and hedge fund managers.

About Benjamin Aspir

Benjamin Aspir is a Senior Manager and a member of the firm’s National Tax Group, with more than 10 years of public accounting experience. He has extensive experience with IRC Section 1202 - Qualified Small Business Stock and advising cannabis clients on IRC Section 280E, within the Manufacturing and Distribution practice.

About Kayla Konovitch

Kayla is a Partner in the Financial Services Group with over 10 years of experience in public accounting. She provides tax consulting services, including advising on tax strategy, transactions, and accounting matters to clients. Kayla specializes in working with private equity funds, venture capital funds, hedge funds, family offices, and management companies.

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